Mod 6 (2nd part)


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  • The differential varies any where from 10% to 35%.
  • Watson-Wyatt reports that 98% of the companies they survey compensate outside members, while 5% compensate inside directors. The larger the firm, the greater the likelihood of compensating outside directors. The reverse is true for inside directors. Compensation has not always kept up with this increased responsibility that directors face. There is a growing concern that board members are paid too much to perform rubber stamp duties, but too little to assume today’s risks, responsibilities, and pressures.
  • See Exhibit 14.7, page 503
  • Mod 6 (2nd part)

    1. 1. Compensation for Special groups By: Akansha Badal Atisha Pradhan Preeti Agarwal Madhilika
    2. 2. Compensation Strategy for Special Groups <ul><ul><li>Supervisors </li></ul></ul><ul><ul><li>Top management </li></ul></ul><ul><ul><li>Board of Directors </li></ul></ul><ul><ul><li>Professional Employees </li></ul></ul><ul><ul><li>Sales Staff </li></ul></ul><ul><ul><li>Contingent Workers </li></ul></ul>
    3. 3. Characteristics of Special Groups <ul><li>Strategically important to the company </li></ul><ul><li>Positions tend to have built-in conflict that arises because different factions place incompatible demands on members of group </li></ul>
    4. 4. <ul><li>SUPERVISORS </li></ul>
    5. 5. Issues: Supervisory Pay <ul><li>Caught between demands of </li></ul><ul><ul><li>Upper management in terms of production and </li></ul></ul><ul><ul><li>Employees in terms of rewards, reinforcements, and counseling </li></ul></ul><ul><li>Cash incentives can entice nonexempt employees to accept challenges of being a supervisor </li></ul>
    6. 6. Strategies: Supervisory Pay <ul><li>Pay strategies </li></ul><ul><ul><li>Base salaries of supervisors typically exceed highest paid employee </li></ul></ul><ul><ul><li>Evaluate need for payment for scheduled overtime </li></ul></ul><ul><li>Increased use of variable pay </li></ul><ul><ul><li>More than half of companies have a variable pay component for supervisors </li></ul></ul>
    7. 7. <ul><li>BOARD OF DIRECTORS AND </li></ul><ul><li>TOP MANAGEMENT </li></ul>
    8. 8. Key Activities of Corporate Directors <ul><li>Review senior management actions to ensure congruency with organizational </li></ul><ul><ul><li>Mission, Vision, Strategies </li></ul></ul><ul><li>Review policies of key organizational operations to ensure effective use of resources </li></ul><ul><li>Ensure senior management acts properly </li></ul><ul><li>>>Decisions have long-term implications </li></ul>
    9. 9. Conflicts Faced by Corporate Directors <ul><li>Help set strategic plans affecting profits </li></ul><ul><li>Steep regulatory compliance requirements </li></ul><ul><li>Disgruntled stockholders may sue or try to take over the company </li></ul>
    10. 10. Board of Directors Compensation <ul><li>Annual retainer </li></ul><ul><li>Meeting attendance fees </li></ul><ul><li>Committee participation fees </li></ul><ul><li>Rewards should link to company performance </li></ul><ul><li>>>>Pay is both cash and stock-based (start ups may only pay directors with stock) </li></ul>
    11. 11. Conflicts Faced by Top Management <ul><li>Stockholders want healthy returns on investment </li></ul><ul><li>Government wants compliance with laws </li></ul><ul><li>Must decide between strategies </li></ul><ul><ul><li>Maximizing short-term gains versus </li></ul></ul><ul><ul><li>Focusing on long-term </li></ul></ul>
    12. 12. CEO Compensation Theories <ul><li>Social comparisons </li></ul><ul><ul><li>Executive salaries bear a relationship to pay of lower-level employees </li></ul></ul><ul><li>Economic approach </li></ul><ul><ul><li>Value of CEO should correspond to some measure of organizational success </li></ul></ul><ul><li>Agency theory </li></ul><ul><ul><li>CEO compensation should ensure that executives focus on best interests of firm and stockholders </li></ul></ul>
    13. 13. Executive Compensation Packages <ul><li>Base salary </li></ul><ul><li>Short-term (annual) incentives or bonuses </li></ul><ul><li>Long-term incentives </li></ul><ul><li>Executive benefits </li></ul><ul><li>Executive perquisites </li></ul>
    14. 14. Perquisites Offered to Executives <ul><li>Low cost loans </li></ul><ul><li>Company car </li></ul><ul><li>Financial counseling </li></ul><ul><li>Income tax preparation </li></ul><ul><li>First-class air travel </li></ul><ul><li>Company plane </li></ul><ul><li>Country club membership </li></ul><ul><li>Estate planning </li></ul><ul><li>Personal liability insurance </li></ul><ul><li>Spouse travel </li></ul><ul><li>Chauffeur service </li></ul><ul><li>Reserved parking </li></ul><ul><li>Executive dining room </li></ul><ul><li>Home security system </li></ul><ul><li>Car phone </li></ul>
    15. 15. <ul><li>PROFESSIONAL EMPLOYEES </li></ul>
    16. 16. Professional employees <ul><li>Are those whose work involves the applications of learned knowledge to the solutions of the employer’s problems. </li></ul><ul><li>Include lawyers, doctors, economists and engineers. </li></ul><ul><li>Making incentive pay decisions can be challenging. </li></ul><ul><li>In some cases offering financial rewards to people like these may actually diminish their intrinsic motivation – not add to it. </li></ul>
    17. 17. Issues: Professional Employees <ul><li>Conflict - May be torn between </li></ul><ul><ul><li>Goals, objectives, and ethical standards of their profession and </li></ul></ul><ul><ul><li>Demands of an employer concerned more with profit motive </li></ul></ul><ul><li>Problems in designing pay </li></ul><ul><ul><li>Salary plateaus due to knowledge obsolescence of mature professionals </li></ul></ul><ul><ul><li>Questions of equity </li></ul></ul>
    18. 18. Reward Components: Professional Employees <ul><li>Dual-career ladders </li></ul><ul><li>Performance-based incentives </li></ul><ul><ul><li>Profit sharing </li></ul></ul><ul><ul><li>Stock ownership </li></ul></ul><ul><li>Bonuses </li></ul><ul><ul><li>Completion of projects on or before deadlines </li></ul></ul><ul><ul><li>Patents </li></ul></ul><ul><ul><li>Publications </li></ul></ul><ul><ul><li>Attainment of professional licenses </li></ul></ul><ul><li>Perks based on unique needs of professional employees </li></ul>
    19. 19. <ul><li>SALES STAFF </li></ul>
    20. 20. Conflicts Faced by Sales Staff <ul><li>Often go for extended periods in field with little supervision </li></ul><ul><li>Much reliance on incentive payment tied to individual performance </li></ul>
    21. 21. Challenges <ul><ul><li>Staying motivated </li></ul></ul><ul><ul><li>Continuing to make sales calls despite little supervision </li></ul></ul>
    22. 22. Average Salary for Sales Employees Annual Revenue of the company Base Salary Bonus plus Commission % Bonus plus Commission Total compensation Executive $ 87,178 $ 35,721 41 % $ 122, 899 Top-level Sales representative $78,483 $ 60,676 77 % $139,459 Mid level sales representative $ 49,144 $ 28,035 57 % $ 77,179 Low level sales representative $ 37,698 $ 14,294 38 % $ 51, 992 Average of all representatives $ 54,452 $ 25,571 47 % $ 80,023
    23. 23. Key Considerations in Sales Plan Design 1 Nature of people choosing sales as career 2 Organizational strategy 3 Market maturity 4 Competitor practices 5 Size of company 6 Economic environment 7 Product sold
    24. 24. Alternative Sales Pay Plans <ul><li>Guaranteed base salary </li></ul><ul><li>Guaranteed base salary + commission </li></ul><ul><li>Guaranteed base salary + bonus </li></ul><ul><li>Guaranteed base salary + commission + bonus </li></ul><ul><li>Commission only </li></ul>
    25. 25. Performance Measures: Sales Force <ul><li>Overall territory volume </li></ul><ul><li>Market share </li></ul><ul><li>Product placements in retail stores </li></ul><ul><li>New accounts </li></ul><ul><li>Gross profit </li></ul><ul><li>Percentage of list-price attainment (ASP) </li></ul><ul><li>Consistency of sales results </li></ul><ul><li>Expense control </li></ul><ul><li>Product per square foot </li></ul><ul><li>Bad debt attribution </li></ul>
    26. 26. Why is Sales Comp Special? <ul><li>Impact of performance on the company </li></ul><ul><li>Nature of sales work </li></ul><ul><ul><li>Length of time to close a sale </li></ul></ul><ul><li>Allowances, draws and quotas </li></ul>
    27. 27. Great Sales Comp Plans… <ul><li>Have a solid plan design, well articulated rules and expectations of performance </li></ul><ul><li>Have upside reward and sufficient protection to allow the employee to be focused on sales </li></ul><ul><li>Support the business model and plant capacity </li></ul><ul><li>Provide incentive to the sales force but also supports the needs of the customer </li></ul>
    28. 28. <ul><li>CONTINGENT WORKERS </li></ul>
    29. 29. Contingent Workers <ul><li>Types include a person who works </li></ul><ul><ul><li>Through a temporary help agency </li></ul></ul><ul><ul><li>On an on-call basis </li></ul></ul><ul><ul><li>As independent contractor </li></ul></ul><ul><li>Typical salary arrangements </li></ul><ul><ul><li>Temporary and part time workers often earn less than workers in traditional arrangements </li></ul></ul><ul><ul><li>Independent contractors often earn more </li></ul></ul>
    30. 30. Benefits to the organization <ul><li>Employment status is temporary, flexible employment </li></ul><ul><li>Employee benefit costs are about 50% less </li></ul><ul><li>Wages at times may be somewhat higher to compensate </li></ul><ul><li>View contingent workers as a pool of candidates for more permanent hiring status </li></ul>
    31. 31. Benefits to Employees <ul><li>Series of opportunities to acquire valuable increments in knowledge </li></ul><ul><li>Boundaryless career </li></ul><ul><li>Rapid development of skills </li></ul>
    32. 32. Summary: Design for success <ul><li>Pay design should complement work time horizon </li></ul><ul><ul><li>Longer term focus for executives than others </li></ul></ul><ul><li>Pay design should complement risk tolerance </li></ul><ul><ul><li>Sales people typically like to take risks and be rewarded handsomely for success </li></ul></ul><ul><ul><li>Assembly workers want a salary they can count on </li></ul></ul>
    33. 33. <ul><li>THANK YOU </li></ul>