Managerial Compensation

What Is Compensation? Define..

Who are the various stakeholders

What does ‘C’ mean to each of them

Swayam has to be externally appointed as a Manager Quality in a
start up. As the only HR professional in the start up, th CEO has
asked you to make a HR business proposal covering:

- Why should the start up hire a Quality Manager?

- What is the Job Role? Qualities needed in the person
- How will you decide the relative complexity of the role
- AND hence – how will you decide on the compensation
- AND design the offer annexure
 What Is Compensation?
Measure of justice – difference due to education, experience, occupation
Society

See compensation, pensions, and health care for public employees as the cause of increased
taxes
Voters

View changes in average pay as guides for adjusting eligibility for social services (medical
assistance, food subsidy, and the like) Legislators

Increases in compensation as the cause of price increases Consumers

Executive pay is of special interest. Linking executive pay to company performance is

supposed to increase shareholders’ wealth Shareholder

Executive pay hits in financial margins. However can also be used as a toll for enhancing
motivation Manager
 What Is Compensation?
Return in an exchange between their employer and themselves, as an entitlement for being
an employee of the company, or as a reward for a job well done Employee

Compensation refers to all forms of financial

returns and tangible services and benefits
employees receive as part of an employment
relationship.
 Forms of Compensation
• Cash Compensation
Base pay is the cash compensation that an employer pays for the work
performed.
Base pay tends to reflect the value of the work or skills and generally ignores
differences attributable to individual employees
Merit pay is the adjustment made to base pay basis change in skill or
experience or past performance
Cost of Living is the adjustment made basis change of overall cost of living –
not linked to individual; is across the board

Incentives tie pay increases directly to performance

-Do not increase the base wage, so must be re-earned each pay period
-Potential size of the incentive payment will generally be known beforehand
-The performance objective for incentive payments is ahead of time
-Can be short or long terms
-Can be individual, team, company based
 Forms of Compensation
• Benefits
Work-Life focus Programs that help employees better integrate their work and
life
1. Time off from work 2. Access to service – day care, financial planning
3. Flexible work timing - Telecommuting, no pay time off

Allowances It compensated for whatever is in short supply

Income Protection employers must pay into a fund that provides income
replacement for workers who become disabled or unemployed
 Forms of Compensation
• Relational Returns - a broader umbrella than total compensation
What make a CEO come to work everyday?
What makes a TV anchor host programs every weekday?
Why do billionaires still work hard?

Relational returns from work as

•Recognition and status
•Employment security
•Challenging work
•Opportunities to learn
•Personal satisfaction from successfully facing new challenges
•Teaming with great co-workers
•Receiving new uniforms
 Forms of Compensation
• Relational Returns - a broader umbrella than total compensation
A exchange leading to the formation of an implicit contract

An implicit contract is an unwritten understanding between employers

and employees over their reciprocal obligations and returns; employees
contribute toward achieving the goals of the employer in exchange for
returns given by the employer and valued by the employee

Unanticipated changes in compensation often breach this implicit understanding.

Replacing annual pay increases with incentives

Raising the deductibles on health care insurance
Tinkering with pension plans may have a negative effect

.... employees feel the implicit contract has been breached.

Compensation

Also known as

Total Returns for Work Or Total Rewards

Total Returns for Work
 Framework for Analyzing Employment
Relationships
HIGH PAY – LOW COMMITMENT HIGH PAY – HIGH COMMITMENT

Hired Guns Cult - like

(Stockbrokers) (Microsoft)
TRANSACTIONAL

LOW PAY – LOW COMMITMENT LOW PAY – HIGH COMMITMENT

Workers as Commodity Family

Low

(Employers of Migrant (Starbucks)

Farm Workers)

Low High
RELATIONAL