Business Ethics Unit 3 Quiz

'Unrelated to performance' objection to CEO pay

"Golden handshake" where CEOs automatically get benefits, good pay, bonuses upfront when they first get hired. "Golden parachute" where they get exit bonuses. CEO gets good pay while company slumps.

paternalism

A policy of treating subject people as if they were children, providing for their needs but not giving them rights.

puffery (advertising)

Advertising that uses exaggeration instead of facts. Ex. Bayer "world's best aspirin"

libertarian view of workplace safety

Allow anyone to take any job anyone wants even if it's harmful, as long as the employer discloses all possible harms of the job. If not, employee can sue employer. We only have negative rights (rights that are not to be messed with) not positive rights (rights to be messed with but usually something good). Believe it's not the government's job to give us things. Believe the government is almost like tyranny or paternalism.

rugged individualism

At a certain point, it's your job to decide on how you want to live your life.

Golden Rule presumption against deception

Believes lying is wrong except when it's used for self defense.

'Improper power' objection to CEO pay

Board of directors determine CEO pay, but board members often have strong relationships with the CEO which make it difficult for them to resist pay demands. Also, board members who were former CEOs of other companies are accustomed to high executive pay, and they want to maintain the standards.

why managing a CEO is difficult

CEOs manage the company. You can't just watch over them like you do with employees.

definitions of types of deception

Deception of withholding information, bull-shitting (telling people things you don't 100% believe to be true), lying.

principles P1-P3

Deontologists believe that everyone should treat people with respect; employers should warn employees about dangers in the workplace. Libertarians believe that everyone should be able to take whatever job they want as long as they are consenting adults. Justifying unsafe conditions: makes employees more expensive to hire; some still willing to work even if it's unsafe.

reasonable-person standard & global version

Department of Labor asks, "where is a sign needed?" The reasonable person is different in the US and other countries, and it is different between communities within the same country. Ex. farmer will not know much about being in a factory if it's their first time. Globally, sweatshops are set up in developing countries because companies can pay the workers cheaper with poor working conditions since their workers are typically unskilled workers who don't really know what they are getting themselves into.

two possible further obligations of salespeople

Don't sell harmful goods without warning; don't sell defective, poor quality without warning.

furnace repair, odometer

Examples of deception; furnace guy breaks your furnace then next day furnace salesman appears. Salesman messes with odometer and doesn't tell you.

'Incentive to work' objection to CEO pay

Executive compensation does not have the right incentive effect. Some argue that the same effect can be achieved at a much lower cost.

Bayer Aspirin

Generic vs. branded; example of puffery in advertising "world's best aspirin" - Based on judgement, but not deception.

sports exploitation

In sports, it's not bad to exploit someone. For example, if a player knows that another player on the opposing team has a bad shoulder/arm, they can use that to their advantage.

managerial-power thesis

Managers make sure everyone is doing what they need to do.

normal profit

Money you have to pay the owners of the business to justify them owning their business. Includes things like money paid to shareholders, etc.

pure profit

Normally 0; Extra-special because it's usually due to luck. This can be the result of arbitrage. Can be a form of economic rent; like finding money; not expected.

health insurance, generators

Offering extra insurance on your rental car when your health insurance already offers it; offering the 6000w generator when they sell a 1000w generator that does enough to charge your phone.

reply to argument that salesperson must deceive in order to meet a quota

Okay to deceive if you need the job for important obligations, harm is not very great, can't find another job that would avoid violating 1-4 (safety, honesty, question-answering, steering).

rent (economic rent)

Payment beyond necessary to induce factor of production to produce. Beyond opportunity cost rate of return. Payment because of imperfect competition. Ex. Beyonce as an entertainer ($60 mil) vs as a talk show host ($10 mil). $50 million is rent.

structure of executive pay

Set by a compensation committee of the board of directors. CEOs can be paid by base salary, bonuses, and stock options. They get paid so much from buying so much stock.

information asymmetry in CEO hiring

Solution to hiring CEOs: make their salary low but high; opportunities for bonuses to influence them to work hard.

exploitation (theories of)

Taking advantage relative to specific baseline or standard.

why executive pay has increased so much over the past few decades

The role of the CEO has changed. Managers get people to do what they need to do. A CEO is the top manager (bureaucratic manager, the manager of managers). CEOs are also shareholders, which is why they get paid so much. CEOs are also entrepreneurs, who take roles in inventing the products the company offers. Their job has changed because of shareholders & they're entrepreneurs.

arguments against high executive pay: scale, unrelated to performance, proportion, proportional increase, misplaced focus

They get paid too much (millions). They aren't compensated for doing a good job. They have "golden parachutes" where you get paid for getting fired. Salary is out of proportion; CEO paid way more than the average worker. Their increase in pay is faster than the average worker. They focus more on the short term benefits of the company versus the long term benefits because they know they will be out in a certain number of years (misplaced focus). They are paid to work hard (incentive to work).

four main obligations of salespeople

Warn people of dangerous features of product; refrain from lying, deceiving; answer customer's question, when you know answer; don't steer customer towards harms w/o compensating benefits.

reply to argument that corporation must deceive in order to stay in business

Will not be a sustainable business.

economics of bluffing and potential dead weight loss

You can bluff in some business deals because it is kind of expected in some situations, and when your opponent bluffs as well. Ex. selling a house.

alienability of rights

You must be able to understand that if you agree that people can work under harmful working conditions, you also agree to alienating all human rights.