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Thoughts on Executive Compensation

Briefly explain your views on executive compensation. Do you think it’s excessive or is it appropriate? Why or why not?

I largely view executive compensation to be excessive since as mentioned in the PBS video we watched in class, in 2002 CEOs were making a little south of 500 times that of the average worker. This huge disparity demonstrates that there is something wrong at play in the compensation system. Another issue noted in the same PBS video was that in the 1990s CEO’s pay was rising regardless of corporate performance and thus the pay increase was not justified. I would assume that similar situations are still taking place today which further makes me feel that their compensation is excessive.

However, I do see some reason for having such a high compensation for executives for such reasons as recruiting and retaining the right talent for the job. Bob Pavey mentioned that this may also increase motivation among other workers and encourages them to be more productive. I somewhat agree with this, but if the CEO and other top executives’ pay is increasing significantly more than most of the workers in the company,  I believe that it may have the reverse effect. I wouldn’t be surprised if it even caused worker dissatisfaction as they feel they are not being fairly compensated for their contribution in comparison to that of the CEO.

How would you change executive compensation? What controls would you put in place? (Jamboard)

I would change the executive compensation by limiting the adjustment that would be made to the executives’ compensation each year in order to compete with the market. By doing this it would hopefully work to slow the growth of the executives’ compensation a little bit. It may also be beneficial to monitor who the board of directors is made up of. This is because as exemplified in the PBS video CEOs will handpick the board of directors to be made up of other CEOs as they may give this company’s CEO a raise because they want a raise as well. This creates an unfair system where the CEOs work to benefit one another rather than do what is best for the company. By limiting the number of executives on a board of directors it could also help control executive compensation.

What issues might arise if you decreased (or limited) executive compensation?

I think what may arise from decreasing executive compensation is that you may struggle with retention and recruitment of the right leaders that you are looking for. Also if you decrease the compensation of executives already working at the company there could be issues of dissatisfaction especially if they view their new salary in relation to executives compensation at competing organizations. If they became aware of how much more they could be making at another company, they could easily quit and switch to a better paying position. The current market for executive compensation makes a decrease or even limit in compensation very difficult to implement.

Which component of compensation do you think is most essential to recruit executives and motivate them to lead companies toward competitive advantage? Why?  

I think the most essential component of compensation in terms of recruiting executives is deferred compensation specifically long-term incentives like equity plans. I find these to be the most essential as this not only contributed greatly to the pay growth for executives, but these equity plans also motivate the executives to put out their best work. This is because they know that by positively impacting the company, it can help increase their equity, which then benefits them the most in the long run. Although base pay may get the executives to join the company, the long-term incentive plans will help keep them around and motivate them to be a strong leader for the company.

Public Broadcasting Service (Producer), & . (2002, -12-02). Executive Pay: The Issues: December 2, 2002. [Video/DVD] NewsHour Productions. https://video.alexanderstreet.com/watch/executive-pay-the-issues-december-2-2002

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Blog Post Week 7: Benefits

During our discussion in class, we thought a lot about the benefits that we found most important in relation to our current lives both in terms of legally required benefits and discretionary benefits. In comparison to the list I had made and the one my group came up with, the two were both very similar and mainly consisted of discretionary benefits that allowed us to  order to save for our futures, have a strong work-life balance, and be prepared for health issues. Benefits we may eliminate included those that didn’t necessarily contribute to these aspects such as company perks and childcare. However, like mentioned in the lecture, people at different stages of their lives may be more interested in particular benefits. For example, those who are thinking of having kids soon, would highly value parental leave and childcare, whereas those right out of college who don’t have kids may be more focused on acquiring a good healthcare plan that matches their needs and contributing to a retirement savings plan especially since they likely haven’t begun investing in retirement at their jobs in college.

The demographic of the whole company would greatly change these benefits decisions since having a childcare service would be greatly important to those who have children and less beneficial to a workforce that is made up of primarily older workers whose children are grown. An older employee demographic may place more importance instead on benefits such as disability and life insurance, since their health is more of a priority at that age. Choices in such things as paid time off can affect employee behavior by reducing absenteeism and improving productivity. As mentioned in a SHRM article that exemplifies how benefits can influence employee behavior it mentions that “when the brain can think positively, productivity improves by 31 percent, sales increase 37 percent, and creativity and revenues can triple” (Frye). This is because people are able to take paid sick-leave or vacation which helps ensure they are not feeling overworked and are able to have a proper work-life balance, which helps them enjoy the work they are doing. Having benefits such as paid time off and protection programs can also help recruit and retain employees within the company. This is because benefits can be just as, if not more, appealing than compensation and strong benefits will attract more people as well as ensure they stick around with the company.

Original Ranking: 1. Health care insurance, 2. Disability insurance, 3. Life insurance, 3. Retirement savings plan 401(k), 4. Paid time off, 5. Parental leave, 6. Childcare, 7. Employee discount/ perk

When I revised my ranking after our class discussion, I moved retirement and paid time off as I realized that those benefits are more relevant to my stage of life.

Frye, L.(June, 2018) More People Are Taking Time Off, and That’s Good for Business. SHRM. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/employee-relations/pages/workers-taking-more-vacation-.aspx

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Week 5 Blog Post: Nike’s Pay Structure

The company I chose to research to evaluate their pay structure was Nike since this is a very well known company and one that I have personal connections to. Although a job-based structure and a person-focused pay structure would both be beneficial to the company, because of the value that the company places on its employees’ growth in the company, I believe it would be more beneficial for them to lean towards a person-focused pay structure. 

As defined in the book a person-focused pay structure rewards employees for the acquisition of job-related knowledge (Martocchio pg. 189). I think this description represents a pay structure that Nike would be after. After researching more into Nike’s benefits and compensation, I found that their main goal for these components was to enable and support their employees to realize their full potential physically, mentally, or financially (Nike Benefits). One area of their benefits program that supports the person-focused pay structure is the continuing education element. This could be in school or at work as they have tuition reimbursement that pays for courses that will benefit the employee’s current or future roles within the company (Compare…). They also have mentoring and coaching programs and leadership programs that aid in developing skills in these regions as well. 

A person focused pay structure would also be more beneficial to the company overall since their reasoning for adopting this strategy could be the global competitive advantage that it could provide their company (Week 5 Person-focused structure lecture). Since Nike is a multinational company engaged in the manufacturing, design, development, sales and marketing of footwear, apparel, accessories, and services, having a competitive edge is essential to their business model. This is why they may choose this pay structure since it could increase the productivity of their employees in multiple areas of their company in order to keep a competitive advantage. Although they could adopt a job-based pay structure in order to easily compare their pay to that of the market, it may be challenging to compare to market competitors on a global scale and set a reasonable pay level that could compete with global competitors.

Sources:

“Compare NIKE’s Employee Health Insurance and Benefits.” Benefits Pro, https://www.benefitspro.org/reports/5166-compare-nike-s-employee-health-insurance-and-benefits

Martocchio, Joseph. J., Strategic Compensation: A Human Resource Management Approach. Pearson

“Nike Benefits.” Nike https://jobs.nike.com/benefits

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Week 1 Blog Post

Prompt: Think of a situation where you (or someone you know) engaged in a set of behaviors and compensation was a motivating factor. Some examples – accepted or declined a job offer, left a job, or decreased effort. Why do you think compensation motivated that behavior? What was it about the compensation that led you (or the other person) to behave that way?

This past summer after COVID caused my internship to fall through I had to pick up a part time job for the summer. I had to decide between going back to work at Kohl’s or taking a new opportunity to work at Walgreens. I had worked at Kohl’s for three years before I moved to Corvallis for school and because of this I had established great relationships with my coworkers and knew how to perform all the tasks required of me. However, because Kohl’s was not an essential business, they were unsure when they would be able to reopen and they would be paying me less than what was offered by Walgreens, which is why I choose to work at Walgreens.

I think compensation motivated this decision as I had a small amount of time during the summer to make money and wanted to make as much as I could by working the most amount of hours with a higher pay and I knew Walgreens would be better able to provide this. Although I knew I wouldn’t enjoy working at Walgreens as much because I didn’t know the employees and I had to learn several new skills, the compensation and stability of the position were a highly motivating factor in my decision. The compensation led me to behave this way as it was higher than the one that I was to be offered at Kohl’s and thus drove me to choose Walgreens over Kohl’s.