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 RELATIONAL High

 Strategic Choices
How do we win (gain
competitive advantage) in those How should HR help us win?
businesses?

Business unit
HR strategies
strategies
Corporate objectives,
strategic plans, vision,
and values Strategic
Social, compensation
What business should we be in? competitive, decisions
and regulatory
environment
Compensation
systems

How should total

compensation help us Employee
win? attitudes and
behaviours

Competitive
advantage
 Exhibit 1.5: THE PAY MODEL

POLICIES TECHNIQUES OBJECTIVES

Work Descriptions Evaluation/ INTERNAL

ALIGNMENT
analysis certification STRUCTURE
EFFICIENCY
• Performance
• Quality
Market Surveys Policy PAY
COMPETITIVENESS definitions lines STRUCTURE
• Customers
• Stockholders
• Costs

Seniority Performance Merit INCENTIVE FAIRNESS

CONTRIBUTORS based based guidelines PROGRAMS

COMPLIANCE
MANAGEMENT Costs Communication Change EVALUATION
 Elements of Executive Compensation
Exec Compensation : Governance mechanism that seeks to align the interests of managers and owners through
salaries, bonuses, and long term incentive compensation, such as stock options.

Executives-Who are they?

Key Employees in company CEO, CFO, COO President, VPs, Directors

Who Decides? Different for Each Company

Compensation Consultants
Compensation Committees
Board of Directors
Shareholders

Core Compensation= Base Pay

Short term and Long - Incentives
Executive Benefits
Stock Options & Fringe Compensation
 How Should Executives Be Paid?

• Strictly performance based?

• Because of responsibility ok to pay even

when not performing well?

What do you think?

• Is it fair for Board of Directors to determine salary?
– “Boards are often quite friendly with the CEOs and find it hard to impose large decreases in
compensation on their friends”
– Boards should usually be made of outsiders to avoid much conflict

• Is it fair to give bonuses to CEOs

– Bonuses often cause oversight of long term goals
– Bonuses can be used to bring focus on key deliverables