COMPENSATION

MANAGEMENT
Brief Notes for Students
HRSB 353

Chapter 14:
Compensation for Special
Groups
LEARNING OBJECTIVES
1. Describe a compensation strategy for each of
the special groups discussed.
2. Discuss the issue of executive pay and
explanations of why executive pay may be
justified.
3. Discuss the importance of maintaining equity
in the compensation of special groups.
4. Discuss what has changed in the way
organizations function to make contingent
workers increasingly important.
 Who Are Special Groups?
Supervisors
Corporate Directors
Chief Executive Officers and Top
Management
Professional Employees
Sales Staff
Contingent Workers
Dot-com Employees
 Supervisor Pay
The major challenge in compensating
supervisors centers on equity.
Some incentive must be provided to
entice nonexempt employees to accept
the challenges of being a supervisor.
One approach is to key base salaries of
supervisors to some amount exceeding
the highest paid person in the unit.
 Supervisor Pay (continued)
Another approach is to pay
supervisors for scheduled overtime.
Develop special supervisory incentive
and bonus plans:
annual bonus
spot award
lump sum
individual incentive
 Conflicts Faced By Corporate
Directors
Help set strategic plans that affect
profits.

Face the possibility that disgruntled

stockholders may sue over corporate
strategies that are unprofitable or
unpopular
 Direct Compensation to Corporate
Directors
Annual retainer
Attendance fees
Fees for participation on
subcommittees
Increasing emphasis on director
rewards that link to corporate
performance
More pay is stock-based
 Major Benefits Offered to Directors
Retirement programs
Matching director’s gift to college or
university
Deferral of cash compensation until
retirement
Grants to charity
Medical insurance
Payment of spouses travel expenses
Death benefits
Conflicts Faced By Top Management
Stockholders want healthy returns on
investment.

Government wants compliance with

laws.

Must decide between strategies that

maximize short-term gains versus
directions that focus on the long run.
 Components of an Executive
Compensation Package
Base salary
Short-term (annual) incentives or
bonuses
Long-term incentives and capital
appreciation plans
Executive benefits
Executive perquisites
 Examples of Long-Term Incentives
for Executives
Incentive stock options
Non-qualified stock options
Phantom stock plans
Stock appreciation rights
Restricted stock plans
Performance share / unit plans
 Examples of Popular Perquisites
Offered to Executives
 Physical Exam  Spouse Travel
 Company Car  Chauffeur Service
 Financial Counseling  Reserved Parking
 Company Plane
 Executive Dining Room
 Income Tax Preparation
 Home Security System
 First-Class Air Travel
 Car Phone
 Country Club Membership
 Financial Seminars
 Luncheon Club
Membership  Loans at Low or No
 Estate Planning Interest
 Personal Liability  Legal Counseling
Insurance
 Conflicts Faced By Professional
Employees
May be torn between the goals,
objectives, and ethical standards of
their profession and the demands of
an employer concerned more with the
profit motive.
 Pay Components for Professional
Employees

Dual career ladders

Knowledge-based bonuses
Advanced and continuing education
Professional licenses and certification
Bonuses
Royalty compensation
Intellectual property rights
IBM Dual Ladders
Executives IBM Fellow

Functional Senior Technical

Management Staff Member

Senior Senior

Development Advisory

Project Staff

MANAGEMENT LADDER TECHNICAL LADDER

Senior Associate
Associate
Engineers, Programmers,
Scientists
 Conflicts Faced By Sales Staff
Often go for extended periods in the
field with little supervision.

Challenge is to stay motivated and

continue making sales calls despite
little supervision
 Key Factors in Designing a Sales
Compensation Plan
The nature of the people who enter
the sales profession
Organizational strategy
Competitor practices
Product sold
 Alternative Sales Pay Plans
Guaranteed base salary
Guaranteed base salary + commission
Guaranteed base salary + bonus
Guaranteed base salary + commission
+ bonus
Commission only
 Sales Force Incentive
Performance Measures
 Key Steps in Designing a Sales
Compensation Plan
Establish clear strategic objectives
Establish tactical objectives
Analyze organizational data
Establish proper base pay rates
Design appropriate commission
formula
Test the plan
Control for windfalls
 Contingent Workers
Play an important “safety valve” role
for companies.
When demand is high, more are hired.
When demand drops, these are the first
workers downsized.
Employment status is highly insecure.
Challenge is to find low cost ways to
motivate.
Key Issues in Contingent Workforce
Compensation
Benefits Offered to Contingent
Workers
 Compensating Dot-com Employees
 Special group employees all have jobs with
high potential for conflict.
 The resolution of this conflict is central to
the goals of the organization.
 Because of these characteristics, special
groups receive compensation treatment
that differs from other employees.
Summary
 Governments around the world play varying
roles in the workplace.
 Legislation in any society reflects people’s
expectations about the role of government.
 Beyond direct regulation, government affects
compensation through policies and purchases that
affect supply and demand for labor.
 In the United States, legislation reflects the
changing nature of work and the workforce.
 1930s legislation was concerned with the social
safety net
 1960s legislation turned to the issue of civil rights
Review Questions
1. What has changed about the way corporations
function to make contingent workers
increasingly important?
2. Why are firms moving to different types of long-
term incentives for executives in a shift away
from stock options?
3. Is it possible for occupational groups other than
those discussed here to assume the status of a
special group for the purposes of
compensation. Explain why or why not.
4. Explain how the issue of equity is especially
important for special group employees.