Ethical Challenges and Agency Issues Essay

1711 Words Aug 14th, 2013 7 Pages
Ethical Challenges and Agency Issues
Analyzing ethical challenges Most people are aware of the ethical challenges businesses face in today’s world especially, in the financial services industry. Financial services became a major target after several scandals such as Enron and MCI. Unfortunately, the financial industry is very large, which encompasses entities such as banks, insurance companies, mortgage lenders, pension, and securities funds. “The financial service sector represents 20 percent of this index’s market capitalization. Because of the vast size, the industry tends to garner lots of headlines, many of which tout its ethical lapses” (Federwisch). Based on the case study, “Level of Executive Pay” the Chairperson of NYSE is
…show more content…
The pay of Chairman Grasso seemed too excessive and was unfair to the other members of the organization so the SEC stepped in. Grasso was paid an outlandish amount in both salary and bonuses and also received an outsized payout of $140 million from a retirement plan, a savings plan, and prior bonus awards in 2003 (Eldenburg, 2005). There was a huge outcry when this information went public; there were many conflicts between the public, the members of the NYSE, and the SEC about the level of pay. It was argued that Grasso deserved the compensation because of the positive performance of the NYSE during his tenure, the length of his tenure, and the comparability to public company executives’ pay (Eldenburg, 2005). It was also argued that Grasso’s pay was excessive because the NYSE board of directors was not independent and exercised poor governance, the board of directors was headed by a close friend of Grasso, and Grasso’s pay was incredibly higher than that of the SEC Chairman (Eldenburg, 2005). The above situation shows the different agency issues that could occur based on both implicit and explicit contracts. The agency issues involved with the case study about the level of executive pay demonstrates the importance of monitoring and having policies and procedures in place to control pay grades for executives in nonprofit organizations. It is difficult to determine the appropriate level of pay for executives, but the board of directors who sets the pay level

Related Documents