Compensation of Special Groups Compensation Management Prepared by: Mr. Zaheed Husein Mohammad Al-Din, Sr. Lecturer, BBS Adapted from: Compensation, Ninth Edition (By: George T. Milkovich, Jerry M. Newman)

Topics for Discussion Who are Special Groups? Characteristics of Special Groups Explanations for CEO Compensation Components of an Executive Compensation Package Reward Components: Professional Employees Key Factors: Designing a Sales Compensation Plan Contingent Workers

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

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

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 The differential varies any where from 10% to 35%.

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

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

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

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

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

Exhibit 14.4: Breakdown of Executive Compensation Components

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

Exhibit 14.8: Popular Perks Offered to Executives 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 See Exhibit 14.7, page 503

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

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

Exhibit 14.9: IBM Dual Ladders See Exhibit 14.8, page 504

Exhibit 14.10: Maturity Curve: Years Since Last Degree Relative to Salary See Exhibit 14.8, page 504

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

Exhibit 14.11: Sales Compensation Components See Exhibit 14.8, page 504

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

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

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

Key Issues in Contingent Workforce Compensation Identify ways to deal with equity issues View workers as pool of candidates for more permanent hiring status Champion idea of boundary less careers

End of Topic