Milkovich/Newman: Compensation, Ninth Edition
Compensation of
Special Groups
Chapter 14
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Topics
 Who
are Special Groups?
 Compensation
 Your Turn:
Strategy for Special Groups
Compensation of Special
Groups
14-2
Who Are Special Groups?

Supervisors

Corporate directors

Top management executives

Professional employees

Sales staff

Contingent workers
14-3
Characteristics of Special Groups

Tend to be strategically important to a company

Positions tend to have built-in conflict that
arises because different factions place
incompatible demands on members of group
14-4
Issues: Supervisory Pay

Caught between demands of:
– Upper management in terms of production and
– Employees in terms of rewards, reinforcements, and
counseling

Major challenge in paying supervisors
– Equity

Provide incentives to entice nonexempt employees
to accept challenges of being a supervisor
14-5
Strategies: Supervisory Pay

Pay strategies
– Key base salaries of supervisors to an amount
exceeding highest paid employee
– Pay supervisors for scheduled overtime

Trend in supervisory compensation
– Increased use of variable pay
– More than half of all companies have a variable pay
component for supervisors
14-6
Corporate Directors

Stockholders blame corporate directors for
excessively high executive compensation
– Directors are much more active in decision making
and somewhat less prone to grant huge salaries to
the CEO
– Approximately two-thirds of boards now include
more outside directors than inside directors
– In exchange for meeting at least quarterly a typical
director receives about $55,000 in cash and
incentives and a total of about $150,000
14-7
Executives

Pay is linked to company performance
– Company performance exceeds industry standards,
big bonuses and stock payouts follow
– Poor financial performance means much smaller pay
packages

Ways to rein in executive compensation
– Use of tally sheet
– Increase government regulation
 Stockholders can vote/ propose limits to compensation
14-8
Explanations for CEO Compensation

Social comparisons
– Executive salaries bear a consistent relative
relationship to pay of lower-level employees

Economic approach
– Value of CEO should correspond to some measure
of organizational success

Agency theory
– Incorporates political motivations
– CEO compensation should be designed to ensure
executives focus on best interests of firm and
stockholders
14-9
Components of an Executive
Compensation Package

Base salary

Short-term (annual) incentives or bonuses

Long-term incentives and capital appreciation
plans

Executive benefits

Perquisites
14-10
Exhibit 14.4: Breakdown of Executive Compensation
Components
14-11
Exhibit 14.7: Description 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
14-12
Exhibit 14.8: Popular Perks
Offered to Executives









Physical exam
Company car
Financial counseling
Company plane
Income tax preparation
First-class air travel
Country club membership
Luncheon club
membership
Estate planning










Personal liability insurance
Spouse travel
Chauffeur service
Reserved parking
Executive dining room
Home security system
Car phone
Financial seminars
Loans at low or no interest
Legal counseling
14-13
Scientists and Engineers in HighTechnology Industries

Scientists and engineers are classified as
professionals

Problems in designing pay
– Salary plateaus due to knowledge obsolescence of
mature professionals
 Dual-Career Ladder
– Question of equity
14-14
Reward Components: Professional Employees
 Dual-career
ladders
 Performance-based incentives
– Profit sharing
– Stock ownership
 Bonuses
– Completion of projects on or before deadlines
– Patents
– Publications
– Elections to professional societies
– Attainment of professional licenses
 Perks
based on unique needs of professional
employees
14-15
Exhibit 14.9: IBM Dual Ladders
14-16
Exhibit 14.10: Maturity Curve: Years Since Last Degree
Relative to Salary
14-17
Conflicts Faced by Sales Staff

Often go for extended periods in field with little
supervision

Challenges
– Staying motivated
– Continuing to make sales calls despite little
supervision
14-18
Exhibit 14.11: Sales Compensation
Components
14-19
Key Factors: Designing a Sales
Compensation Plan

Nature of people who enter sales profession

Organizational strategy

Market maturity

Competitor practices

Economic environment

Product sold
14-20
Sales Compensation Packages

Guaranteed base salary

Guaranteed base salary + commission

Guaranteed base salary + bonus

Guaranteed base salary + commission + bonus

Commission only

Combination plan
14-21
Contingent Workers
 Types
include a person who works
– Through a temporary help agency
– On an on-call basis
– As an independent contractor
 Typical
salary arrangements
– Workers in first two categories often earn less than
workers in traditional arrangements
– Independent contractors often earn more
14-22
Key Issues in Contingent Workforce
Compensation
 Identify
ways to deal with equity issues
– View workers as pool of
candidates for more
permanent hiring status
– Champion idea of
boundary less careers
14-23