Compensation and Benefit Plans

Agenda/OverviewThis week’s Seminar is about what constitutes an adequate compensation

and benefit plan. During the discussion, consider compensation and benefits that you have

received from your employer. Enhanced Audio Seminar FormatCompensationBenefits and IncentivesCost ControlMotivationExecutive CompensationAbuse and LegislationQuestions

CompensationStrategic CompensationPay for Performance StandardIncentive Pay Skill-Based PayExpectancy Theory

Compensation Plans: Pay-for-Performance

Managers tie pay to effort and performance Link pay to performance to maximize productivity Studies prove out increased output

Incentive Plans Focus on specific performance targets Compensation is directly related to Operating Performance Rewards and attracts top performers Most systems are viewed as fair by employees

Sales Professionals Salary, Commission, or Combo

Group Incentives Team, Gainsharing, Profit Sharing

Skill-Based Plans Link to strategy, organizational values, motivation and reward Common in Manufacturing Benefits include increased productivity, a willingness to learn, and,

flexible scheduling

Expectancy Theory Predicts motivation to rewards

IncentivesProfessional Employees

Profit Sharing, Stock Ownership, Hiring bonusSales Professionals

Salary, Commission, ComboGroup Incentive PlansTeam CompensationGainsharingMerit Pay

Hourly PayMeans to reduce managerial levels

Align compensation plans with organizational strategies Reward systems

Compensation Strategies Factors Affecting the Wage Mix: Internal Factors Employer’s Strategy

Employee’s relative worth: Ability and Capability Employer’s ability to pay: Public, Private, Government

External Factors

Conditions of Labor Market: Recession, Economic Growth Area wage rates Cost of living

Union Environment: Collective Bargaining Legal requirement: Federal Minimum wages Law Wage and Salary Surveys: Department of Labor

Job Evaluation TechniquesJob Ranking SystemJob Classification SystemPoint SystemWork Valuation System

Benefits Why Organizations offer Benefits

• To attract and hold capable people. • To keep up with competition. • To foster good morale. • To keep employment channels open by providing opportunities for advancement

and promotion as older workers retire.

Common Benefits

Medical health Insurance

Life Insurance and Short term disability insurance

Disability insurance

Vision and Dental

401K

Vacation and float day

Nurse Hotline

Other Compensation and Benefits

Employee Assistant Program

Membership Benefits

Tuition reimbursement

Cost Control Healthcare costs are a threat to many organizations Employees pay more out of pocket New Law: Every employer has to provide health insurance?

Compensation Issues The issue of Equal Pay for Comparable Worth What is Comparable Worth? The issue of Wage-rate compression What is Wage-Rate Compression? The issue of Low Salary Budgets Pay raise freeze The impact of Globalization

Executive CompensationExecutive: CEO, President, CFO, COO, Board of DirectorBase salary, cash bonus, pension, perks, stock options,

profit sharingHealth, vision, Dental, term life, life insurance, travel

accidental insurance, Short term disabilityPaid spouse travel for meeting, Country club

membership, Health club membership, Airline club membership, Corporate jet, Severance package

Gap between hourly and executive payCEO pay: 364 times (avg $10.8 mil)more than workers

(2007) 525 times recorded in 2000 (2000) http://money.cnn.com/2007/08/28/news/economy/ceo_pay_workers/index.htm

Investors and public Feelings

Executive AbuseBob Nardelli (Home Depot), Jack Welch (GE)Stockholders “Say-on-Pay” http://dealbook.blogs.nytimes.com/2009/02/19/sec-commissioner-backs-say-on-pay/

Outrageous Perks

Outrageous PerksCountry Club Bill, including $200,000 initiation fee

(Countrywide Financial CFO)Upgrade of $365,916 to TXU CEO’s Dallas home$1,000,000 donation in the name of Lockheed

Martin’s CEO Robert Stevens$894,014 cost to sell CFO Tom Horton’s New Jersey

home (AMR)$1,000,000 bonus to reward acquisition of Knight

Ridder (CEO Gary Pruitt)$10,000,000 pay package for J.C. Penny CEO

Catherine West (who only lasted six months)AIG:  A $440,000 lavish getaway. Merrill Lynch: A

million-dollar office re-do for its former CEO just before the company got government bailout money

Legislation and trends governing pay and PerksCorporate Boards no longer “Rubber Stamp”

recommendations of managers following Enron Investors are opposing compensation packagesNew Federal mandates require large companies to disclose

executive pay (more straightforward)Companies replacing traditional stock options with rewards

linked to specific targetsSecurities and Exchange Commission (SEC) approved an

overhaul of executive pay disclosure Http://crossbordergroup.typepad.com/say_on_pay_forum/ http://www.swamppolitics.com/news/politics/blog/2009/07/

say_on_pay_house_says_yea.html

Early History of Legislation Enacted to Regulate CompensationDavis-Bacon Act (1931)Walsh-Healy Act (1936)Fair Labor Standards Act (of 1938, as

amended)

QuestionsWhat other questions do you have at this

time?