Chapter 14

Compensation of
Compensation of
Special Groups
Special Groups

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Who Are
Who Are Special
Special Groups?
Groups?

•• Supervisors
Supervisors
•• Corporate
Corporate Directors
Directors
•• Chief
Chief Executive
Executive Officers
Officers
•• Professional
Professional Employees
Employees
•• Sales
Sales Force
Force
•• The
The Contingent
Contingent Work
Work Force
Force

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Key Activities
Key Activities of
of Corporate
Corporate
Directors (1(1ofof2)2)
Directors
•• Establish
Establish policy
policy for
for key
key internal
internal and
and external
external
operations that
operations that permits
permits effective
effective use
use of
of
organizational resources
organizational resources while
while complying
complying with
with
social and
social and legal
legal mandates.
mandates.
•• Ensuring
Ensuring that
that senior
senior management
management isis properly
properly
structured and
structured and staffed.
staffed.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Key Activities
Key Activities of
of Directors
Directors (2
(2 of
of 2)
2)

•• Identifying
Identifying the
the mission
mission of of the
the organization
organization andand the
the
preferred strategic
preferred strategic and
and tactical
tactical practices
practices to
to
accomplish the
accomplish the mission.
mission.
•• Reviewing
Reviewing senior
senior management
management actions
actions to
to ensure
ensure
that actions
that actions are
are congruent
congruent withwith established
established policies
policies
and plans
and plans and
and that
that these
these managers
managers areare making
making best
best
use of
use of available
available resources
resources andand achieving
achieving desired
desired
results.
results.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Conflicts Faced
Conflicts Faced By
By
Corporate Directors
Corporate Directors

•• Help
Help set
set strategic
strategic plans
plans that
that affect
affect profits.
profits.
•• Face
Face the
the possibility
possibility that
that disgruntled
disgruntled
stockholders may
stockholders may sue
sue over
over corporate
corporate
strategies that
strategies that are
are unprofitable
unprofitable oror
unpopular.
unpopular.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Major Benefits
Major Benefits Offered
Offered to
to Directors
Directors

•• Retirement programs
Retirement programs
•• Deferral of
Deferral of cash
cash compensation
compensation until
until retirement
retirement
•• Grants to
Grants to charity
charity
•• Medical insurance
Medical insurance
•• Payment of
Payment of spouses
spouses travel
travel expenses
expenses
•• Death benefits
Death benefits

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Conflicts Faced
Conflicts Faced By
By Top
Top
Management
Management

•• Stockholders
Stockholders wantwant healthy
healthy returns
returns on
on
investment.
investment.
•• Government
Government wantswants compliance
compliance with
with laws.
laws.
•• Must
Must decide
decide between
between strategies
strategies that
that maximize
maximize
short-term gains
short-term gains versus
versus directions
directions that
that focus
focus
on the
on the long
long run.
run.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Components of
Components of an
an Executive
Executive
Compensation Package
Compensation Package

•• Base
Base salary
salary
•• Short-term
Short-term incentives
incentives or
or bonuses
bonuses
•• Long-term
Long-term incentives
incentives and
and capital
capital appreciation
appreciation
plans
plans
•• Executive
Executive benefits
benefits
•• Executive
Executive perquisites
perquisites

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Examples of
Examples of Long-Term
Long-Term Incentives
Incentives
for Executives
for Executives

•• Incentive
Incentive stock
stock options
options
•• Non-qualified
Non-qualified stock
stock options
options
•• Phantom
Phantom stock
stock plans
plans
•• Stock
Stock appreciation
appreciation rights
rights
•• Restricted
Restricted stock
stock plans
plans
•• Performance
Performance share
share // unit
unit plans
plans

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Conflicts Faced
Conflicts Faced By
By Professional
Professional
Employees
Employees

•• May
May be
be torn
torn between
between the
the goals,
goals,
objectives, and
objectives, and ethical
ethical standards
standards of
of their
their
profession and
profession and the
the demands
demands ofof an
an
employer concerned
employer concerned more
more with
with the
the profit
profit
motive.
motive.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Pay Components
Pay Components for
for
Professional Employees
Professional Employees

•• Dual career
Dual career ladders
ladders
•• Knowledge-based bonuses
Knowledge-based bonuses
•• Advanced and
Advanced and continuing
continuing education
education
•• Professional licenses
Professional licenses and
and certification
certification
•• Bonuses
Bonuses
•• Royalty compensation
Royalty compensation
•• Intellectual property
Intellectual property rights
rights

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Conflicts Faced
Conflicts Faced By
By Sales
Sales Staff
Staff

•• Often
Often gogo for
for extended
extended periods
periods in
in the
the
field with
field with little
little supervision.
supervision.
•• Challenge
Challenge isis toto stay
stay motivated
motivated and
and
continue making
continue making salessales calls
calls despite
despite
little supervision.
little supervision.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Key Factors
Key Factors in
in Designing
Designing aa Sales
Sales
Compensation Plan
Compensation Plan

•• The
The nature
nature of
of the
the people
people who
who enter
enter
the sales
the sales profession
profession
•• Organizational
Organizational strategy
strategy
•• Competitor
Competitor practices
practices
•• Product
Product sold
sold

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Alternative Sales
Alternative Sales Pay
Pay Plans
Plans

•• Guaranteed
Guaranteed base
base salary
salary
•• Guaranteed
Guaranteed base
base salary
salary ++ commission
commission
•• Guaranteed
Guaranteed base
base salary
salary ++ bonus
bonus
•• Guaranteed
Guaranteed base
base salary
salary ++ commission
commission ++ bonus
bonus
•• Commission
Commission only
only

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Sales Force
Sales Force Incentive
Incentive
Performance Measures
Performance Measures

•• Revenue
Revenue •• Company
Company // unit
unit
•• Customized non-sales
Customized non-sales performance
performance
objectives
objectives •• Expense
Expense control
control
•• Profit margin
Profit margin •• Team
Team performance
performance
•• New accounts
New accounts •• Customer
Customer satisfaction
satisfaction
•• Units sold
Units sold •• Market
Market share
share
•• Product mix
Product mix

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Key Steps
Key Steps in
in Designing
Designing aa Sales
Sales
Compensation Plan
Compensation Plan

•• Establish clear
Establish clear strategic
strategic objectives
objectives
•• Establish tactical
Establish tactical objectives
objectives
•• Analyze organizational
Analyze organizational data
data
•• Establish proper
Establish proper base
base pay
pay rates
rates
•• Design appropriate
Design appropriate commission
commission formula
formula
•• Test the
Test the plan
plan
•• Control for
Control for windfalls
windfalls

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1

 Key Issues
Key Issues in
in Contingent
Contingent
Workforce Compensation
Workforce Compensation

•• Performance
Performance management
management

•• Pay
Pay for
for performance
performance

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 1