Procopio, Justine Nicole B.
Case Incident: It’s Not Fair!
1. How does the executive compensation issue relate to equity theory? Who do you think should be the referent
others in these equity judgments? What are the relevant inputs for top executives?
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Based on the article, employees weigh what they put into a job situation, the input, against what they get
from it, the outcome. They compare their input-outcome ratio with the input-outcome ratio of relevant others.
Equity theory is when higher the compensation of executives in comparison to their peer groups, the lesser is
their turnover rate. The executive compensation issue relates to the equity theory most of the times, as
compensation calculation procedure in most of the organizations, especially large companies, is based on
reference compensation from the market. And I think the referent others in these equity judgements must be the
Company’s performance, achievements and compensations within competitors. And relevant inputs can be
education, experience, or previous organizational outcomes performance should be considered
2. Can you think of procedural justice implications related to the ways pay policies for top executives have
been instituted? Do these pay-making decisions follow the procedural justice principles outlined in the chapter?
- Procedural justice is defined as the perceived fairness of the process used to determine the outcome. And I
think it is no because the procedural justice implications related to the ways pay policies for top executives have
not been instituted. The pay-making decisions do not follow the procedural justice outlined in this chapter.
There is no accurate information, biased, no consistency and even not open to appeal. The procedure to
determine and executive pay is not in place and there is no transparency in the policy.
3. Do you think the government has a legitimate role in controlling executive compensation? How might we
use distributive and procedural justice theories to inform this debate?
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No, because government may hinder organizational growth or may not align with the organization’s
perception. The distributive justice is organizational setup is the fairness associated with distribution of
resources and outcomes decisions. It is how much a person get paid, relative to what he thinks he should be
paid. While procedural justice theories is a perceived fairness of the process which used to determine the
distribution of rewards. However, the distribution of the resources in terms of stock options is directly
proportional to amount of pressure and work that an executive need to handle. Intervention of the government
will only act like a demotivation.
4. Are there any positive motivational consequences of tying compensation pay closely to firm performance?
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Yes, there are few positive motivational consequences of tying compensation pay closely to firm
performance. Trying compensation pay to firm performance motivates the individual to work hard to achieve
the reward. Like for example there is yearly increment and bonus links to individuals with yearly goal
achievement. Throughout the year each employee strives to archive self-goals and hence it leads to individual
motivations.