Compensation of employees regards all forms of pay that comes from an employer to their employees for their services at the firm. The compensations can be either be direct or indirect financial payments. Direct financial payments may involve wages, incentives salaries, bonuses and commissions while indirect monetary pay may involve financial benefits like insurance and vacation (Dessler, 2013, p. 352).
Direct financial payments to employees can be made either based on raises over time or on implementation. Most employers use monetary payment based on time, for example, employees getting paid for the hours they work. The second way involves paying an employee for a piece of work that they accomplish. The amount of compensation, either direct or indirect financial pay to an employee, however, depends on a few elements about the employee. Some of the factors that determine the compensation include job complexity, the ability of the firm to pay, and the employee's human capital. The elements also hold for executives in the firms (Dessler, 2013, p. 352).
Job classification allows job raters to classify jobs according to the difficulty of the task and determine their pay. More often than not, the more demanding a job gets, the higher the pay category it goes. Similar posts regarding difficulty and expertise required usually fall under the same classes. One way to grade employment includes writing a set of factor-based rules that can be compensated for each category then categorize the jobs according to the law. Usually, the executive positions would vary slightly from one firm to another. However, the set of rules within the same organization would rank executive jobs as the most complex of all the jobs present in that organization (Dessler, 2013, p. 362). The set of rules would, therefore, rank the executive jobs as the most compensated in the firm.
Firm's Ability to Pay
For executive posts in a firm, the compensation entails four prime factors; base payment, short-term inducements (also Interim incentives) and long-term inducements (even, long-standing incentives). The basic payment involves the executive's basic salary as well as bonuses that the firm guarantees. Interim incentives would consist of money or stock windfalls for attaining short-term objectives such as increases in sales revenue from year to year. Long-term incentives, however, include motivational financial additions that would drive the managers to take actions to drive up the worth of the firm's stocks. One way or another, the stopgap and long-standing incentives often depends on the company's ability to pay (Dessler, 2013, p. 374).
CEO Human Capital
One thing that makes executive employees' compensation a great deal involves the executive's human capital. By the company's board evaluating factors like business strategies, corporate trends, short-term and long-term goals of the firm, they could evaluate the kind of executive that could fit in and drive the firm's agenda. The evaluation brings out the human capital that the executive brings with them into the firm. Often, the higher the demand becomes, the more resourceful the executive needs to be to fit into the firm. Therefore, the executives that fit into more demanding firms get compensated better than those in less demanding firms (Dessler, 2013, p. 374).
Reasons for Regulation of Remuneration of Top Executives in Recent Years
In as much as the compensations of employees depend much on the rank of the firm in the market and the performance of the employees, there might arise other factors that might influence pay in the firms. Some of the elements occur from external influences such as legislation. Various laws affect decisions on the compensation of employees, including executive employees. Laws like the unions and laws on labor relations, according to the National Labor Relations Act of 1935 also influence the compensation of employees by allowing them to form unions and bargain collectively in circumstances that they wish to harmonize their pay (Dessler, 2013, p. 358). Other factors also than influence the compensation of employees includes the pay policies. However, some firms resort to paying above the pay policies to motivate their employees to perform above optimal levels.
Dessler, G. (2013). Compensation. In D. Gary, Human Resource Management (pp. 350-422). Florida: Pearson Education Inc.
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