Thesis: The topic of compensation is usually complicated, emotionally charged and also misunderstood in corporate governance. The effective implementation of compensation models catalyses individual and professional growth and inspires the enhancement of motivation, performance and morale in the workplace. I IntroductionII Compensation ModelsIII Flat salary modelIV Straight Commission and the Percentage Revenue GeneratedV Salary in addition to the percentage productionVI cost of hiring employeesVII Importance of compensationVIII Compensation and motivatingIX Factors influencing compensationX Importance of compensationXI ConclusionThe top executives in business corporations contribute considerably to the success of the organizations that they work for.
This is achieved through the provision of basic salary, bonuses, options, shares, among other benefits. There has been an increment in compensation of executives in the recent past that surpassed the average wage level of workers. This is an issue of importance in the corporate governance in the company and the determination of its implementation is the responsibility of the board of directors of the company. Typically, the majority of the companies’ CEO in addition to the rest of the top executives receives some short-term incentives as well as bonuses in addition to their basic salary.
The combination of this compensation is the “Total Cash Compensation” (TCC) (Chingos 36). The short term incentives are associated with a performance criteria and are driven by a certain formula all based on the role that the executive play. For example, the basis of the bonuses of the Sales Director that are related to performance is the growth turnover of incremental revenue while that of the CEO is determined by the incremental profitability as well as the revenue growth. On the contrary, bonuses are not driven by formula but are discretionary and based on after-the-fact analysis (Chingos 39-42). Another form of compensation for the executives is a combination of cash with the company shares which in most cases are guided by the vesting restriction being long-term form of incentives.
The qualification of these incentives is the achievement of a measurable period of not less than one year, 3-5 years being the most common. The implication of the vesting term is the time period required to be achieved by the recipient to acquire the rights of share transfer alongside realizing their value.
The guiding factors of vesting are the performance of the executive, the duration of service, or a combination of both. Other existing components of compensation package of an executive are perks of the generous plans of retirement, health insurance, executive jet, chauffeuredlimousine, a loan that is free of interest, house purchase among others (Chingos 30-33). Compensation ModelsVarious models of compensation are applicable in business organizations. They include; the annual flat salary, straight commission, percentage of generated revenue, the base salary in addition to the production percentage.
Implementation of the guiding principles of compensation models is liable for alleviation of stress together with the upset that occurs due to poor models of compensation and motivation. This is in considerations of the approaches of rewarding and recognizing the efforts of the employee in the workplace. This is achieved through the right wages, expected benefits, rewards as well as incentives. Intrinsic rewards also play a vital role and their alignment is an issue of vital importance. The consideration of individual performance also bears positive impact. The motivational aspect of compensation depends on the appreciation of the demonstrated skills of the employee, abilities as well as their outcomes.
The provision of equitable opportunities of compensation has the implication that all the employees performance is of an equal level. It is only the median average employees who should receive uniform plans of incentive and uniform increases in their salary. The result of this practice is the forfeiture of the opportunity of improvement of the underperformer accompanied with lack of celebration of the top achievers. This has important implication to the future of the organization due to the failure of introduction of a system of bonus that is guided by the monthly revenues (Chingos 54-8).