Case 15-1
Summary
In 2016, the average CEO made $13.1 million a year, 347 times more than the average U.S. worker, who
made $37,642. The AFL-CIO noted this as a growing income equality to show the slow U.S. wage
growth and the outsourcing of jobs to countries with lower wages. As a whole, the public believes that
CEOs are overpaid and most Americans support drastic reductions; however, there are mixed feelings as
to whether or not the government should intervene. The majority of the American public believes that
CEOs take home more pay than they deserve.
Analysis
This case study asks the question as to whether or not a CEO of a company deserves to be compensated as
a “rock star,” noting opinions from experts who believe there is more to running a company than meets
the eye, while showing the public sentiment across all political parties being a majority of the American
public believing that CEOs make too much money. The statistics presented allow for debate and
discussion regarding what a compensation package should look like.
Questions
1. How does ethics apply to this case?
Ethics have been defined in numerous ways and include a reflection of what constitutes right from wrong
2. What factors might contribute to what some perceive as unethical behavior concerning CEO pay?
Contributing factors to unethical behavior include personality traits and attitude (a level of personal
integrity), moral development (self-interest, follow prescribed standards, individual moral standards), the
3. What are the differing ethical approaches and how might they apply to this case?
The differing ethical approaches include the golden rule (do unto others), the four-way test (is it the truth,
is it fair to all, will it build good will, and will it benefit all?), the stakeholders’ approach (who wins and
who loses), and discernment and advice (using an ethical guide).
4. How might the issue of CEO compensation be dealt with in a firm’s code of ethics?
A firm’s code of ethics is comprised of its values (basic concepts of good/bad, right/wrong), principles
(basic application of values), management support (walking the talk), personal responsibility (everyone is
responsible to adhere to the core), and compliance (applicable laws, industry standards, or imposed
5. How might the issue of CEO compensation be used by a firm to create and maintain an ethical
organization?
A firm creates and maintains its ethics through the use of management authority (the right to give orders,
enforce obedience, make decisions, and commit resources toward completing organizational goals),
6. Use the “legal doesn’t mean it’s ethical” argument to disagree with current CEO compensation
practices. What makes it legal and why might it still be unethical.
The legal but not necessarily ethical argument has been applied to situations including bribery, payments
to government officials, marketing practices, impact on the economy/environment, employee/customer
privacy, and employee and personal issues.
7. What is your own opinion about CEO compensation? Provide facts and arguments supporting your
position from this case.
The purpose of this question is to provide students the opportunity to first question their own attitudes on
CEO compensation, given the differing viewpoints in this case and to then select one or more that support
Case 15-2
Summary
Microsoft, a leading tech industry company, dominated the personal computer market in 2000, enjoying a
97% market share. When the demand for smartphones increased and the market increased for new
entrants, Microsoft faced competition from Apple, who had introduced the first iPhone. Apple’s entry into
the smartphone market increased their viability, and they were finally valued higher than Microsoft in
2010. Microsoft introduced their first Windows Phone (as competition) in 2010 and then decided to
partner with Nokia which allowed all Nokia devices to use Microsoft operating systems.
Analysis
The Microsoft case addresses how Microsoft entered the smartphone industry and the tactics they used to
acquire Nokia in order to compete in the industry. In order to be a viable competitor and save money, this
involved massive layouts to former Nokia employees. This had a dramatic impact on the people of
Finland, where Nokia was based.
Questions
1. Who are Microsoft’s key stakeholders in this case? Why?
The key stakeholders for Microsoft in this case include their own stockholders, Nokia and their
employees, their competitors (Apple, Samsung, and Google), the Finnish Government, and indirectly
2. Using the five forces model from Chapter 2, describe how the changes in the computer technology
industry impacted Microsoft’s ability to compete. Which force most negatively impacted Microsoft?
Why?
Rivalry among competitors: Microsoft could not anticipate the moves of Apple, Samsung, or Google.
While their competitors were already in a race to get more customers, Microsoft was still out of the
market. Apple became the market leader after introducing its iPhone and Samsung became a major
competitor once they partnered up with Google. Microsoft wanted to get into this market quickly and
Power of suppliers: Although not specifically discussed in the case, suppliers to the software portion of
the industry included software developers either in-house for a firm or outsourced. Suppliers for the
smartphone industry, as it relate to this case, included firms like Microsoft and Google who provided
operating software. The power of the smartphone software suppliers would diminish relative to the
number of companies producing smartphones; the more “brands of smartphones, the greater the
competition among software suppliers.” By buying Nokia Microsoft would become the supplier for the
Nokia phone and reduce the power of the other suppliers.
3. What seems to be Microsoft’s ethical approach? How does this approach seem to impact their human
resource management decisions?
Organizations must aim to act in an ethical and socially responsible manner but at the same time, they
must remain competitive. Their practices must be sustainable and efficiency driven so that the firm will
survive in the long run. Microsoft was already behind in the smartphone market and it was obvious that
4. Describe the conflict between stakeholders’ interests and the Finnish government’s perception of
Microsoft’s lack of social responsibility to Nokia’s employees. Whom do you side with and why?
The conflict between Microsoft’s stockholders and the Finnish government is embodied in Microsoft’s
decision to break their promise to the government and fire 18,000 employees.
Some students might feel that the layoff decision is quite understandable from a stockholder’s perspective
if Microsoft planned on using these funds for the long-term interests of the company. As long as
5. Instead of layoffs, what if Microsoft decided to decrease the total compensation to Nokia employees.
What part of that package would you decrease and why?
There are four basic types of compensation, and they each serve different needs of the employees.
Microsoft wants to cut costs and wants to distribute its limited resources in the most effective way that
6. Besides changing the compensation package, what other human resource management options might
IBM consider rather than layoffs?
If the board and the shareholders of Microsoft want to see immediate results but still want to avoid