chapter 14: compensation

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.

Maturity curves

a plot of the empirical relationship between current pay and years since a professional has last received a degree (YSLD), thus allowing organizations to determine a competitive wage level for specific professional employees with varying levels of experience

Professionals

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

Pooled commissions

commissions based on rates of a sales team

Declining commissions

offer rate up to a target level, then lesser rates thereafter

Ramped commissions

one rate up to a target level, then a higher rate tied to more difficult above target sales

Dual-career ladder

presence of two different ways to progress in an organization, each reflecting different types of contribution to the organization's mission

Flat commissions

same rate for each unit sold