MGMT 472 Chapter 14
Components of an Executive Compensation Package
- Base Salary - Short-term incentives or bonuses - Long-term incentives and capital appreciation plans - Executive Benefits (Cadillac Health Care Plans) - Perquisites (To help with job i.e. club memberships and private jets
Sales Compensation Packages
- Guaranteed Base Salary - Guaranteed base salary + commission - Commission Only
What are companies doing to provide incentives to entice nonexempt employees to accept challenges of being a supervisor?
- Key the base salary of supervisors to some amount exceeding the top-paid subordinate in the unit. - Simply pay supervisors for scheduled overtime
Why are employers making heavier use of contingent workers currently?
- Recent economic downturn - Cost Savings - Flexibility for the employer
Examples of "Special Groups"
- Supervisors - Corporate Directors - Top Management Executives - Professional Employees - Sales Staff - Contingent Workers
How can executive pay be "Reined in"?
-Restricts how much CEO can make -Drops in the economy are tied to firm's performance
What are the Characteristics that make a "Special Group"?
1. They tend to be strategically important to the company. (Key employees) 2. Their positions tend to have built-in conflict, conflict that arises because different factions place incompatible demands on members of the group. (Too many groups to satisfy)
What is the current ratio of CEO pay to the average factory worker?
331 times the average worker
What is a boundaryless career?
A series of opportunities to acquire valuable increments in knowledge and skills.
What is a contingent worker?
Anyone hired through a temporary-help agency, on an on-call basis, or as an independent contractor
Why do CEOs sometimes lobby for directors who are highly compensated in their own jobs?
CEO's get paid more based on how much their directors get paid
What is the primary motivation of CEOs?
CEOs act in their own best interest (Self-Protection)
In a recession or poor economy, what should organizations do?
Companies need to react to the decreasing level of sales by focusing more on the top-level performers and rewarding those that achieve high levels of sales despite the economic downturn
What can be done to overcome the "plateauing effect"?
Dual-Career Ladder
What is the major challenge in paying supervisors?
Equity
What is the biggest issue/complaint about executive pay?
Executive compensation is badly in need of repair
Social Comparisons Theory
Executive salaries bear a consistent relative relationship to compensation of lower-level employees.
What is the better predictor of CEO pay than company performance?
Firm Size
Economic Approach
Focuses less on the difference in wages between executive and other jobs and more on explaining the level of executive wages
What is the challenge in compensating contingent workers?
Identifying ways to deal with equity problems
Agency Theory
Incorporates the political motivations that are an inevitable part of the corporate world.
What is the biggest trend in supervisory compensation?
Increased use of variable pay (Overtime pay)
What is the criticism of stock options?
May not really align CEO with the firm
What is typical pay for corporate directors?
Mediocre pay over $200,000 per year
What is believed to be the primary motivational factor of people in sales?
Money
What is the key problem in designing pay for scientists/engineers?
Pay for knowledge, most people are most knowledgeable right after school so seniority could potentially hurt you
What should sales compensation focus on in a mature market?
Performance based pay tied to customer satisfaction and on greater base salaries to retain conservative sales people.
What kinds of products recommend higher commission?
Products that are not selling well or have a higher price
What kinds of products recommend higher base bay?
Something that sales itself.
Why are executives given long-term stock options?
There is a built-in incentive for an executive to increase the value of the firm
What is the conflict facing supervisors?
They are caught between the demands of upper management to meet production goals and the needs of employees to receive rewards, reinforcements, and general counseling
What do the critics and press say regarding the level of pay of many American top executives?
They say this level of compensation can't be justified in any circumstance
What is the conflict experienced by corporate directors, especially those appointed by the CEO or who are corporate insiders?
Those appointed by CEO also sets CEO pay so there may be a trade-off