Question one: Contrast the principle difference between executive pay and non-executive pay, including a discussion on controversies associated with the growing disparity between executive and non-executive compensation packages. Respond to at least two of your fellow students’ postings.
Question two: Contingent workers are assuming a greater role in today’s organization. With that as a background, discuss compensation and benefit issues associated with the following workers: part-time, temporary, independent workers, and flexible/telecommuting. What impact may these changes have on an organization’s compensation plan? Respond to at least two of your fellow students’ postings.
Week 5 Lecture Notes:
In Week 5, this course will explore the differences between executive pay and non-executive pay. We will also analyze the impact of contingent workers on an organization’s compensation plan as well as critique an organization’s compensation philosophy and suggest changes that would enhance this philosophy.
In recent times, we have heard more and more about the discrepancies between executive and non-executive salaries. Each year the pay gap between executive non-executive employees continues to grow. In 2017, CEOs of S&P 500 Index companies received, on average, $13.94 million in total compensation and “America’s production and nonsupervisory workers earned only $38,613, on average” therefore, the CEO-to-worker pay ratio of 361 to 1 (AFL-CIO,2018). One reason executives are paid a significant amount more than others is that they are considered key employees. Key employees and highly compensated employees are those that hold positions of substantial responsibility and power (Martocchio, 2017). Additionally, the qualifications to obtain an executive level position within an organization often require an advanced degree and multiple years of experience. Executive compensation is negotiated between the potential executive and the organization and agreed upon in an employment contract. However, non-executive compensation is most often the same among employees who do the same job within the organization and is at will employment and not a contract. The benefits package is most likely the same for non-executive employees within the organization. However, the executive again can negotiate different benefits and perks such as additional stock options and a remote working agreement. Many times, executives receive overgenerous benefits such as housing and car allowances, country club memberships, private planes, excessive stock options and paid vacations to name a few. Since executive compensation packages are significantly different from non-executive compensation packages HR professionals and managers need to understand the components of these different strategies (Martocchio, 2017). Compensation managers must have knowledge of the principles and processes for setting executive compensation especially in recent years and the new legislations covering executive pay (Martocchio, 2017).
Today, more and more employers are turning to hiring independent contractors or part time workers as opposed to full time employees. Employees are hired on a per diem basis as opposed to a permanent time basis. Part time employees may work a set number of hours a week, work on a contingent or temporary basis, or be employed seasonally. Independent contractors typically work on a contractual basis with an organization, usually for a defined time or on a project basis. The nature of these employment relationships has advantages and disadvantages, as well as different compensation packages. There are a variety of reasons organizations are turning to these means of employment but the main reason is to decrease the overall costs of the organization. For example, if an independent contractor is hired versus a full-time employee the organization could save money on unemployment, workers compensation and health insurance costs. Other advantages to not hiring full time employees are that the organization can hire only when needed as opposed to keeping an individual on staff full time. However, a disadvantage could be the organization does not receive the tax deductions of having a full-time employee. Additionally, if the contractor didn’t complete a project or task, if they were paid a percentage in advance, this would be hard to recuperate without litigation, whereas an employee could be disciplined for lack or performance and potentially terminated.
Organizations have a variety of means for pay and compensation employees. Many times, the package will depend on the stature of the employee. Therefore, HR professionals need to know the policies and processes for determining compensation whether it is for an executive, non-executive or a part time employee.
Please review the Executive Pay (Links to an external site.) video which will provide an overview of how executive compensation is handled differently from employee pay in most public companies, privately held companies, and even tax-exempt organizations.
AFL-CIO. (2018). Executive paywatch (Links to an external site.). Retrieved from https://aflcio.org/paywatch
Gregg Learning. (2016). Executive pay (Links to an external site.) [Video file]. Retrieved from https://www.youtube.com/watch?v=ka8I_GssW9U
Martocchio, J. (2017). Strategic compensation: A human resource management approach (9th ed.). New York, New York: Pearson.