Compensation of Special Groups

Copyright 2009

Chapter Topics
Who

are Special Groups? Strategy for Special Groups

Compensation Your

Turn: Compensation of Special Groups

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Who Are Special Groups?

Supervisors Corporate directors Top management executives Professional employees

Sales staff
Contingent workers
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Characteristics of Special Groups

Tend to be strategically important to a company Positions tend to have built-in conflict that arises because different factions place incompatible demands on members of group

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Issues: Supervisory Pay

Caught between demands of:

Upper management in terms of production and Employees in terms of rewards, reinforcements, and counseling

Major challenge in paying supervisors

Equity

Provide incentives to entice nonexempt employees to accept challenges of being a supervisor

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Strategies: Supervisory Pay

Pay strategies
Key base salaries of supervisors to an amount exceeding highest paid employee Pay supervisors for scheduled overtime

Trend in supervisory compensation

Increased use of variable pay More than half of all companies have a variable pay component for supervisors
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Corporate Directors

Stockholders blame corporate directors for excessively high executive compensation

Directors are much more active in decision making and somewhat less prone to grant huge salaries to the CEO Approximately two-thirds of boards now include more outside directors than inside directors In exchange for meeting at least quarterly a typical director receives about $55,000 in cash and incentives and a total of about $150,000

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Executives

Pay is linked to company performance

Company performance exceeds industry standards, big bonuses and stock payouts follow
Poor financial performance means much smaller pay packages

Ways to rein in executive compensation

Use of tally sheet

Increase government regulation

Stockholders can vote/ propose limits to compensation
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Explanations for CEO Compensation

Social comparisons
Executive salaries bear a consistent relative relationship to pay of lower-level employees

Economic approach
Value of CEO should correspond to some measure of organizational success

Agency theory
Incorporates political motivations CEO compensation should be designed to ensure executives focus on best interests of firm and stockholders
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Components of an Executive Compensation Package

Base salary Short-term (annual) incentives or bonuses Long-term incentives and capital appreciation plans Executive benefits Perquisites
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Exhibit 14.4: Breakdown of Executive Compensation Components

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Exhibit 14.7: Description of Long-Term Incentives for Executives

Incentive stock options Non-qualified stock options Phantom stock plans

Stock appreciation rights

Restricted stock plans

Performance share/unit plans

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Exhibit 14.8: Popular Perks Offered to Executives

Physical exam Company car Financial counseling Company plane Income tax preparation First-class air travel Country club membership Luncheon club membership Estate planning

Personal liability insurance Spouse travel Chauffeur service Reserved parking Executive dining room Home security system Car phone Financial seminars Loans at low or no interest Legal counseling

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Scientists and Engineers in HighTechnology Industries

Scientists and engineers are classified as professionals

Problems in designing pay
Salary plateaus due to knowledge obsolescence of mature professionals
Dual-Career Ladder

Question of equity

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Reward Components: Professional Employees

Dual-career

ladders Performance-based incentives

Profit sharing Stock ownership
Bonuses

Completion of projects on or before deadlines Patents Publications Elections to professional societies Attainment of professional licenses
Perks

based on unique needs of professional employees

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Exhibit 14.9: IBM Dual Ladders

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Exhibit 14.10: Maturity Curve: Years Since Last Degree Relative to Salary

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Conflicts Faced by Sales Staff

Often go for extended periods in field with little supervision

Challenges
Staying motivated

Continuing to make sales calls despite little supervision

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Exhibit 14.11: Sales Compensation Components

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Key Factors: Designing a Sales Compensation Plan

Nature of people who enter sales profession

Organizational strategy Market maturity

Competitor practices
Economic environment

Product sold

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Sales Compensation Packages

Guaranteed base salary Guaranteed base salary + commission Guaranteed base salary + bonus Guaranteed base salary + commission + bonus Commission only

Combination plan

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Contingent Workers
Types

include a person who works

Through a temporary help agency On an on-call basis As an independent contractor

Typical

salary arrangements

Workers in first two categories often earn less than workers in traditional arrangements
Independent contractors often earn more
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Key Issues in Contingent Workforce Compensation

Identify

ways to deal with equity issues

View workers as pool of candidates for more permanent hiring status Champion idea of boundary less careers

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