Report on management compensation scheme

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Report on management compensation scheme

TABLE OF CONTENTS

  1. Executive summary                                                                3
  2. Introduction                                                                               4
  3. Issue 1: Management compensation Schemes                                5
  4. Issue 2: Need of Non salary components                                              10

  1. Issue 3: Need of Salary components                                                12

  1. Issue 4 :  Agency Cost                                                                                  14

  1. Issue 5: Performance targets                17

  1. Conclusion                                                                                                      21

  1. REFRENCING                                                                                             22

Executive Summary

This report address four issues related to management compensation packages of the companies. First issue highlights various management compensation schemes adopted by the companies to remunerate their executives. Second issue deals with the components of the management compensation packages which consists of both salary which include base pay, incentives like bonus, stock options and various allowances like travelling allowance, house rent allowance etc. On the other hand non- salary components includes various perquisites like company car, prestigious offices and furnishing and non cash or benefits in kind. Third issue

Introduction

There was a significant increase in the management compensation packages from the last few decades. Now the biggest issue these days are about the escalating remuneration paid to shareholders which are not matched by their performance. This report highlights the management compensation schemes and

ISSUE 1

  • Management compensation Package

There are some basic principles that should be employed when developing executive incentive schemes. Firstly, the remuneration must be reasonable, fair and comparable with market standards. Secondly, the incentive schemes must rewards superior performance and be clearly linked to appropriate benchmarks. Thirdly, transparency, accountability and fairness are essential in designing and disclosing incentive schemes. Finally, the individual elements must be clearly identified and disclosed to shareholders. (P. 2.33 CPA)

Components of management compensation scheme:

Deputy Manager of FORD INDIA explained management compensation package in above mention chart which elaborates different components of remuneration and there effects.

  • Salary component

A management compensation package typically includes BASE SALARY and PAY AT RISK. Besides it they are also getting allowances which include house rent allowance, conveyance, special allowances, Travelling allowances, superannuation contribution, bonus, stock and shares. Contribution by the company to the superannuation fund is also a part of the compensation packages. Perquisites may also form a part of the manager’s compensation package such as retirement’s plans, life insurance, chauffeured limousine and interest free loans.

  1. Fixed Pay - An employee's base wage, which can be an annual salary or hourly wage.  Because paying a wage is a standard practice, the competitive advantage can come only by paying a higher amount. Employees of similar skill levels, or competency, are taken together in compensation "bands," regardless of job title. These bands then compensate similar employees at similar rates across the entire organization and maintain both internal and external equity.
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  1.  Pay at risk also called Variable Pay - An amount paid when specified performance objectives are met. It is a replacement of fixed salary. Current human resource market also calls it contracting payments. For example some people work only on percentage basis of sale or profit that is called pay at risk.

  • Non salary components

Any benefit an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, flexible hours; opportunity for growth, praise and recognition, task enjoyment, ...

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