1. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 14 Compensation of Special Groups

2. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives Who are special groups? Compensation strategy for special groups 14-2

3. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Who are Special Groups? Specific groups receive special treatment in the form of: Add-on packages not received by other employees Compensation components entirely unique in the organization Characteristics of special groups Tend to be strategically important to the firm Positions tend to have built-in conflict 14-3

4. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Compensation Strategy For Special Groups Supervisors Are exempt from overtime pay Some incentive must be provided to: Entice nonexempt employees to accept the challenges of being a supervisor Corporate directors Undertake considerable risk In exchange for assuming this risk, directors are well-rewarded 14-4

5. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Compensation Strategy for Special Groups Executives Professional employees Sales forces Contingent workers 14-5

6. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.1- Conflicts Faced by Special Groups 14-6

7. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Supervisors Pay strategies Base salaries of supervisors exceed the top- paid subordinate in the unit Pay supervisors for scheduled overtime Trend in supervisory compensation Increased use of variable pay 14-7

8. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Directors Boards now include more outside directors than inside directors Types of compensation Pay for performance Stock options 14-8

9. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Executives Components of compensation package Base salary Short-term (annual) incentives or bonuses Long-term incentives and capital appreciation plans Executive benefits Perquisites or perks 14-9

10. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.4 - Description of Long-Term Incentives for Executives Source: B. Ellig, The Complete Guide to Executive Compensation, 2002. Reprinted with permission of The McGraw-Hill Companies Inc. 14-10

11. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.5 - Popular Perks Offered to Executives Source: 1990 data from Hewitt Associates; 2011 from Joe Mullich, “Executive Compensation Evolves.” Wall Street Journal, B8, November 2, 2011. 14-11

12. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Furor Over Executive Compensation - Critics and Press Critics’ arguments Level of compensation not justified under any circumstances Pay in other countries are much lower Counter arguments Executive compensation is a reflection of changes in the market Executives earn their increases by linking pay to performance 14-12

13. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Furor Over Executive Compensation - Critics and Press Compensation is much lower in not-for-profit firms Ways to rein in executive compensation Use of tally sheet Increase government regulation Stockholders can vote / propose limits to compensation 14-13

14. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Furor Over Executive Compensation - Academics Social comparisons Executive salaries bear a consistent relative relationship to subordinates’ pay Economic approach Value of CEO should correspond to some measure of organizational success Agency theory Compensation should ensure that: Executives have the best interests of stockholders during decision making 14-14

15. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 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: Two different ways of progressing in an organization Question of equity Maturity curve: Relationship between compensation and years of experience in the labor market 14-15

16. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.7- Maturity Curve: Years Since Last Degree Relative to Salary 14-16

17. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.8 - IBM Dual Ladders 14-17

18. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Reward Components: Professional Employees Performance-based incentives Profit sharing Stock ownership Bonuses Linked to company profits or personal performance Incentives linked to completion of projects on or before deadlines Post-hiring bonuses for achievements Perks based on unique needs 14-18

19. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Sales Forces Quality-based measures Linking sales compensation to customer satisfaction measures Standard compensation might not work More reliance on incentive payments tied to individual performance Top-level sales representatives Incentive-based pay can be over 40% of total compensation 14-19

20. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Factors: Designing a Sales Compensation Plan Nature of people who enter sales profession Organizational strategy Link desired behaviors of salespeople to organizational strategy Two types of sales plan Unit rate plans Add- on plans 14-20

21. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Factors: Designing a Sales Compensation Plan Market maturity- In maturing markets, companies: Have conservative sales pattern Focus more on customer satisfaction and retention Competitor practices Economic environment Product to be sold 14-21

22. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 14.10- Sales Strategy Matrix Source: Jerome A. Colletti and Mary S. Fiss, “Sales Compensation,” in Lance A. Berger and Dorothy R. Berger, eds., The Compensation Handbook (New York: McGraw-Hill, 2008), pp. 239–257. 14-22

23. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Sales Compensation Packages Do not fit with straight salary or straight commission packages Combination plans - Link Straight salary to performance of nonsales functions Sales commissions for volume yields to the incentive to sell 14-23

24. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Contingent Workers Hired through a temporary-help agency: On an on-call basis As an independent contractor Earn less than workers in traditional arrangements Compensation challenge Identifying ways to deal with equity problems 14-24

25. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Contingent Workers Ways to deal with equity issues View workers as pool of candidates for more permanent hiring status Boundary less careers 14-25