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eveloping and maintaining good incentive and compensation strategies is of vital importance in high-tech industries.

and that it yields progressively to other factors which respond to higher order needs. Consequently, pay would have very little effect on an individual who has reached the self-esteem or actualisation levels and who is cognisant that she/he has done so. On the other hand, Frederick Herzberg[2] advanced through his motivation hygiene theory "that environmental factors (hygiene) can at best create no dissatisfaction on the job, and their absence creates dissatisfaction. In contrast, what makes people happy on the job and motivates them are the job content factors (motivators)". A comparison of both theories can be seen in Figure 1. For his part, Douglas McGregor[3] developed two theories, known as X and Y, that separate the workers into two groups: the ones who dislike to work and for whom money can serve as a powerful motivator, and the ones who work because they like to work, and therefore would see control over their work, more than money, as a source of motivation. J. S. Adams[4], approached the question from another angle. Adams' equity theory emphasised that the important thing is not the amount of money paid to people that counts, but the perception of fairness in their treatment. According to Adams, employees examine the relationship between their inputs to the job (education, experience, skills, efforts, etc.) and their outputs (pay, benefits, promotion, recognition, etc.) with those of fellow employees in the same organisation or comparable ones. The result of their comparison will determine if they will be satisfied with the way they are treated. The most

Compensation Strategy:
Determinants and Contingencies in Hightechnology Organisations
Steven H. Appelbaum

International Journal of Manpower, Vol. 12 No. 8. 1991, pp. 22-30 MCB University Press 0143-7720

Introduction High-technology is a people-intensive industry that experiences high rates of change; deals in products at the cutting edge of technology, and employs a relatively young, highly skilled and/or educated workforce. Considering these industry specific factors, the challenge facing human resource and compensation professionals will be to develop a compensation model that will respond to the specific needs of this unique profession. This article will explore some of the compensation practices in the high-tech milieu, to determine whether they can be improved; at the same time, some advantages of having a service agreement will also be examined. A starting point will be a perusal of several motivation theories, as they relate to compensation in general. Motivation Theories To date, many authors have argued about the role that compensation plays in the motivation of employees. Among others, Abraham Maslowfl] suggested with his hierarchy of needs that motivation lies in the lowest level need not being satisfied. This implies that pay is a motivator as long as the lower level needs (physiological) are not satisfied,

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profitable, fastest growing companies in the United States are using equity, and lots of it for their reward programme [5]. A few years later, Victor Vroom, building upon Maslow's need hierarchy, introduced the expectancy theory to help clarify the enigma. It stated that the key variable of performance is level of effort, which depends upon "expectancy'' or a person's belief that a probability exists that effort will lead to outcomes, "valence", the strength of an individual's desire for that particular outcome, and "instrumentality", the person's belief that a particular action leads to a particular outcome. Thus, to increase motivation, the money incentive must be related to one's effort, and should be what the person desires in recognition of his/her performance. In this respect, it can be stated that Vroom's expectancy theory agrees with Maslow's and Herzberg's theories as long as the self-esteem level is the lower level need not being satisfied, and that recognition motivates people. This fact may explain why many authors justify pay-forperformance programmes with the expectancy theory in association with the equity theory. But why are pay-forperformance programmes necessary? An examination of compensation in general and incentive programmes in particular may help unravel this often confusing issue, so important for the management of human resources in hightechnologyfirmsor even organisations across the board. The Determinants of Compensation Compensation serves different objectives, the main ones being to attract, retain and motivate high potential employees. Meanwhile, the fulfilment of those goals are subject to constraints such as the maintenance of equity, cost control, and legal requirements (e.g. wage and salary legislation). There are many factors that contribute to the determination of employee compensation levels, they include the following: (1) Labour/product market conditions. In other words, the demographics of the employee force and the significance of certain skills; the supply and demand situation in relation to critical skills; and the pay levels and practices of competitors. (2) Economic and sociopolitical environment. This includes the influence of the business cycle and the power of organised labour. (3) Employee characteristics: including education; seniority; qualifications; experience, etc. It is difficult to describe and evaluate engineering and scientific jobs, and therefore maturity curves based upon discipline and years since graduation are usually used.

(4) Industry characteristics such as cyclical nature; high turnover; innovators; entrepreneurial; traditional, etc. Industry standard wages vary considerably. Highly competitive industries, such as soft goods manufacturing, pay only the wage required in response to changing conditions in their labour market. Less competitive industries, such as hardgoods manufacturing, typically pay somewhat more than the minimum required by the labour market. (5) Enterprise characteristics. The list includes: culture (management style); organisational structure; objectives; policies and strategies; technology; size; profitability (ability to pay); competitive labour strategy (lead or lag); salary compression (inequitable pay differentials when pay rates for new hires are too close to those of experienced employees and when subordinate pay rates are too close to those of supervisors. (6) Employee behaviour characteristics such as: performance, absenteeism, and turnover. (7) Job characteristics that take into account the mental requirements (problem solving); physical requirements; skill requirements; responsibility/ accountability; working conditions; level of public contact; and the effort required to carry out the work. Factors such as responsibility and decision making would appear in evaluation systems for managerial jobs; physical demands and skill might appear in systems for factory jobs, and accuracy and amount of supervision received might appear as factors in clerical and technical evaluation systems. (8) Discrimination. Although unacceptable, there is still concern about the economic status of different groups in society. The most obvious example is the lower economic status of females compared to that of males. This seems to be a consequence of the fact that males and females are not equally represented in various occupations, and the maledominated occupations are compensated at higher rates than are female-dominated occupations. These determinants need to be considered in light of the contingencies required for compensation decisions. A survey of salary levels of members of the Institute of Industrial Engineers (US) done in 1988, and reported by Abbott, Langer and Associates[6], shows how some of the factors mentioned above influence compensation (see Table I). For employees, compensation is an important issue since pay is perceived to be an indication of their personal and market value to the organisation. Considering that there is a tendency to standardise wage rates among competitors, and that there is a desire to control labour costs, it becomes important to find a way to motivate personal development and high performance, while

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Table

I.

Salary Levels of Members of the Institute of Industrial Engineers in 1988

Median salary less than BA/BSc (engineering) BSc (non-engineering) BA/BSc MBA PhD $37,748 $34,500 $43,000 $54,000 $60,000 $29,524 $58,000 96.5 per cent spread

Determinant Education Median income rises by degree level

Experience Under one year 30 years or more Primary activity or speciality Highest median income to "organisation administration" Lowest is for "work measurements, standards, performance measures" Primary job function Corporate officers or general management Engineers, analysts, other professionals Department heads Consultants

$71,016 $36,900 $53,000 $49,000

Type of employer Higher in non-manufacturing firms (petroleum, universities, chemical, pharmaceutical) Lowest in traditional manufacturing firms (furniture, wood products, textile mill products, fabricated metal products) Geographical/metropolitan area Pacific states North central states NYC, San Francisco, Houston, Los Angeles Dallas, Seattle, St. Louis, Minneapolis/St. Paul Size of organisation Smallest organisations (<100 employees) Medium-size organisations (5,000 to 10,000) $44,619 $41,510 $48,000 $40,000 $51,000 $46,000

Supervisory/managerial responsibility Excellent predictor of compensation in the industrial engineering field. Supervision of engineers, scientists and/or technologists pays better than supervision of clerical, production, or maintenance employees, and both pay better than non supervisory.

recognising and rewarding differences in employee productivity. Compensation, being highly accepted as a means of recognition, requires that it may be necessary to revise the systems and strategies of remuneration available to management.
Evaluating The Job: and The Person

and compensation levels between organisations. On the other hand, it encourages people to seek out management positions, even though they might lack the necessary managerial skills. This problem is avoided by utilising the second approach that rewards individuals for increasing their skills and abilities and for developing themselves, rather than for moving up the hierarchy. The pros and cons of this approach are that initially, with frequent new skills and an accompanying pay rise, the system tends to be highly motivating; but as the workforce matures and reaches the top of the skill-based pay system, problems can arise as an individual's compensation reaches a plateau. In general, skill-based pay seems to fit those organisations that want to have a flexible, relatively permanent workforce that is

A large part of an individual's direct compensation is often the base pay. To establish its level, there are principally two approaches: job-based evaluation and person-based (skill-based) evaluation. The first approach is based on the assumption that, for the organisation, each "job" has a value that can be evaluated, and the person doing the job is only worth what the job itself is worth. The main advantage of this sytem is to facilitate a comparison of jobs

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oriented towards growth, learning, and development. It fits particularly well with new enterprise start-ups and other situations where the greatest need is for skill development as in creative, high-technological industries. Nevertheless, the limitations of the base pay systems as motivators can be overcome by the introduction of a payfor-performance programme. As we know, the two main categories are individual and group incentive plans. Based on individual's performance assessment, the individual incentive plans distribute monetary rewards for performance exceeding job standards. The main types discussed in the literature are piecework plans and merit plans. These types of systems can function in circumstances where a job is well defined and the performance characteristics are well delineated and assessable. The principal advantage of these plans is to make a direct link between effort exerted and the reward. Due to a number of social (more highly educated workforce) and technological (automation leading to more complex, interactive jobs) changes, performance can only be measured accurately and reliably when a group of workers or an entire operation is analysed. In contemporary organisations, the pay of individuals is affected only at the extremes of performance. In other words an employee only loses when the company is in such poor shape that it has to lay her/him off, and the employee only gains when growth is such that there is the potential for promotion. Therefore firms are trying to replace fixed pay plans by variable plans, in which salaries rise only when there is an offsetting rise in productivity or profits, in order to control the relationship of cost management and productivity.

They would also be the most appropriate under conditions where supervision is not feasible and measurement of individual work performance is difficult. The three major categories of group incentive plans are: (1) small group or work units where rewards are allocated on group performance for exceeding predefined standards; (2) productivity improvement plans such as Scanlon, Improshare and Rucker plans; and (3) profit sharing or share ownership plans. In addition to one of the advantages for the company experiencing the co-operative behaviour instilled by these plans, it has been pointed out that, on the individual's level, peer recognition is an important reward that group incentive plans often stimulate much better than merit pay systems. In addition, group incentive pay is normally tied to productivity and/or profits so that, in theory, there is aflexiblebudget for performance rewards and pay can truly be based upon performance[8]. In terms of gainsharing however, Lawler[7] reports that there may be a disadvantage in the fact that there is less direct connection between individual performance and rewards. As for profit sharing and share ownership plans, they are typically less effective as motivators in large organisations where the link between individual performance and stock price is virtually non-existent. In that sense, motivation seems to be the greatest when people have both psychological and financial stakes in the organisation's success. Hammer[9] has made a number of significant observations into why merit systems as major components of incentive systems fail to increase motivation. He suggests that the primary reasons for this are the mismanagement and/or misunderstanding of merit programmes and failure to focus on a system where individuals can be intrinsically motivated (by their jobs). Some organisations view money as the primary motivator, ignoring the importance of the job itself. He proposes further that tasks should be designed to make them interesting and creative and that workers should have some say in decisions that concern them. He found that managers are typically inclined to make relatively small discriminations in salary treatment among individuals in the same job, regardless of perceived differences in performance. Increases are often given to average performers to retain those that might be difficult to replace in a tight labour market. When these rewards are made they are likely to be based not on performance but on other factors, such as length of service, future potential, and a need to catch up to other higher employee's reward levels. Very often rewards are deferred payments, and the time horizon is so long that the employee loses sight of its relationship to performance. Behavioural theory argues that the strength of the incentive is maximised and behaviour is best reinforced if the payment is made as soon as possible after the accomplishment. This will be a major problem in the high-

Factoring in Incentives

Incentive plans can make an important contribution to profitability and the retention of key personnel because they tie compensation directly to productivity. It is essential to note that there are a number of inherent problems with incentive pay. Performance targets and actual performance can be manipulated, depending on influence, and thereby it is possible to beat the system and get higher pay for lower performance. Incentive plans may lead to a negative organisational climate; a culture characterised by low trust, lack of information sharing, non co-operative work relationships, and the absence of commitment to organisational objectives. Incentive payis a mixed blessing, the negative effects may outweigh the gains in productivity[7]. However, as noted previously, these plans do present many advantages for contemporary high-technological organisations seeking to solidify the link between effort and performance and rewards. Therefore, if teamwork and co-operation are essential to success, group incentive plans become the best choice.

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technology organisation requiring innovative motivational and compensation strategies. In order that a compensation policy produces the desired results, it needs to be related to the business strategy. Failure to adopt a strategic compensation plan has been characteristic not only of established giants, whose management and planning systems are mature, but also of dynamic high-technology companies. In the 1970s, company after company copied the new long term plans of their competitors, but very rarely did they tailor total compensation to their own distinctive strategy. The targets used for pay out were all too often based on historical performance [10]. To reinforce strategy, the organisation should focus on the primary compensation policy tradeoffs: short-term (bonuses) versus long-term (stock options) orientation; individual versus team focus; and unit versus corporate orientation. McLaughlin[10] proposes that these are the primary factors affecting change in company culture (style, values, and time frame orientation). Unlike most pay systems that serve to maintain salary parity, the correct compensation system rewards employees when a desired business strategy is successfully implemented. Commission plans (typically found in sales situations) tend to attract risk-oriented people, and are some of the most effective ways to elicit risk-oriented behaviour. The greatest disadvantage is that it reduces management control over employee behaviour, and team work/training is generally undermined. Group incentives can be utilised in order to encourage teamwork in these instances. Research on job choice, career choice, and turnover[7], shows clearly that the kind and level of rewards an organisation offers influence who is attracted to work for the organisation and who will continue to work for it. Research has also shown that better performers need to be rewarded more highly than poorer performers, to be attracted and retained. Properly applied, however, strategic compensation techniques can better identify business needs, leading to improved compensation design and company performance in high-technology organisations.
The High-fech Variables: Growth Cycle

In this type of environment, attracting R&D talent is an ongoing and daily challenge. It is crucial to keep up with rapidly expanding market rates for scientists and engineers in this high-tech environment. It is also critical to reward the performance of essential R&D employees, who function in high stress jobs that demand long hours, commitment, teamwork, and creativity to meet company objectives. In this case, the individual's skills and abilities are the pivotal driving mechanism of the business; and as a result, job-based evaluation is certainly less appropriate. In examining the many factors influencing compensation strategies, it may also be helpful to examine the product lifecycle as a guideline. At the growth stage, the uncertain environment requires greater willingness to take risks and greater tolerance for ambiguity. Firms in this stage are normally led by entrepreneurs who risk their capital and assets, and seek other risk-taking individuals, who are willing to trade-off job security and immediate rewards for a share in the anticipated profits of the future growth. When firms enter the mature stage, leading entrepreneurs usually remove themselves from the operational functions of the business and allow professional managers to take over and develop a more routine administrative system. The task environment becomes more predictable; market share becomes relatively stable; there are greater economies of scale; and the rate of change becomes much lower. Therefore, stages in the lifecycle are likely to be key determinants of compensation strategies and their effectiveness in achieving organisational goals. Firms at the growth stage, such as high-tech firms, would be expected to pay employees more in the form of an incentive and less in the form of salary and benefits, in order to shift some of their compensation costs from a fixed expense to a variable expense. By doing so, the firm can pay at higher levels of compensation when it is in the best financial position to do so, i.e. when the financial or other strategic objectives have been realised. As a result, the growing firm can more easily invest in research and development, new technology, expansion of capacity, marketing, and advertising. Thus, incentive pay policies forfirmsin the growth stage of the product lifecycle (hightechfirms)function tofinancefuture growth and are more able to motivate individual and group performance. As well, the size of the firm is likely to affect the choice and effectiveness of high-tech compensation strategies. By providing a lower base salary in exchange for a large number of incentive pay programmes, smaller companies can compete against larger firms in the labour market, without weakening their cashflow position. Also, in small companies, the development and management of incentive systems is simplified, by the fewer numbers of positions and less complex pay comparisons, with the operations being normally situated in a single location. When the organisation begins to grow, there is increasing complexity in terms of salary grade levels, management structure, product/markets, and geographic dispersion.

In high technology firms, defined as "firms that spend 5 per cent or more of its annual sales revenue on R & D"[ll], risk taking and innovation are highly appreciated and an entrepreneurial culture usually prevails. These firms tend to be small (less than 500 employees), with high annual employee turnover (15 per cent) and in the growth stage of the business lifecycle [11]. Other characteristics of this industry are: introduction of numerous innovations at frequent intervals; geographical concentration into technology centres (e.g. Silicon Valley, Route 128 in Boston); and high mortality rates as a result of strong competitive pressures (competition is often on a global basis, even for small companies).

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As a result, incentive systems become more difficult to design, implement and control. As with any large company, larger high-technology firms tend to develop bureaucratic job evaluation systems, where individual pay decisions are made within a systematic framework that emphasises consistency and standardisation. Compared to smaller firms, large-volume high-tech firms will often offer higher salaries to R&D personnel, but less incentive compensation perks such as profit sharing, stock options or bonuses.
High-tech Merit

merit pay programmes (e.g. profit-sharing plans). As a result it appears that, for some high-tech employees, the satisfaction gained in reaching a goal may compensate for the one satisfaction experienced from receiving a financial reward. More prevalent in high-tech companies than in traditional companies, were dual career paths. These systems appeared to emphasise that technical excellence is rewarded in the organisation by offering scientists and engineers a technical career path that paralleled a management path, which dispelled the myth that the only way to increase one's status and compensation within the organisation is via the managerial route. With regard to incentive pay programmes [11], it was found that several types were utilised for technical professionals. One type focused upon all technical employees and was designed to encourage teamwork and co-operation in the organisation. It encouraged the use of cash bonuses with profit-sharing and stock ownership plans at much lower levels in high tech organisations than in traditional industry. The other set of incentive practices recognised individual contributions of key technical people by the attribution of stock awards and long-term stock options. Both types aimed at transmitting a strong and consistent message to employees that high performance is expected and rewarded.
The Climate of Innovation

A study was completed focusing upon the fact that compensation practices are very different in high-tech firms[ll]. The survey that had previously been done by the same researchers demonstrated that the hightechnology industry offers four principal rewards to its technical employees: (1) a strong incentive pay component of the total pay package; (2) stock ownership plans for all employees; (3) special incentives and rewards for key contributors; (4) dual career paths which give technical employees compensation levels that are parallel to that of managers [12]. High-tech firms appear to usefinancialincentives rather than a high base salary to attract and retain their personnel. Short-term incentives (such as bonuses) are used to prevent high-performing scientists and engineers from looking for a position elsewhere, while they try to attach people to the organisations with long-term incentives (profit sharing, stock ownership). Research on high-techfirmshas indicated that merit pay and equity pay are components of total compensation. In comparison with the traditional companies, merit pay budgets and ranges were found to be similar but equity pay was used more often in high-tech firms. The reason given for this event is that equity pay adjustments are used to avoid salary compression problems (when the gap between a starting salary, which needs to reflect the market rate, and an experienced employee's salary narrows), which are more severe for scientists and engineers. Surprisingly though, the research revealed these professionals received higher equity pay increases than merit pay increases, even if managers believed that merit pay programmes were most useful in retaining employees while serving as a link to employee's performance appraisals. An interesting point is that the managers were generally of the opinion that the keys to motivating scientists and engineers are to provide them with the opportunity to do interesting work in their fields and to offer them incentive pay programmes in addition to their

Since high-technology industries rely on innovation, the favourable conditions nurturing it must be present. The work atmosphere must be stimulating and conducive to interaction (most innovations are the result of some level of synergy). It should encourage teamwork and cooperation in the organisation. These conditions are likely to be found in a loosely structured, flatter organisation; one that allows for flexibility in work patterns as well as informal communications. In addition, experimentation and risk taking must be encouraged, while failure must be dealt with as a normal outcome of innovation. If individuals are severely castigated for trying and then failing, future attempts to try and assume modest risks will never occur; rendering the organisation sterile. This is tantamount to self-destruction for high-tech firms requiring constant stimulation and innovation. The compensation practices that would reinforce this particular culture and the required structure needed to foster innovation would include the following elements: (1) For upper management, an incentive programme based on relative return on equity (compare ROE of other related organisations), and growth in unit of sales (as an industry becomes more price competitive, total sales revenues may slow down). (2) For lower levels: incentive programmes that reward effort as well as success; the success of a product

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often being out of the control of the scientist. Indeed, other factors such as choice of project approved, marketing of the product, and general health of the industry can undermine even superlative efforts. (3) Another possibility is to link merit pay to the performance of the company's stock. Since the equity market prices a stock at the present value of future earnings, this may be an appropriate way to measure the future impact of innovative efforts. This point will be expanded upon and discussed shortly. There appears to be a link between the culture and compensation philosophy of high-technology firms. We cannot strictly focus upon compensation without considering the human resource management system, which also must consider selection, training, development and retention of key personnel. The common problem of creative burn-out, for high-tech types (the decline in creativity over time) can be minimised by maintaining an inflow of young professionals to work along with experienced employees, to balance the workforce in the event of retirements, transfers, terminations, resignations and general turnover. At the same time, salary compression should be minimised through the use of a dual-career system where valuable scientists can grow in their field of expertise without necessarily moving into management. It may be important to consider that more senior as well as junior professionals have "different compensation needs. More senior and older workers may prefer varied pension plans while their younger, junior counterparts may wish to invest compensation units, such as base pay into stock options or profit sharing with lump sum payouts. The compensation package offered to the different individuals must offer multiple plans and options that each individual would adjust to his/her specific needs within their particular niche in the lifecycle. A written contract for a fixed period, renewable by agreement of both parties, would allow changes in the compensation mix according to the new needs and fulfil changing demands of professionals who may be senior or junior. Furthermore, this written contract (expressed, not implied) may reduce other problems which impact indirectly, upon total compensation issues that may arise, with the departure of an employee (voluntary or involuntary), and by covering the following matters: ownership of inventions devised by employees; obligation not to disclose confidential information; restrictions on employees' activities after termination (e.g. bar an employee from working for a competitor for some period after leaving the firm, soliciting the firm's clients, luring away its employees, or disclosing trade secrets or other confidential information[13,14,15]).

An additional point is that managers who take jobs with substantial risk, such as a newly created position or with a new venture company, might want to add a severance agreement to their written contract[16]. High-tech industry falling within a risk taker milieu, might not wish to grant these agreements but these "guarantees" could be considered as a way of preventing the takeover of the smallerfirmsby the big ones. These deals could possibly be perceived as generous enough to be seen as golden or silver parachutes[15]. These agreements are not isolated and must be included within the compensation strategy of high-tech organisations.
A High-fech, High Growth Strategy

High-tech companies are also high growth companies and are offering equity in the form of stock options as an example to their key personnel of long-term compensation. Business Week presented a list of 100 "hot growth companies" (May 21, 1990) with revenues of less than $150 million, sales growth of more than 50 per cent and net profit growth of more than 100 per cent to determine areas in which their compensation programmes were more unusual or more unique than traditional organisations. These programmes provided a substantial value creation focus among managers and employees [5] and demonstrated the following criteria: (1) Growth companies use annual incentives but not as the primary incentive. These organisations in the high-tech industries prefer to utilise pay-forperformance plans where annual cash incentives can be employed. Most growth firms do provide cash incentives usually in the form of stock options rather than extraordinary large cash bonuses alone. (2) Growth companies emphasise long-term executive incentive programmes indicating the owner's interest in focusing an executive group upon longterm results. (3) Growth companies use stock options not longterm cash incentives. A powerful motivator and incentive for managers and research professionals in high-tech firms is the right to share in ownership and stock price appreciation. It appears that when thesefirmsfocus upon stock price, this can be the optimum indicator of long-term performance rather than return on equity or growth in earnings per share. It is clear that when executives are encouraged to own stock they begin to think like the owners. Because most growth companies experience high stock price appreciation and want to avoid earnings changes where possible, options are best suited to their needs and strategies. Furthermore, stock options avoid the use of cash which can be used in running the business. We know many growth companies are cash poor as a result of the dynamic tension to finance inventory and accounts receivables. Stock options do not

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require cash and actually enhance the position of these growth firms. The use of stock options does not require longrange goal setting and growth companies often have a difficult time setting goals on an annual basis and even longer. The employment of stock options reduces the need to set rigid goals in turbulent times and permits the executive to maintain a focus on the increasing value of the firm's stock. In this case the executive is given the right to purchase the stock at the current market price which is exercisable for a prescribed period of time with the executive benefiting if the stock price increases. Growth firms focus these programmes on the incentive element of providing no benefit to the executives unless the shareholders have also accrued benefits at the same time. (4) Growth companies use twice as many shares for their executives' stock programmes as do publicly owned companies. The extraordinarily high proportion of shares reserved indicates the heavy emphasis these growth companies place on stock plans. In effect, stockholders often are asked to give up one-fifth of the company in the belief that employee efforts will make their remaining 80 per cent worth more than if they didn't share equity with management and other employees. The growth companies truly make partners of their executives. (5) Growth companies share stock with all employees not just executives because they desire everyone to be focused on value creating activities and share in the success of the firm. This is usually accomplished by stock purchase plans where employees can buy stock at 85 per cent of current value or by employee stock ownership plans (ESOPs) where employer stock is contributed to a trust for employees as a standard percentage of each employee's salary. The motivation of growth firms is to have executives and employees pay for the stock rather than give it away. Whatever compensation strategy is adopted, it is critical not to dilute the effectiveness of rewarding innovative excellence through increased internal exposure; the ultimate incentive being then a reward of discretionary funds for use in the furthering of a pet idea or project within thefirm.After all, nobody says that we should not encourage intrapreneurship. Innovative firms seeking excellence must not adopt rigid bureaucratic paradigms but need to encourage the flavour of entrepreneurship and intrapreneurship. This is a major strategy to maintain competitiveness in market niche and in compensation as well.

In summary, high-tech, growth companies use an approach for compensating both executives and employees which is fundamentally different from average companies. These companies: Use annual incentives, but emphasise the longer term.

Emphasise stock rather than long-term cash plans. Use stock options in which the executive benefits only if the stock price increases. Use a much larger proportion of stock than typical companies provide. Encourage much wider distribution of stock among the broad employee group. While it may be difficult to prove that this emphasis on stock drives high growth, many entrepreneurial owner/ managers view it as a critical component of their company's success[5].

Employees who possess critical skills expect to be rewarded for their contributions
In the final analysis, it is important to understand the reality that employees who possess critical skills expect to be rewarded for their contributions, and often go looking for work elsewhere if they don't get those rewards[17]. In the high-technology industry, that problem is amplified by the fact that these firms are concentrated in certain areas, thus minimising the moving costs incurred. These facts should guide the human resource professionals responsible for compensation policies and practices in the design of compensation programmes adapted to the specific needs of the organisations and talented high-tech professionals ultimately responsible for the firm actualising its mission. Compensation, in this regard, occupies as significant a niche as articulated strategies and leading edge innovativeness.

References 1. Maslow, A.H., Motivation and Personality, 2nd ed., Harper and Row, New York, 1960, cited in Johns, G., Organizational Behavior: Understanding Life at Wor ed., Foresman and Company, Glenview, Illinois, 1988, pp. 155-7. 2. Herzberg, F., "One More Time: How Do You Motivate Employees?", Harvard Business Review, Vol. 46 No. 1, January-February 1968, pp. 53-62.

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3. McGregor, D., The Human Side of Enterprise, McGrawHill, New York 1960, cited in Johns, G., Organizational Behavior: Understanding Life at Work, 2nd ed., Scott, Foresman and Company, Glenview, Illinois, 1988, pp. 149-50. 4. Adams, J. S., "Toward an Understanding of Inequity", Journal of Abnormal and Social Psychology, Vol. 67, 1973, pp. 422-436, cited in Johns, G., Organizational Behavior: Understanding Life at Work, Scott, Foresman and Company, Glenview, Illinois, 1988, pp. 130-31. 5. McMillan, J.D. and Young, C , "Sweetening the Compensation Package", Human Resource Magazine, Vol. 35 No. 10, October 1990, pp. 36-39. 6. Langer, S., "Salary Survey Shows IE Compensation Rose 7.3% Over Two Years", Industrial Engineering, Vol. 21 No. 8, August 1989, pp. 57-60. 7. Lawler, E.E. III, "Pay For Performance: A Motivational Analysis", Incentives, Cooperation and Risk Sharing, Rowman and Littlefield, 1987. 8. Scott, K.D. and Cotter, T , "The Team That Works Together Earns Together", in Personnel Journal, Vol. 63 No. 3, March 1984, pp. 59-67. 9. Hammer, C.W., "How to Ruin Motivation with Pay", Compensation Review, Vol. 7 No. 3, Third Quarter, 1975, pp. 17-22. 10. McLaughlin, D.J., "Reinforcing Corporate Strategy through Executive Compensation'', Management Review, Vol. 70 No. 10, October 1981, pp. 8-15. 11. Balkin, D.B. and Gomez-Mejia, L. R., "Compensation Practices in High-technology Industries", Personnel Administrator, Vol. 30 No. 6, June 1985, pp. 111-23. 12. Balkin, D.B. and Gomez-Mejia, L. R., "Determinants of R and D Compensation Strategies In the High Industry", Personnel Psychology, Vol. 37 No. 4, Winter 1984, pp..635-50.

13. Edwards, M., "Put it in Writing", Accountancy, Vol. 103 No. 1147, March 1989, pp. 86-8. 14. Nye, D., "Trust is a Well-drawn Employment Contract", Across the Board, Vol. 25 No. 10, October 1988, pp. 32-41. 15. Salwen, R., "The Crafting of Effective Employment Contracts", Directors & Boards, Vol. 13 No. 2, Winter 1989, pp. 34-38. 16. O''Toole, P., "Golden Good-byes", Working Woman, Vol. 11 No. 5, May 1986, pp. 118-21. 17. Rowland, D.C. and Greene, B., "Incentive Pay: Productivity's Own Reward", Personnel Journal, Vol. 66 No. 3, Mar 1987, pp. 48-57.

Further Reading Balkin, D.B. and Gomez-Mejia, L.R., "Toward a Contingency Theory of Compensation Strategy", Strategic Management Journal, Vol. 8 No. 2, March-April 1987, pp. 169-82. McGregor, D., The Human Side of Enterprise, McGraw-Hill, New York, 1960, cited in Johns, G., Organizational Behavior: Understanding Life at Work (2nd ed.), by Scott, Foresman and Company, Glenview, Illinois, 1988, pp. 149-50. Nestlebaum, K., "Golden Parachuters Ride for a Fall", Management Review, Vol. 75 No. 3, March 1986, pp. 36-9. Speck, R.W., "Compensation Management in Practice: Adapting Severance Pay Practices to Today's Realities", Compensation and Benefits Review, Vol. 20 No. 4, July-August 1988, pp. 14-8. Vroom, V.H., Work and Motivation, Wiley, New York, 1964, cited in Johns, G., Organizational Behavior: Understanding Life at Work, Scott, Foresman and Company, Glenview, Illinois, 1988, pp. 163-6.

Steven H. Appelbaum is Professor of Management at Concordia University, Montreal, Quebec, Canada.