Organizational Behaviour Reflection Part 1: The Individual

This reflection discusses the compensation of top executives in companies and the theories behind it. It also raises ethical questions about the pay gap between executives and other employees.

ORGANIZATIONAL BEHAVIOUR
SCHOOL OF BUSINESS
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Title: REFLECTION PART 1: THE INDIVIDUAL
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REFLECTION PART 1: THE INDIVIDUAL
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Summary In chapter seven, we learnt some serious topics related to the compensation
of top executives in many companies. Also, we explored some of the
techniques used by employers to determine the amount of compensation for
executives. Some of the recent reports, in the media headlines are showing
how managers of some Australian companies are pocketing huge amounts
which are equal to an average earner’s life time salary. Thus, there are
several theories which explain the kind and amount of compensation
offered to top level executives. From this analysis I understood that CEO’s
are paid based on the nature of responsibility that they do and thus, their
compensation should not be compared to others (Bizjak, et al. 2011, 55).
Emotional State
This topic raised my emotions that CEO take home huge sums of money.
Also, the gap between the lowest and the highest paid employee is always
wide. I the production process, the employees and junior workers perform
much of the functions. Thus, the CEOs are only there to give directions and
make decisions. It is sad how a person strains to work only to benefit the
few top level executives. When reports circulate that the CEOs are earning
a lot of money while others workers are every complaining, it raises an
ethical question (Bebchuk and Grinstein, 2005, 66).
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Evaluation
2015, was one of the years which reported a lot of information concerning
the huge amounts of money pocketed by CEOS. However, there is a
compensation committee tasked with the responsibility of assigning people
their salaries based on a number of factors. The use of equity theory is very
common. This theory implies that people are paid based on their
responsibility and ranking in the company (Shin, et al. 2016, 121). Also,
this theory compares data from other organizations to determine how much
each individual should be paid. Those people who have same level of
education and responsibility are compensated equally. This avoids any kind
of disparity in their income.
Analysis
The equity theory ensures there is fairness among people who have similar
functions. For instance, if a person is working as a CEO is a small hospital;
the salary should be similar to another person who has a similar
responsibility elsewhere. Thus, compensation is seen as a reward for the
labour offered as a factor of production (Neeley and Boyd, 2010, 143). If
the input placed in a given task is the same, this should be reflected in the
output and the kind of compensation offered. CEO dedicate amount of time
to study and gain experience that enables them to execute given functions.
Thus, they should also get a compensation that is equal to the level of
human capital investment.
Conclusions &
Recommendations
There are people who have criticized this approach on the basis of pay
disparities. However, there is a need for harmonization of these salaries to
reduce the gap between the lowest and highest paid employee. For instance,
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ORGANIZATIONAL BEHAVIOUR
the S & P 500 managers are paid over 250 times what the lowest employees
get. This is so unfair and thus, the committees responsible should
harmonize these values (Pepper, et al. 2011, 207). Also, the shareholders of
the companies should contribute and participate in salaries and
remuneration harmonization. Executives should be paid well to prevent
them from engaging in corrupt activities
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References
Bebchuk, L. and Grinstein, Y., 2005. The growth of executive pay. Oxford review of economic
policy, 21(2), pp.283-303.
Bizjak, J, Lemmon M & Nguyen, T 2011, ‘Are all CEOs above average? An empirical analysis of
compensation peer groups and pay design’, Journal of Financial Economics, vol. 100, no. 3,
pp. 538– 55; Science Direct database, DOI 10.1016/j.jfineco.2011.02.007.
Neeley, CR & Boyd, NG 2010, ‘The influence of executive compensation on employee behaviors
through precipitating events’, Journal of Managerial Issues, vol. 22, no. 4, pp. 546-59,
viewed 29 December 2017, ProQuest Central database.
Pepper, A, Gosling, T & Gore, J 2015, ‘Fairness, envy, guilt and greed: Building equity
considerations into agency theory’, Human Relations, vol. 68, no. 8, pp. 291-314,
viewed 29 December 2017 Sage Premier 2016 database, DOI
10.1177/001872671455466.
Shin, T 2016, ‘Fair pay or power play? Pay equity, managerial power, and compensation
adjustments for CEOs’, Journal of Management,42(2), 419-448, viewed 29 December
2017, ProQuest database.
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