Required: You are Susan’s assistant and you have been asked to prepare a report that is backed by scholarly literature addressing the following issues regarding approaches to compensation:
a. Typical elements of compensation packages.
b. Outline the key assumptions of traditional agency theory and their influence on approaches to compensation.
c. Explain the difference between extrinsic and intrinsic motivation and the relationship between the two motivations.
d. How might an employee’s attitude to risk influence their desired compensation package? (Only need to consider risk averse employees and risk seeking employees).
e. How might the time period when employee receives a financial benefit influence they desire for the benefit?
f. What role do fairness considerations have when determining compensation?
g. Why an executive compensation committee may provide benefits in determining compensation.
h. How to structure an executive compensation committee to achieve the best outcomes.
i. Conclusion: use the information in your previous answers to develop recommendations for determining compensation that enhance job satisfaction and work motivation.
j. Appropriate report formatting (title page, table of contents, introduction and appropriate headings).
k. Adequate in-text references and reference list following Harvard style.
The ethics in the accounting refers to making moral and good choices in regard to preparation, disclosure and presentation of the financial information. In the given case study, the construction industry has been in downturn due to the austerity measures of the government. The CEO of the company Bill Strong has been contributed to the success of Strong Built Construction Company in order to maintain revenue for last two years at similar levels (Foss, N &Stea, D 2014). But, according to the survey levels of the employees’ motivation has been falling. The board of members has been questioning the current approach to the executive compensation that the rewards with the company shares. Bill Strong argues that conventional agency theory approach to the executive compensation where the employees would receive benefits that will help to motivate employees. He explains that fundamental considerations need to be taken into account to determine the executive compensation.
Elements of the compensation package
The compensation packages that can be adopted by the company are as follows:
The company can provide compensation on the performance of the executives on the basis of their skills, accomplishment and skills. The base salary is a fixed compensation and is paid in cash. It will help to support and retain executive talents (Hermanson, DR, Tompkins, JG, Veliyath, R & Ye, ZS 2012).
The efforts of the employees should be encouraged by giving reward in order to achieve measurable objectives. The employees would be motivated and will help them to achieve their task objectives.
Long term incentives
The long term incentives are variable compensation that can be provided to the employees to motivate them and it is based on the long term performance of the company. The incentive is paid in common stock (Ims, KJ, Pedersen, LJT &Zsolnai, L 2014).
The employees should be provided with benefits such as life insurance plans, pension and savings program.
Key assumptions of traditional agency theory with the influence on approaches to compensation
The traditional agency theory mainly focuses on the motivational effect of the compensation on the performance of the employees. The agency theory has introduced economic perspective by determining executive compensation system that should be implemented by the company. The agency theory links the compensation of the executives to the performance of the company, return on the investment and stockholders’ interest (O’Reilly, CA, Doerr, B, Caldwell, DF & Chatman, JA 2014). The effect of the compensation on the behaviour of the managers and performance of the company is explained in the theory that shows that they are motivated to achieve their objectives. Therefore, it can be concluded that there is a relationship between the compensation and company’s performance.
Differentiation between the intrinsic and the extrinsic motivation with the relationships
The motivation of the employees is very much for the achievement of the task objectives within the organization. There are present different theories to motivate people. In some cases, people are motivated by external and internal factors (Pepper, A & Gore, J 2014). It is important to important understand the distinction between the extrinsic and intrinsic factors.
Extrinsic motivation means external factors that motivate an individual. These kinds of motivation are frequently and everywhere used within the community throughout lifetime. When people are motivated to achieve, learn, and try to do best depend on regarded outcome Moreover, for fun, learning and development also offered a great experience (Pepper, A & Gore, J 2015). Thus, extrinsic motivation is an external reward, demand, and obligation which require the achievements of a specific goal.
When an employee is intrinsically motivated, and they must enjoy an activity, development of Skill or course solely to satisfy of learning and also having fun and to determined struggle inwardly in accordance to be competent. There's present, not any external inducement than an intrinsic motivation becomes the key outcome or behaviours (Berk, J. and DeMarzo, P. 2007). Moreover, an individual strive in front of the goal for their personal accomplishment or satisfaction. There is a relationship in between extrinsic and intrinsic motivations. Studies of extrinsic and intrinsic motivation rely on a one-dimensional model. However, research within the structure of the “Achievement Goal Theory” also represented which employees need to adopt several combinations of the intrinsic and also to external achievements of the goals (Braiotta, L. 2004). Moreover, these two types of studies have also addressed this problem and represent to major the negative relationship in between extrinsic and intrinsic motivation. This study generally measures the extrinsic and intrinsic motivation to do the work and offers a contribution, by examining the experimental separateness of the two orientation motivation. Conversely, these types of the study described the relations in between intrinsic and extrinsic motivation along elementary organization or the company (Elliott, B. and Elliott, J. 2008).
Risk adverse employees and Risk seeking employees
Risk seeking employees generally defines the term that are helps in the increment of the greater volatility and the uncertainty increment. Thus it also enacts the increment of the exchanges that helps in the creation of the anticipated higher returns and hence the pursuing of the might investments as well as the anticipation of the investments are carried out for the proper accessing of the systems that are useful for the enhancement of the investments and thus it creates the conduct even greater due intelligence and thus risks are considers for the investments (Epstein, M. and Lee, J. 2011). Thus it also helps in the increment of the implied risks that are required for the growth of the interests that is helpful for proper mitigation of the risks in the organisation.
Risks adverse employees are denoted for the proper enhancement of the performance of the employees that helps in providing the proper judgement for the employees. It also helps in the creation of the increment that helps in the improvement of the workforce in the public sectors and thus it also helps in the involvement of the employees facing the risks (Gough, L. 2002). This helps in the creation of the altruistic motivations.
Influence of the financial benefits received by the employees
The financial benefits are given to the employees that motivate them to achieve their goals. The benefits such as compensation to the employees, bonus, fringe benefits and paid vacations will motivate the employees of the organization (Holton, R. 2012). The employees should be provided these benefits after one year of experience and also considered as extra benefits for them. The fringe benefits include major expenditures such as stock ownership plans, health insurance, paid vacations and paid holidays.
Role of fairness considerations for determining compensation
Management faces a huge number of challenges to determine how to reward the workers. They need to balance the market, internal equity, competitiveness, individual performance and organizational performance considerations. Conversely, the problems of “fairness” motivate each of the areas (Kieso, D., Weygandt, J. and Warfield, T. 2011). It does not matter hoe sophisticated the plan and design, practices and policies and reward programs which are not superficial as fair successfully will not engage, attract and retain employees. Equity and justice are closely related to the concepts which have long been connected with perceptions of shell out the fairness. Mostly, similar constructs and reward fairness of pay equity and justice have been representing to be sturdily related to the workers attitudes incorporates commitment, seeming the support of the company, intention to quit and pay satisfaction (Kieso, D., Weygandt, J., Warfield, T. and Kieso, D. 2010). Moreover, the workers perception of reward fairness are closely related to the employee's performance, attitudes, and behaviours, and it is less precise and clear that the exact results of the reward practices need to have in this particular perceptions.
Provision of benefits made by executive compensation committee for determining compensation
The benefits that are required for the proper creation of the benefits also helps in the formation of the retirement plans for the executives and the other compensation plans that are included for the proper growth of the designing of the committee for the proper execution of the work process (Kieso, D., Weygandt, J., Warfield, T. and Kieso, D. 2010). The retirement plans are included for the achievement of the proper pension plans, savings and the other compensation plans that are included for the growth of the company. Thus the employees will be willing to work for the organisation so as to be got the benefits in the properly arranged manner and thus it also helps in the enhancement of the risks for the employees (Ross, S., Westerfield, R. and Jaffe, J. 2005). The benefits also includes the responsibilities that helps the executives to carry out the proper planning of the compensations for the employees and thus the proper duties are followed for the achievement of the compensation plans for the employees.
Achievement of the best outcomes made by the executive compensation committee
Executive compensation is a controversial and complex subject matter. In this scenario, non-CEO and CEO executives reflect separately. Here, we conclude that used of data on share ownerships, prior and current options grants, and restricted stock awards, annual bonuses, and salaries in accordance to following the component growth. Four types of basic executive pay are the key point of this research (Vataliya, K. 2009). Firstly, executives obtain a base salary that is benchmarked against the peer organizations. Secondly, they also have an arrangement of annual bonus generally, depend on accounting performance considers. Third, executives get the stock options and the last is pay incorporates additional compensation like a retirement plan, a big incentive plans, and the restricted stock. However, executive compensation continues elected to scrutinize by increasing regulators, major investors and some proxy advisory company-specified the losses incurred by shareholders (Winters, D. 2008). CFOs plays a vital role to frame the financial results of the compensation plans also to influence the public awareness of this plan.
The compensation to the executives as well the employees would receive financial benefits will motivate them to achieve their goals. The employee’s benefits that should be adopted by the company are retirement plan, life insurance, paid vacations, stock ownership plans and disability insurance. The compensation to the employees is the right of the executives and the financial benefits are provided to the employees that will help to motivate them and achieving the goals of the organization.
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