1. 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)

2. 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

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

4. 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

5. 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%.

6. 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

7. 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

8. 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

9. 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

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

11. Exhibit 14.4: Breakdown of Executive Compensation Components

12. 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

13. 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

14. 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

15. 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

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

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

18. 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

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

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

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

22. 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

23. 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

24. End of Topic