Extending the System Chapter 14 Compensation of Special Groups Chapter 15 Union Role in Wage and Salary Administration Chapter 16 International Pay Systems

STRATEGIC ISSUES TECHNIQUES STRATEGIC OBJECTIVES Work Descriptions Evaluation INTERNAL analysis certification STRUCTURE CONSISTENCY EFFICIENCY Performance Quality Customer Cost EQUITY COMPLIANCE Market Surveys Policy PAY definitions lines STRUCTURE COMPETITIVENESS Seniority Performance Merit INCENTIVE based based guidelines PROGRAMS CONTRIBUTORS ADMINISTRATION Planning Budgeting Communication EVALUATION

Compensation of Special Groups Chapter 14 Compensation of Special Groups

Who Are Special Groups? Supervisors Corporate Directors Chief Executive Officers Professional Employees Sales Force The Contingent Work Force

Supervisor Pay The major challenge in compensating supervisors centers on equity. Some incentive must be provided to entice nonexempt employees to accept the challenges of being a supervisor. One approach is to key base salaries of supervisors to some amount exceeding the highest paid person in the unit. The differential varies any where from 10% to 35%.

Supervisor Pay (continued) Another approach is to pay supervisors for scheduled overtime. Develop special supervisory incentive and bonus plans: annual bonus spot award lump sum individual incentive

Key Activities of Corporate Directors (1 of 2) Establish policy for key internal and external operations that permits effective use of organizational resources while complying with social and legal mandates. Ensuring that senior management is properly structured and staffed.

Key Activities of Directors (2 of 2) Identifying the mission of the organization and the preferred strategic and tactical practices to accomplish the mission. Reviewing senior management actions to ensure that actions are congruent with established policies and plans and that these managers are making best use of available resources and achieving desired results.

Conflicts Faced By Corporate Directors Help set strategic plans that affect profits. Face the possibility that disgruntled stockholders may sue over corporate strategies that are unprofitable or unpopular. 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.

Major Benefits Offered to Directors Retirement programs Matching director’s gift to college or university Deferral of cash compensation until retirement Grants to charity Medical insurance Payment of spouses travel expenses Death benefits The trend in director’s compensation is toward increased variable compensation. About 51% of large firms provide directors with some form of stock compensation. The compensation goal is to make sure the directors make decisions that are in the best interests of the stockholders. This is also true of executives. An obvious way of achieving this is to make sure the directors are also stockholders. A major change in the compensation programs of outside members of the BOD began to appear in the mid 1990s with the elimination of pension plans for outside directors. A major reason for the elimination of pensions was that lucrative retirement plans encourage outside directors to stay too long and cause them to lose their independence. Some companies are planning on giving their outside board members annual stock grants that they would be required to hold until their retirement from the board.

Conflicts Faced By Top Management Stockholders want healthy returns on investment. Government wants compliance with laws. Must decide between strategies that maximize short-term gains versus directions that focus on the long run.

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

Examples 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

Conflicts Faced By Professional Employees May be torn between the goals, objectives, and ethical standards of their profession and the demands of an employer concerned more with the profit motive.

Pay Components for Professional Employees Dual career ladders Knowledge-based bonuses Advanced and continuing education Professional licenses and certification Bonuses Royalty compensation Intellectual property rights

Conflicts Faced By Sales Staff Often go for extended periods in the field with little supervision. Challenge is to stay motivated and continue making sales calls despite little supervision.

Key Factors in Designing a Sales Compensation Plan The nature of the people who enter the sales profession Organizational strategy Competitor practices Product sold

Alternative Sales Pay Plans Guaranteed base salary Guaranteed base salary + commission Guaranteed base salary + bonus Guaranteed base salary + commission + bonus Commission only

Sales Force Incentive Performance Measures Revenue Customized non-sales objectives Profit margin New accounts Units sold Product mix Company / unit performance Expense control Team performance Customer satisfaction Market share

Key Steps in Designing a Sales Compensation Plan Establish clear strategic objectives Establish tactical objectives Analyze organizational data Establish proper base pay rates Design appropriate commission formula Test the plan Control for windfalls

Key Issues in Contingent Workforce Compensation Performance management Pay for performance