Incentive Pay: Strategic Compensation and Its Impact on Human Resource Management in the United States
Compensation refers to a wide array of benefits and pay that a company uses to reward employees for performance. Strategic compensation refers to any type of compensation strategy that is aimed at rewarding good performance. Because the variety of companies and their internal structure varies wildly, strategic compensation strategies can vary wildly. For example, many direct sales companies where employees are actually independent contractors use strategic compensation strategies, giving prizes for hitting certain sales goals and increasing compensation percentages with sales. On the other end of the spectrum, large corporations almost always include stock options in higher-level compensation strategies, which directly ties the degree of financial reward to overall corporate performance. Individual companies can tailor their compensation strategies to what their firm does, the number of employees, and what is likely to motivate those employees. Perhaps most importantly, strategic compensation strategies always carry the risk of backfiring, because if they are not appropriately tailored to reward strong performance in a timely manner, they may actually discourage employees from effective and efficient performance. Moreover, it is important to keep in mind that different types of strategic compensation might impact different levels of employees in different ways, so that compensation strategies should take into account different job responsibilities and levels of autonomy.
Furthermore, it is important to keep in mind that what works in the United States may differ from what works in other countries. While there is a largely global business environment, the regulations, rules, and business norms that govern U.S. corporate structure may make some types of strategic compensation more critical in the United States. For example, in most industrialized nations, the availability of universal healthcare means that health insurance as part of an overall compensation structure is not that important. Furthermore, different rules regarding maternity leave, family and medical leave, and retirement savings can all make international models inapplicable to an American setting without making some significant alterations to those strategies.
Knowledge Management Capacity
Of course, strategic compensation does not exist in isolation in any business environment. Instead, strategic compensation packages and idea are often indicative of a greater attitude towards recognizing and rewarding employee innovation. As a result, it should come as no surprise that companies that practice strategic human resources practices are more likely to have greater knowledge management capacity (Chen & Huang, 2009). Knowledge management capacity is positively related to innovation performance (Chen & Huang, 2009). Therefore, it is critical to examine an entire corporate culture when looking at the relationship between employee performance and strategic compensation or incentive pay practices, since other factors, such as knowledge management capacity, can and do play a mediating role between those practices and performance.
Without examining the entire culture, it becomes too tempting to confuse correlation with causation. The reality is that a workplace environment is never going to replicate the conditions one would need for an experiment, which would allow one to isolate different factors and determine causation. Moreover, the same type of businesses that are willing to consider and adopt strategic compensation strategies are probably more likely to develop other practices that also increase innovation. As a result, the best conclusion that people can draw is that strategic compensation practices are one factor that has been linked to increased innovation and employee performance, but whether they would lead to performance increases in the absence of other business-level supports for innovation appears questionable.
One of the most interesting things about strategic pay programs is that, like other human resource management practices, strategic compensation programs need to take employee characteristics into account if they are going to be effective. Knowledge plays a mediating role between collaborative human resources management practices and innovative activity (Lopez-Cabrera et al., 2009). At the most basic level, this suggests that the better-suited the employees are for the tasks they are asked to perform, the more effective a strategic compensation program is likely to be. This scenario makes sense. After all, more knowledgeable employees start out as better-suited to perform their duties, which means that they are going to be able to more quickly hit performance goals and targets, which allows them to trigger the positive results of the strategic compensation programs.
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Executive Compensation The role of compensation in organizational behavior is an important one as it is used as a key tool by management to achieve social control over its employees (Pfeffer, 1997, p.102), the primary assumption being that compensation packages affect attitudes and behavior. This is seen as particularly true of executive level compensation on the grounds that management must be sufficiently motivated if organizational objectives are to be met and
In order to compare the executive compensation in both countries, the countries firms should be matched and compared according to industry, size and operation. The executive compensation can be measured or compared accurately according to the industry and firms sizes. From the data, it was found that the executive compensation in both countries were high whereas the firm performance was reducing. The data collection for the executive compensation in
Those days are likely over, for a variety of reasons, including shareholder concerns about the ever increasing dilution due to the issuance of options and new accounting rules requiring companies to expense options... In addition, studies have shown that the accounting cost of stock options exceeds employees' perceived value of those options. Finally, there has been a crisis in governance that has caused a reexamination of corporate accounting standards.
This talent does need to be retained. With respect to the executives who were involved in mortgage-backed securities, however, this argument holds little water. These are not talented individuals, as demonstrated by the substantial losses their actions have inflicted upon the company. They are not the sort of employees that the firm should be seeking to retain. It is only due to the outdated or erroneous perception that these individuals
Part of the reason for this, is because shareholders and the board of directors are allowing this to occur. To prevent the situation from becoming worse, shareholders and the board need to be more independent, by questioning the motives / actions of management. At the same time, there must be some kind regulations in place that can prevent the runaway abuses from occurring. If this kind of strategy can
Executive Compensation Programs and Incentives In 1996 the average salary plus bonus for CEOs was $2.3 million. After other benefits were added, this sum rose to $5,781,300. Beginning with Revlon executive Michael Bergerac who broke the $1 million mark in 1974, executive pay and bonus plans have soared to mind-boggling proportions. Although various governmental agencies have set limits on tax-deductible executive compensation, these efforts not only failed but served to raise
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