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Are Ceos Overpaid Essay

2023 words - 9 pages


Over the past 15 to 20 years more and more CEOs have been scrutinized and the typical CEO's
pay is largely driven by market factors. CEOs pay is strongly related to stock performance.
Because of more bureaucracy, the CEO's job has become increasingly more difficult over the
past decade. In fact some would even argue that they are not paid enough and should be paid
more. CEOs are being scrutinized more than ever. Some have taken on a celebrity persona such
as Steve Jobs, Bill Gates, and Jack Welch. The fact of the matter is their pay is driven by market
forces. You don't really hear of athletes being scrutinized like CEOs. However, since the collapse
of companies such as ...view middle of the document...


In the past decade some CEO's have been jailed because of fraud or misuse of funds. Because of
this, the new bureaucracy has made their jobs very difficult. Recently, top bosses and executives
at Olympus, the Japanese manufacturer of medical equipment and cameras, pleaded guilty to
fraud in one of Japan’s largest corporate scandals and blows the whistle. In mid-October of last
year, he was unexpectedly fired by the board. According to the Financial Times, Olympus
portrayed him as an outspoken Westerner who “diverted from the rest of the management team.”
But Michael Woodford has a different story: he exposed to the press the mismanagement and
accounting cover-ups he discovered at Olympus. Woodford became the first CEO of a global
multinational company to blow the whistle on his own company and rants about the 1.7 billion
dollar fraud, as well as what he thinks about larger business practice and economic
health in Japan. "The company had bought three 'Mickey Mouse companies' for a billion dollars:
a plastic plates company for microwaves, a cosmetics company -- a face cream company -- and a
recycling company, but with no turnover," Woodford told CNN. "They then paid $700 million
dollars in fees to somebody, we didn't know who, in the Cayman Islands. I begged and begged
and pleaded 'don't treat me as a gaijin (foreigner), treat me as a colleague who cares about this
company.' But they didn't listen, not one of the 14 (board members), including three non-
executive directors." Woodford refused to go quietly, choosing instead to unleash a firestorm of
publicity that would prove costly to the board and company itself. Kikukawa and several other
board members were eventually forced to resign, while Olympus shares lost around 80% of their
market value in the first weeks after news of the scandal broke.

Sarbanes-Oxley Act

The 2002 Sarbanes-Oxley Act limits conflict of interest issues by restricting the consulting
services that accounting firms can provide for the companies they audit. Sarbanes-Oxley also
requires financial officers and CEOs personally certify the validity of their financial statements.
In order for CPA firms to perform audits with integrity they must be independent of the firms
they audit. During the 1990’s, many of the major CPA firms entered into very lucrative
consulting contracts with some of the businesses they were auditing. It became increasingly
difficult for these CPA firms to risk losing these high-paying contracts by raising issues about
accounting practices when they audited the books of their clients. In the aftermath of the
scandals, Congress passed the Sarbanes-Oxley Act of 2002 (commonly referred to as “SOX” or
“Sarbox”). This law banned business relationships that might create conflicts of interest between
CPA firms and the companies they audit.


1. Uncertainty
All human beings, but it seems business...

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