Chapter 14: Compensation of Special Groups: Executives and Others

Social comparisons

One explanation for executive compensation excess

Professional

An employee who has specialized training of a scientific or intellectual nature and whos major duties do not entail the supervision of people.

ISS

Institutional Shareholder Services

Base wage

The basic cash compensation that an employer pays for the work performed. Tends to reflect the value of the work itself and ignore differences in individual contributions.

TSR

Total Shareholder Return

3 dimensions used by ISS to evaluate executive compensation plans

1) Pay for performance 2) Problematic pay practices 3) Compensation committee communication and responsiveness

2 types of sales compensation plans

1) Unit rate plans 2) Add-on plans

Maturity curve

Reflect the relationship between scientist/engineer compensation and years of experience in the labor market. A plot of the empirical relationship between current pay and years since a professional has las received a degree (YSLD), thus allowing organizations to determine a competitive wage level for specific professional employees with varying levels of experience.

Behavioral agency theory

suggests that CEOs are irresolute about stock options, inclined to be risky and to accumulate future wealth but also inclined to be cautious about preserving current wealth

5 elements of most executive compensation packages

1) Base salary 2) Short-term (annual) incentives or bonuses 3) Long-term incentives (e.g., stock options and stock grants) 4) Benefits 5) Perquisites

6 factors influencing the design of a sales compensation package

1) The nature of people who enter the sales profession 2) Organization strategy 3) Market maturity 4) Competitor practices 5) Economic environment 6) Product to be sold

Agency theory

A theory of motivation that depicts exchange relationships in terms of two parties: agents and principals. According to this theory, both sides of the exchange will seek the most favorable exchange possible and will act opportunistically if given a chance. As applied to executive compensation, agency theory would place part of the executive's pay at risk to motivate the executive (agent) to act in the best interests of the shareholders (principals) rather than in the executive's own self-interests.

Stock options

Purpose: Concerns: - Stock options sometimes do not relate as closely as desired to executive performance. - Stock options as incentives have the ability to manipulate the system.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Purpose: - Protecting taxpayers by putting an end to bailouts - Safeguarding customers from abusive financial services practices - It gives shareholders the power to vote for or against their organization's proposed compensation plan for its five highest-paid executives.

Base salary

The dollar amount a person receives in a salary per pay period before deductions

Perquisite

another term for perk. a thing regarded as a special right or privilege enjoyed as a result of one's position.

Dual-career ladders

offers a solution for firms dealing with the salary plateau effect and attempts to accommodate the career intentions of senior scientists and engineers. Presence of two different ways to progress in an organization, each reflecting different types of contribution to the organization's mission. The managerial ladder ascends through increasing responsibility for supervision or or direction of people. The professional track ascends through increasing contributions of a professional nature that do not mainly entail the supervision of employees.