Compensation: Ad Swapping

Rich Monny joined E-Kin two years ago as VP of marketing and web design. When he joined he was given the power to structure the marketing department anyway he saw fit. He took on the direct responsibilities overlooking E-Kin’s website contents, including filling advertising space.

Rich hired his long time friend Shep Shearman to manage Promotional Marketing. Shep knew that when Rich left the company he would be the first person recommend for the VP position. He also knows marketing strategy and theory like the back of his hand but does not have a clue on budgeting issues. This lead Shep to hire William Whistle. William's job responsibilities include budgeting and Promotional Marketing.

Mr. Monny and Mr. Shearman often met with other small companies looking for a web presence to sign agreements of web ad swapping. With web ad swapping two or more companies decide to trade marketing space on each other’s websites. This practice is commonly used among small web-based companies with limited cash resources.

Over the last 18 months, Monny and Shearman would bill the other smaller companies and in return would receive a bill from them. This made it possible for ad swapping to be counted as marketing revenues and expenses to accounting. Again, not an issue because this is a way for E-Kin and others to track who is marketing on the E-Kin site and where E-Kin is marketing on other sites. The issue is with the way Mr. Monny is compensated. He receives a standard salary with incentives. Included in the corporate VP’s incentive package is a bonus based on the amount of revenue generated by E-Kin’s web advertising space.

Less than a week ago William Whistle was talking with his friends in accounting about budgeting issues. In the process he stumbled upon what Monny and Shearman were doing. Accounting did not see the ad swap problem because bills are paid, cash is received and bonuses are paid out of separate departments. Will knew that the VP’s bonuses were based on generated website advertising revenues. He also knew that smaller companies participate in ad swapping because they do not have the resources to pay for large amounts of advertising.

Revenues generated from the E-Kin online advertising spots are over-stated. How should William respond to his discovery? What ethical situation are Mr. Monny and Mr. Shearman putting themselves in? Is there anything wrong with their business practice? If so, how can they be resolved?


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