by David J. Eloi

Created on: June 19, 2009   Last Updated: July 06, 2009

Concerns surrounding the current levels of compensation awarded to CEOs of U.S. corporations continue to pervade the dialogue in many professional circles, the media, and the overall national and global economy. Three prevailing questions regarding CEO compensation need answering:

1. Is such grandiose individual worth that CEOs enjoy possible in a just economic system?

2. Should CEOs receive compensation despite company performance?

3. Is CEO compensation just too much?

Through a utilitarian paradigm the above questions are more easily understood.

For many, it is hard to believe that any one individual could be worth so much in a just economic system. According to Aristotle a just economic system would be one that engages in activities in accord with the ideals of distributive justice; the economic system functions in the interest of the fair distribution of resources amongst everyone in society. The classical economist Adam Smith through his notion of the invisible hand provides the morally justified foundation of the U.S. capitalist economy. The idea is such that the inherent agendas and influences of the market are induced through economic forces (i.e., an invisible hand) promoting a collective good of sorts via the self-seeking individual. The market system is driven by voluntary trades being made through the loss of one resource in exchange for other more desirable resources in the interest of profit or the advancement of one's well-being.

Given the above, CEOs receive only what is voluntarily offered up by the board of directors of U.S. corporations in exchange for the perceived value of the CEO skill set. Both parties are unknowingly, through exchange or quid quo pro, responding to Adam Smith's invisible hand. According to Adam Smith the current economic system is just and CEO's are only acting in accord with self-interest. CEO compensation is derived only from those willing to offer recourses of such grand magnitude and controversy.

Corporations whom perform poorly, of late, yet continue to reward their CEOs are seemingly acting in direct contrast with common sense and classical utilitarianism. Classical utilitarianism states: An action is right if and only if it produces the greatest balance of pleasure over pain for everyone.

The above utilitarian maxim provides a logical basis to remove a CEO from their position or deny compensation when the organization they are responsible for fails causing huge profit declines and job losses. Note, applying

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