Business Ethics: Who Should Get Bonuses?

by | Jun 9, 2012

This story was shared by an MBA student who was trying to assess a personal business experience.  A small technology start-up has started to see some financial success after two years of hard work. The three main shareholders, the CEO and two vice presidents, had made an agreement with the team of employees that everyone, […]

This story was shared by an MBA student who was trying to assess a personal business experience.  A small technology start-up has started to see some financial success after two years of hard work. The three main shareholders, the CEO and two vice presidents, had made an agreement with the team of employees that everyone, including the top management team (the main owners), would work on reduced salaries until the company proved its technology-based product and found a buyer. Upon the sale of the company, everyone would get their deferred salaries and bonuses, and the main shareholders would of course get a return on their investment.

However, as sales and profits started to materialize sooner than expected but with no sign of a buyer for the company yet, the three top managers started to pay bonuses—but only to themselves. Was that in their self-interest?

Of course the main owners had the right to pay themselves bonuses and determine that others did not get them. But that does not mean that it was in their self-interest to do so. Even if the rest of the employees were unlikely to leave the company at that point because they had not received their promised payments yet, they felt that their trust had been betrayed.  The management team had breached their promise, and perhaps they could not be trusted to keep the original agreement at all. Morale went down, and many of the employees started contemplating other jobs. They felt they were being treated unjustly.

Besides abandoning the principle of justice, by not keeping their promises the top managers violated the principle of integrity—causing the greatest damage to their self-interest. By compromising their integrity, for the sake of a relatively small financial gain (the bonuses), they lost the trust of talented, hard-working employees. These employees would not want to work for the managers’ next venture and would likely share their negative experience with others, quickly multiplying the damaging effect on the reputation of the top managers—clearly not in their long-term self-interest.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. How to Be Profitable and Moral” is her first solo-authored book. Visit her website at profitableandmoral.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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