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Chapter 14

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  1. Compensation of Special Groups Chapter 14

  2. Chapter Topics • Who are Special Groups? • Compensation Strategy for Special Groups • Your Turn: Compensation of Special Groups

  3. Who Are Special Groups? • Supervisors • Corporate directors • Top management executives • Professional employees • Sales staff • Contingent workers

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. Components of an Executive Compensation Package • Base salary • Short-term (annual) incentives or bonuses • Long-term incentives and capital appreciation plans • Executive benefits • Perquisites

  11. Exhibit 14.4: Breakdown of Executive Compensation Components

  12. 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

  13. 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 Exhibit 14.8: Popular PerksOffered to Executives

  14. Scientists and Engineers in High-Technology 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

  15. 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

  16. Exhibit 14.9: IBM Dual Ladders

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

  18. 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

  19. Exhibit 14.11: Sales Compensation Components

  20. Key Factors: Designing a Sales Compensation Plan • Nature of people who enter sales profession • Organizational strategy • Market maturity • Competitor practices • Economic environment • Product sold

  21. Sales Compensation Packages • Guaranteed base salary • Guaranteed base salary + commission • Guaranteed base salary + bonus • Guaranteed base salary + commission + bonus • Commission only • Combination plan

  22. 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

  23. Identify ways to deal with equity issues View workers as pool ofcandidates for morepermanent hiring status Champion idea ofboundary less careers Key Issues in Contingent Workforce Compensation