Compensation:

Broadbanding

Broadbanding refers to the collapsing of job clusters or grades of positions into a few wide bands, creating a flatter organizational structure.

Success Factors for Broadbanding

• The organization experiences a significant precipitous event.• The organization is ready for a change in its compensation s

ystem.• Top management is committed to broadbanding.• The organization has a decentralized compensation administ

ration.• The managers are empowered.

Wage Compression

- Occurs when new hires are brought in at about the same salary or higher salaries than the current employees

due to inflation.

Executive Pay and Pay for Performance

Objectives of Executive Compensation Policy

1. To retain2. To stimulate 3. To attract

Elements of the Executive Compensation Package

1. Salary (current cash pay)

2. Short-term incentive pay (bonuses)

3. Long-term incentive pay ( e.g. stock options and performance awards.)

4. Retirement benefits.

5. Other benefits, such as health care, low-interest loans, and other fringe benefits or perquisites

Important Elements of Executive Compensation Package

Executives receive high base salary plus a combination of ‘ perk.’

1. Coverage under a pension, profit-sharing, stock bonus, or savings or thrift plan.

2. Coverage of the executives’ medical bills and those of their families.

3. Life insurance coverage.

4. Stock options or alternative forms of equity participation.

5. Company cars and other perquisites.

What is “ reasonableness” for the executive pay?

Key factors to consider:1. Compensation being paid to executives in comparable positions by comparable companies.2. The executive’s qualifications for the job.3. The nature and scope of the work performed.4. The size and complexities of the business.5. A comparison of salaries paid with the gross income and the net income.6. General economic conditions.7. Comparison of salaries with distributions to stockholders.8. The company’s salary policy to all employees9. In the case of small corporation, the salary paid to the particular executive in the previous year.

The most valuable executive perquisites

• Financial counseling• Interest-free and low-interest loans to

executives• Executive dining room• Executive moving costs• Making executive’s charitable donations• Death benefits

Other Perquisites Valued by Executives

• Company cars• Parking• Company apartment• Employment contract• Termination settlements• Company payment of business or professional dues• company payment of officer liability insurance• Lavish office furnishings

References

1. Armstrong, M. and H. Murlis (1991) Reward Management, 2nd ed., Kogan Page/IPM, London.

2. James E. Cheeks (1974) How to Compensate Executives, Dow Jones-Irwin, Homewood, Illinois.

2. Dowling, P.J. and R.S. Schuler (1990) International Dimensions of Human Resource Management, PWS-Kent, Boston, Mass.

3. Pinder, M. (1990) Personnel Management for the Single European Market, Pitman, London.

4. Reynolds, C. (1986) ‘Compensation of Overseas Personnel,’ in Famularo, J.J. (ed.) Handbook of Human Resources Administration, 2nd ed., McGraw- Hill, New York.

5. Teague, B. W. (1972) Compensating Key Personnel Overseas, The Conference Board, New York.

References (contd.)

6. George Milkovich and Jerry Newman (1987) Compensation, 2nd ed. , Homewood IL: BPI/Irwin.

7. J. Lublin (1989) “Grappling with the Expatriate Issue,” The Wall Street Journal, December 11, 1989, p. B1.

8. Tim Healy (1999) “ In A Deep Freeze” Asiaweek, March 5, pp. 47-54.

9. ‘The Asiaweek Salaries Survey’ Asiaweek, March 5, 1999, pp.48-49.