Cars and Cans
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general, are not at arms length. A CEO has the ability to appoint or “wield considerable informal influence over” who becomes the next board member (Moriarty, 2009, p.694). This creates a feeling of gratitude that compels the newly elected board member to generously repay the CEO with a higher compensation. Also, the board members may not own stock in the company, so there is no incentive to act in the best interest of the shareholders. In addition, these board members are usually CEOs of other firms, so their incentive to pay the CEO higher is that it will increase their own rate because the CEOs compensation is usually compared to other salaries of CEOs. The author then claims that the $8 million compensation would be justified under this view if the negotiations were conducted at arms length. He then concludes that, in general, the negations are not at arms length.
The author next introduces the desert view, which says to pay the CEO what the CEO deserves to be paid, based on factors like skill level and difficulty. The author states that it is difficult to determine how much a CEO deserves, but he argues “CEOs are not 301 times as deserving as their employees” (Moriarty, 2009, p. 695). In the authors mind, a CEO is more deserving of higher compensation than the worker is, but 301 times the average workers salary is unjustified. The “desert view” appeals to independent standards for justice in wages. It says that people deserve certain wages for performing certain jobs, whatever they might agree to accept for performing them. The wages people deserve may depend on facts about their jobs (e.g., their difficulty or degree of responsibility), peoples performances in them (e.g., how