The Business Ethics Blog

I’ve blogged about the ethics of executive compensation before, and I likely will again. It’s a great topic. But I’m the first to admit that it’s not something I know a lot about. It’s a fairly technical matter — which is one of the main points I like to make about it. Any analysis that boils the issue down &as many of them seem to — to “they’re paid a lot and do lousy work” is bound to be inadequate.

But there are people out there who at least understand what the relevant pieces of the puzzle are, even if they don’t claim to be able to give precise prescriptions. Witness this very nice, short piece by Harvard Business prof V.G. Narayanan, writing on the Harvard Business Review Blog: Executive Pay: It’s About “How,” Not “How Much”

It seems we are moving from an era when “greed was good” to one in which “jealousy is justified”–the executive-compensation regulations being considered now by the government and advocated by shareholder activists aren’t very thoughtful, and I believe they’re born out of jealousy and misinformation.

But “How much should CEOs be paid?” is the wrong question to be asking right now. The right questions are: “How should they be paid?” and, just as important: “Should changes in the way CEOs are paid be mandatory or voluntary?”…

Its worth reading the whole thing (it’s quite brief). And do note that Narayanan is strongly in favour of reform in how CEOs are paid. It’s just that he eschews simplistic solutions.

Narayanan’s main point is roughly that appropriate executive pay depends on corporate strategy, something which is (and should be) highly variable. Government-imposed one-size-fits-all pay structures are more likely to do harm than good. I’d only add that, to the best of my knowledge, there simply is no well-worked-out theory of the “true” value of labour. It’s kind of hard to argue coherently that a particular CEO’s salary is unethically high when you can’t give a reasoned account of what the “right” salary is. And doing that requires looking at the details.