Executive Pay

An executive is usually defined as any individual in a

managerial position in the highest level of the entire
organization.
Intrinsic Rewards for Managerial People :
1. Highly intelligent.
2. Analytical turn of mind.
3. Tend to be more creative and imaginative.
4. Independent and self confident.
5. Idea and think oriented.
6. Economically advanced to the point where income is
valued not only for its purchasing power.
7. Highly mobile.
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 Executive
1. Board of Directors.
2. Senior management.
3. Operating manager.
4. Professionals.
5. Operative employees.
6. Para professional

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Major Components of an Executive Compensation :

1. Base salary :
2. Short term performance bonus.
Conditions : i) An increase in the value of stock or
increase in return on equity. ii) Corporative productivity.
3. Varity of equity (stock ownership).
4. Long term performance bonus.
5. Severance package. (It specify awards if the employee is
required to leave the firm under specific circumstances).
6. Retirement programs.
7. Special package of benefits and perquisities.

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 Board of Directors Compensation
1. Regular meeting fees for board meetings attended.
2. An annual retainer for board membership or
retainer fees.
3. Acquisition of stock in the company.
4. Earning per share.
5. Net profit after tax.
6. Return on assets.
7. Annual sales or revenue.
8. Group travel, life, accidental death, health
insurance.

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 White collar Employees’ Compensation Considerations
1. The role of employees in labour market.
2. The relationship of clerical jobs to factory jobs
throughout the organization.
3. Extrinsic rewards and considerable care about
it.
4. Equitable pay policies for factory and office
people.
5. Promotion policy.
6. Job design.
7. Job enlargement.
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White collar employee : “Non manual employee”

such as office, clerical, sales or administrative
personnel. Indirectly involve in production process
of industry.
Blue collar employee : These include skilled and
semi skilled craft workers, unskilled labours and
their immediate supervisors. Directly involve in
production process of industry.
Pink collar employee : These are employees who
occupy jobs in which 70 to 80 percent of the
incumbents are female. ( Nurse, non college
teachers, retail sales personnel).
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 Compensation System
The aim of the compensation system :
1. Motivated employees
2. Achieved organizational goals
3. Base salary and allowances
4. Incentives and bonuses
5. Benefits and perquisites
6. Recognition
7. Evaluation

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 The benefits of the compensation system :

1. Clear understanding of rewards and

achievements
2. Fair compensation and organization capabilities
3. Explanation for set compensation and
employee motivation
4. Regulated work environment and employee
management
5. Guidelines and discipline for managers for work
with their employees
6. Optimal division of limited budget

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 Solution for compensation system improvement
1. Development of compensation policy
2. Compensation system audit
3. Job evaluation, setting internal hierarchy of job
position
4. Development of base salary system
5. Comparison of compensation level in the
organization with the labour market
6. Development of criteria for individual compensation
7. Development of criteria for variable part of the
compensation
8. Training for managers on employee evaluation
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 -

9. Development of common link between compensation

and results of organization/department/employees
10. Development of managers’ financial motivation
system
11. Development of benefit and perquisite system
12. Preparation of the documentation of compensation
system
13. Development of bonus system based on results
14. Consulting on different question concerning
compensation
15. Development of communication plan for employee
regarding the compensation system

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 Compensation Dimensions ( Eight)
1. Pay for work and performance
2. Pay for time not worked
3. Loss-of-job income continuation
4. Disability income continuation
5. Deferred income (later time, Ex. pension )
6. Spouse (family) income continuation
7. Health, accident and liability protection
8. Income equivalent payments

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 Non-Compensation Dimensions (Eight)
1. Enhance dignity and satisfaction from work performed
2. Enhance physiological health, intellectual growth and
emotional maturity
3. Promote constructive social relationship with co-worker
4. Design jobs that require adequate attention and effort
5. Allocate sufficient resources to perform work
assignments
6. Grant sufficient control over the job to meet personal
demands
7. Offer supportive leadership and management
8. Aligning compensation of all employees with objectives
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 Compensation and non compensation dimensions
Total Returns for Work

Total Compensation Relational Returns

Cash Compensation Benefits -Recognition

- Base -Income -Employment
protection security
-Merit/cost of living -Work/ -Challenging
life balance work
-Short term incentives -Allowance -Learning
-Long term incentives -Opportunities
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Strategic and Tactical Compensation Issues
Strategy provides the foundation for future
growth and development of the organization.
Strategy establishes realistic expectations of
all parties relating to the organization.

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 Strategic and Tactical Compensation Issues
Considerations for Compensation Strategies :
1. Relating job worth to differences in job
requirements.
2. Recognize the value of employee knowledge
and skill.
3. Rewarding employee contributions.
4.Upgrading of knowledge and skills.
5. Supporting team and work unit cooperative
efforts.
6. Designing compensation plans.
7. Enhance current lifestyle.
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 Employee –A Critical Resource
# Form a strategic and tactical perspective, the
quality and quantity of organizational output
depend directly on-
→Skill
→Interest
→Effort of employees
# Relationships among Pay satisfaction, job
satisfaction and their efforts on behaviour are
valuable to understand organizational
strategies and tacties.

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 -

Pay satisfaction :
# Same compensation for same job.
# Different compensation for same job.
# Different compensation for different job.
# Same pay for different merit or knowledge.
These influence to stay or leave the organization.
Job satisfaction :
# Positive view.
# Recognition of ‘well done’.
# Career leader/ career new path.
Job satisfaction and pay has the significant influence
on each other.
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Organizational satisfaction :
# Job security.
# Job stress.
# Frustration.
# Policy for long run/way.
These promoting organizational satisfaction.

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 External Factors of Compensation
Competitiveness
1. Labour market factors
# Nature of demand
# Nature of supply
2. Product market factors
# Degree of competition
# Level of product demand
3. Organizational factors
Industry, Strategy, Size, Number of
organization, Individual manager
4. Compensation regarding payment
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 Role of Trade Union in Wage and Salary
Administration
• Managerial rights
• Substituting labour with capital and technology
• Greater flexibility and productivity
• Introducing new norm
• Cutting cost
• General wage level options
• Structure of wage package
• Employee stock ownership plans
• Lump sum awards
• Profit /gain sharing plans
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 Wage/Salary/Compensation Survey
Definition : A wage and salary survey is a
systematic process of collecting wage data and
other facts about compensation policies,
practices and programs of firm in some labour
market. After these data have been classified,
analyzed and interpreted they constitute
information that has many uses. Ultimately
wage surveys reveal what other employers are
paying for similar jobs and skills.

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 Barriers/Critical pay survey problems :
1. Obtaining a proper job match;
2. Collecting useful pay data;
3. Ensuring an acceptable sample of organizations
and jobs;
4. Relating data to organizational pay policies;
5. Integrating market pay data with internally
generated job worth data and pay structure
design data;
6. Recognizing the goals of pay survey data designers
and implementers;
7. Using third party data versus performing a survey.
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 Need/ Objectives of pay survey :

1. Adjust pay level;

2. Adjust pay mix;
3. Adjust pay structure;
4. Study special situations;
5. Estimate competitors labour cost;
6. Recognizing pay trends in the market place;
7. Defending pay practices in a court of law;
8. Employees get satisfaction about their
pay/reward system.

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 Wage/Salary/Compensation Survey Procedures
1. Defining the problem : ( Information, Wage level)
2. Defining the labour market: (Competition, Time,
Situation)
3. Selecting the sample of firms :( Standard sampling
technique, Minimum sample-300 hundred)
4. Data collection method :
5. Selecting the job to be surveyed: Labour market
forces, government wage polices, force in the
product market, union)
6. Analysis and interpretation of data :
7. Survey results :
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Considerations of Management to Implement

the Pay Report : (Wage payment criteria)
1. Going wage
2. Ability to pay
3. Productivity
4. Cost of living
5. Purchasing power

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 Determining Externally Competitive Pay Levels and
Structure
External Competitiveness:
Pay relationship Specify policy Select market
among organization
1 2 3

Competitive pay Merger internal Draw policy

levels, Mix and and external line
Structure pressure
6 5 4

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 Some Major Decisions in Pay Level
Determination
# Specify pay level policy
# Define purpose of survey
# Specify relevant market/ select relevant
market competitors
# Design and conduct survey
# Interpret and apply result
# Design grades and range

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 Reward System
The composite of all organizational mechanisms and
strategies used to formally acknowledge employee
behaviour and performance.
Elements :
All forms of compensation
Promotions
Assignments
Nonmonetary awards and recognitions
Training opportunities
Job design and analysis
Organizational design
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 -
Working conditions
The supervisor
Social networks
Performance standards and reward criteria
Performance evaluation
Wage survey
Job comparing
Level of responsibility
Market pressure
Profit sharing rates
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Objectives of Reward System:

1. To attract and retain employee who has
knowledge, skills, aptitudes and attitudes.
2. To focus on attention, desired behaviour and
innovative contribution.
3. To achieve goal and desired productivity.
4. To fit organizational strategy.
5. To compete with competitors.

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 -

Money as A Means of Rewarding Employees :

1. Money is valuable because of the goods and
services that it will be purchased.
2. Economic value. Money is the medium of
exchange of economic resources.
3. Money has social value. Position, Economic
power, Authority, Orientation.
4. Money has status value. Goodwill
/Comparing to other organization.

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 The Reward Pyramid
Non Economic award Compensatory time, onsite day care.

Non work award Vacations, pensions.

Sacrifice reward Overtime, call in pay.

Service reward Seniority increase.
Pay level adjustment
(Cost of living adjustment)

Performance Skill-based pay adjustment

Reward Base pay Profit
( Incentive & (Internally aligned by job reward
gain sharing ) evaluation)
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 Best Ways to Reward Employees

1. Compensation;
2. Benefits;
3. Recognition;
4. Appreciation;
5. To identify the behaviours that are important
to company;
6. Notice the types of benefits you will provide.

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 Wage Payment Methods
1. Time wage ( Hourly)
2. Piece wage (Output rate)
3. Incentive wage plans
a) Individual incentives
i) Measured day work plan
ii) Differential day rate
iii) The Halsey plan
iv) The Rowan plan
v) The Taylor differential plan
vi) The Bedeaus plan
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vii) The Emerson plan

viii) The Gantt plan
b) Organization wide incentives plan
i) Profit sharing plan
ii) Employee stock ownership plan
iii) Gain sharing plan
4. Shift premium
5. Commission rate payment
6. Bonus
7. Straight wage ( Day, Week, Month)
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Gain sharing Plan:

Under the gain sharing plan, the performance of
the entire organization is measured. If the
organization’s performance exceed the
targeted level, employees and the company
shares the gain resulting from the increased
productivity, increased customer satisfaction,
lower cost or better safety.

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 Full Participation Plan
Problem : Standard time for producing a unit of work
is 2 hours and the base pay rate is Tk. 6.00 an hour.
If the employee complete a unit of work in only 1.6
hours then what will be the total earning for an
hour.
Solution :
Here, efficiency is 2/1.6 or 125 percent.
Employee has done (125-100)=25 percent more
work than required.
Therefore, the earning is Tk. 6.00+Tk. 1.50 (25
percent of Tk. 6.00)= Tk. 7.50 an hour.
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 -

Problem : A factory worker is on a ‘1 for 1’ full

participation plan. The standard time for each unit
produced is one-half hour and the base pay rate is Tk.
5.00 an hour. What would be the pay per hour if this
worker produce a unit every 20 minutes?
Solution:
Here, efficiency is 30/20 or 150 percent.
Worker has done (150-100)= 50 percent more work than
required.
Therefore, the earnings is Tk. 5.00+( 50 percent of Tk.
5.00)
= Tk. 5.00+ Tk. 2.50
= Tk. 7.50 an hour
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 Employee Benefits

Employee benefits are tangible compensation given to

employees other than wages.
The causes of rapid expansion of the benefits :
1. To attract new employees and to keep current
workers and make a sense of security.
2. To gain employee compliance and loyalty.
3. To face trade union pressure.
4. Tax legislation and develop motivational atmosphere.
5. Shift cost burden of health care, social security to
private sector.
6. Organizations assume a social obligation for welfare
of employees and their dependents.
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 Employee Benefits Classification :

1. Disability income continuation;

2. Loss of job income continuation;
3. Deferred income (Retirement plans);
4. Spouse and family income protection;
5. Health and accidental protection;
6. Property and liability protection;
7. Educational assistance plans;
8. Welfare benefits fund;
9. Tax legislation plan;
10.Cafeteria plans.
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 Employee Services
Employee services are compensation
components that contribute to the welfare of
the employee by filling some kinds of demand.
# Enjoy a better lifestyle.
# To meet social or personal obligations.
# Service is not universal.
Employer provide a wide array of services that
enhance the lifestyle of employees.

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 Major Sets of Components (Service) :

A. Pay for time not worked : Holiday, Vacation,

Jury duty, Election duty, Witness in court, Civic
duty, Military duty, Funeral leave, Illness in
family leave, Marriage leave, Paternity leave,
Maternity leave, Sick leave, Blood donation,
Time off to vote, Grievance and contract
negotiations, Launce time, Personal leave,
Sabbatical leave, Study leave, Causal leave,
Earn leave.
B. Time off from work without pay: Sabbaticals
without pay, Disability leave, Parental leave.
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C. Income equivalent payments and

reimbursements for incurred expenses:
Charitable contribution, Counselling, Tax
preparation opportunities, Education subsidies,
Child adoption, Child care, Elderly care,
Subsidized food service, Discounts on
merchandise, Physical awareness and fitness
programs, Social and recreational, Parking,
Transportation to and from work, Travel
expenses, Clothing reimbursement, Tool
allowance, Relocation expenses, Emergency
loans, Housing, Credit union.
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 Benefits Administration
Objectives :
1. Complexity;
2. Importance;
3. Cost of employer for benefits.
Critical issues in benefit planning and design :
4. Current and future role of government;
5. Employee demographics and performance;
6. Possible use of self-funding and third party
administration;
7. Employer ability to pay and employee contributions;
8. Monitoring and auditing programs.
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 -

Benefits Communication :
1. Oral and visual presentation with in 90 days
after employment;
2. Each employee receives a benefit statement;
3. Ad hoc employee meetings for new benefits;
4. On line communication;
5. Notice;
6. Notice board.

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 Consequences of Pay Dissatisfaction
Performance
Desire for Strikes Join union
more pay Grievances
Absenteeism

Search for a
higher paying Turnover
Pay job
Dissatisfaction Psychological
withdrawal

Lower attractiveness Job dis- Dispensary visit

of job -satisfaction Poor mental
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Absenteeism health 46
 International Compensation
Principles of Compensation:
1. Be legal
2. Be adequate
3. Be motivating
4. Be equitable
5. Be cost-benefit effective
6. Provide security

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 -

Employee Expectation and International

Organization’s Company Policy :
1. Financial protection in terms of benefits,
social security and cost of living in the foreign
location;
2. Foreign assignment offers opportunities for
advancement through income and/ savings;
3. Issues such as housing, education of children
and recreation are addressed.

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 -

Complexities of Global Compensation :

1. Exchange rate
2. Varying tax rate
3. Varying information rate
4. Varying local conditions
5. Country perspectives
6. Consistency and equity
7. Employee expectation
8. Varying cost of living
9. Varying requirements for facilities.
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 -

Objectives of Global Compensation :

1. Retain competent employees
2. Consistency and equity in pay
3. Employee mobility in a cost-effective
4. Financial protection
5. Organization ability to pay
6. Competitive and comparable
7. Improve organizational performance

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 -

Variables Influencing International

Compensation Strategy :
Internal :
1. Goal orientation
2. Capacity to pay
3. Competitive strategy
4. Organizational culture
5. Work force characteristics

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 -

Variables Influencing International Compensation

Strategy :
External :
1. Nationality of the parent country
2. Labour market characteristics
3. Education and skill levels, age and experience of
those in the labour market
4. Role of home and host country government in the
labour relations
5. Industry type
6. Competitors Strategy
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 Components of Global Compensation Package
1. Base salary and Incentive Pay :
i) Pay/base ii) Bonus iii) Stock option
2. Allowances :
i) Cost of living ii) Housing iii) Education allowance
iv) Medical allowance v) Insurance allowance vi)
Relocation allowance vii) Hardship premium
3. Taxes :
i) Exchange rate protection ii) Tax equalization iii)
Tax protection iv) International market
4. Retirement Benefits :
i) Gratuity ii) Pension iii) Social security measures
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 The personnel Budget
Organizational Budget Includes :-
a) Capital budget
b) Operating budget ( sale, revenue, expense, profit)
c) Cash budget
d) Personnel budget
Personnel budget consists of all kinds of staffing related
expenses :- i) Wage and salary ii) Merit increase iii)
Pay structure adjustment iv) General increase v)
Benefits vi)Up grades vii) Bonus viii) Commissions ix)
Over time x) Allowance for contract or outside labour.
Budget : Budgets are written plans expressed in terms of
dollar or some kind of units.
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The Budget for Personnel Costs is Developed By-
Operating or Division Manager and Submitted to

Controller/ Chief Financial Officer ( CFO)

Chief Operating Officer (COO) or CEO

Human Resource (HR) Department

# RH department has the responsibility of over seeing
the personnel cost budget after approving by COO or
CEO

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 Possible Compensation Information Flow and
Compensation Decision Points :
External Compensation Board of Directors
Consultant Committee
Chief Executive
Officer (CEO)

Salary Administration Controller or

HR- Committee Finance Dept.
Compensation
Department Major Divisional
Manager
Subordinate
Job Evaluation Managers
Committee

Employees

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 Quality of Work Life and Pay Administration
Quality of Work Life (QWL) includes the
interactions of all the parts and components
necessary to gain the cooperative
participation of knowledgeable employees. It
is simultaneously a philosophy, a process and
a goal.
QWL means------
• Employee empowerment
• Employee involvement
• Employee interactions
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 -

• More authority
• Sufficient administrative and technical support
• Gain satisfaction from work performance
• Develop the teams
• Make better use of available resources
(Training)
• Job rotation
• Pay
• Working hour
• Life with in and out of work place
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 Compensation Administration Issues That Help QWL
1. Guidelines for promotion and demotion
adjustment
2. Available options for keeping employees
whole
3. Knowledge and skill recognition
4. Paying all employees a salary
5. Overtime for employees
6. Adjusting pay for non union employees
7. Compensating temporary, part and full-time
employees and regular part-time employees
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 Designing a Base pay Structure
Guide Line for Pay Structure:-
1. Maximum and minimum level of pay:
a) Ability and willingness to pay b) Concern for
profitability c) Government regulations d) Union
influence e) Market pressure
2. The general relationships among levels of pay:
a) Relationship between management and operation
management b) Relationship between operatives
and supervisors
3. Goal/Aim/Objectives/Control/Target :
a) Lead the market b) Lag the market c) Lead-lag the
market
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 -

4. The division of the total compensation :

a)Portions for base pay b) Portions for benefits
c) Portions for merit pay d) Portions for
performance pay
5. Compensation budget: a) Pay increase for the
next year b) Seniority or merit c) Cost of living
adjustment

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 Management Considerations:
1. Lowest rate of pay
2. Pay that offer sufficient to retain with organization
3. Recognize seniority or merit
4. Similar pay for identical job or not
5. Pay for knowledge, skill or not
6. Pay for dangerous job
7. Pay for jobs of varying worth
8. Promotion and pay level
9. Pay more or low than established rate
10.Cost of living or other adjustment
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 Five Technical Features to Design a Pay
Structure
1. Determine a trend or pay policy line
2. Decide on the need for one or more pay
structure
3. Display job data
4. Identifying lowest and highest rates pay
5. Lock overlapping pay structures

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 1. Determine a trend or pay policy line

a) Lowest and highest rate of pay

Highest rate of pay to be offered

Lowest rate of pay to be offered

Jobs (Grades points)

Rates set by individual(s) with compensation decision authority

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 -

b) Mid point of lowest rated job to highest rated job

Mid point of highest rated job

Mid point of lowest rated job

Jobs (Grades points)

Mid point value obtainable through a survey of relevant

labour markets. A competitive mid point is the ‘going rate’
or average or median rate of pay for a surveyed job
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 -

c) Scatter diagram and least squares line

Jobs (Grades or points)

Free hand procedure (Perceived visually). Two point
procedure (Connect the highest and lowest value).
The least square method (Fit the line). Computer
programs (Regression analysis and fit the best line).
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 2. Decide on the need for one or more pay structure

Logical and rational considerations can be given

for having multiple pay structures :
# Pay structure for blue-collar, craft and trade
workers
# Pay structure for white collar, salaried
employees
# Pay structure for managerial, administrative
and professional employees
# Pay structure for highly paid executives
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 -

3. Display job data

# Straight line (arithmetic progression y = a+bx)
# Exponential curve (geometric progression )
# Logarithmic scale
Statistical procedure for avoiding multiple structure
4. Identifying lowest and highest rates pay
# Determine progression from lowest to highest pay rate
# Developed pay grade
# Single rate pay grade
# Two tire pay grade
# Multiple point pay structure.

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 -

5. Loc over lapping pay structures (when using

more than one pay structure):
# Use one evaluation method for determining
the worth of lowest paid job.
# Use one or other one for higher paid job.
# When use more than one evaluation methods
diagram or results may differ.

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