Tagg believes the £2.5m verdict sends out the wrong message to clubs looking to produce home-grown talent.
"Whilst the club recognise that the compensation fee is not a transfer fee but instead to reward the club for its investment in the training and development of a proven outstanding player," Tagg told the club's official website.
“And that the tribunal has awarded Exeter significant contingent sums, to say that we are disappointed is an understatement.
"We are disappointed for our fans, our academy, which works so hard on producing talented young players like Ethan.
“And for our management and coaching team who bring these players into the first team and beyond as part of supporting the work of the FA in its objective to produce international players of the highest quality which we believe we have done.
"However, above all, we are disappointed for football as we feel this decision sends the wrong message in terms of financial reward for those owners, chairmen, managers and coaches up and down the country.
“[Clubs] who are also working as hard as us to improve their clubs by producing talented home-grown players for both club and country."