Essay Sample on Business Ethics: Executive Compensation

Introduction

Executive compensation is a method that ensures the attendants of the upper management board by providing other firms with financial benefit rather than the executives of the company. Some actions, in this case, are done by responsible bodies to motivate the executive team. The payment is necessary because the administrative body plays a vital role in strategizing the company's draft, implementation and decision making without forgetting the role it plays on the executive retention (Simmering, n.d). The executive compensation also acts in several ways such as stock options, severance of packages and increment of salaries when funded at the current level to ensure that they are ethical and in order.

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Usually, this method ensures that different parties fully participate in the firms they are representing by avoiding wastage of time. Since this type of compensations makes sure that different parties play their respective roles, the only thing that I would change is after the reward. While most of them are lazy, this rule will only apply to those members that never fully responded but instead act as if they were part of the program (Simmering, n.d). In the event, other measures can also be put in place to ensure that the firm operates well. The government in this case only comes in if the company was governmental. If the firm is not under the government's management, the entrepreneur then takes full responsibility whenever the compensation issues occur.

The Sarbanes-Oxley Act which is also known as the SOX was a law passed in 2002 to protect investors from fraudulent accounting activities by any corporation. The 2002 Act which is also known as the Corporate Responsibility law directs strict reforms to ensure that the financial disclosures are improved to prevent accounting fraud (Tran, 2004). The act was passed when public scandals such as Tyco International plc and many more shook the investor's confidence through the financial statements thus ending up demanding for the regulatory standards. The act is usually the U.S federal law meant to facilitate the expansion of the requirements in the country.

While it's generally known as a friendly deal, it also makes sure that all related parties are on toes and do their best including doing the right things at the right time which not many firms in America agreed with this new idea. The majority even called it the corporate backlash because it went behind their backs with the strict rules. While a few companies thought that the new corporate governance regime was appropriate the majority of them thought of going private as they felt that the legislation was an overkill. Eighty-two percent also said that the public disclosure and corporate governance was too strict especially for the first four years the act was passed (Tran, 2004).

While the act was said to be expensive, not all financial and administrative departments in corporate America were affected. For instance, an audit that was done by the Teamsters showed that 461 out of 500 companies still had a 15 percent improvement within the same year of the law enactment. Most companies again recorded good profit margins. With such a number, it shows that a significant percentage despite complaining of its policy and costs, still manage to make profits (Tran, 2004). This indicates that the Sarbanes-Oxley Act is not unfair but somewhat straightens companies on ways to make to improve their standards of operation

References

Simmering, M. J. (n.d.). EXECUTIVE COMPENSATION. Retrieved from https://www.referenceforbusiness.com/management/Em-Exp/Executive-Compensation.html

Tran, M. (2004, June 22). US corporate governance law 'too strict'. Retrieved from https://www.theguardian.com/business/2004/jun/22/usnews.money