Compensation:

Broadbanding
Broadbanding refers to the collapsing of job clusters or

grades of positions into a few wide bands, creating a

flatter organizational structure.
Success Factors for Broadbanding
The organization experiences a significant precipitous event.
The organization is ready for a change in its compensation system.
Top management is committed to broadbanding.
The organization has a decentralized compensation administration.
The managers are empowered.
Wage Compression
- Occurs when new hires are brought in at about the same

salary or higher salaries than the current employees

due to inflation.
Executive Pay and Pay for Performance
Objectives of Executive Compensation Policy
1. To retain
2. To stimulate
3. To attract
Elements of the Executive Compensation Package
1. Salary (current cash pay)

2. Short-term incentive pay (bonuses)

3. Long-term incentive pay ( e.g. stock options and
performance awards.)

4. Retirement benefits.

5. Other benefits, such as health care, low-interest
loans, and other fringe benefits or perquisites
Important Elements of Executive Compensation Package
Executives receive high base salary plus a combination of perk.

1. Coverage under a pension, profit-sharing,
stock bonus, or savings or thrift plan.

2. Coverage of the executives medical bills and those of
their families.

3. Life insurance coverage.

4. Stock options or alternative forms of equity participation.

5. Company cars and other perquisites.
What is reasonableness for the executive pay?
Key factors to consider:
1. Compensation being paid to executives in comparable
positions by comparable companies.
2. The executives qualifications for the job.
3. The nature and scope of the work performed.
4. The size and complexities of the business.
5. A comparison of salaries paid with the gross income
and the net income.
6. General economic conditions.
7. Comparison of salaries with distributions to stockholders.
8. The companys salary policy to all employees
9. In the case of small corporation, the salary paid to the
particular executive in the previous year.
The most valuable executive perquisites
Financial counseling
Interest-free and low-interest loans to
executives
Executive dining room
Executive moving costs
Making executives charitable donations
Death benefits

Other Perquisites Valued by Executives
Company cars
Parking
Company apartment
Employment contract
Termination settlements
Company payment of business or professional dues
company payment of officer liability insurance
Lavish office furnishings

References
1. Armstrong, M. and H. Murlis (1991) Reward Management, 2nd ed., Kogan
Page/IPM, London.

2. James E. Cheeks (1974) How to Compensate Executives, Dow Jones-Irwin,
Homewood, Illinois.

2. Dowling, P.J. and R.S. Schuler (1990) International Dimensions of Human
Resource Management, PWS-Kent, Boston, Mass.

3. Pinder, M. (1990) Personnel Management for the Single European Market,
Pitman, London.

4. Reynolds, C. (1986) Compensation of Overseas Personnel, in Famularo,
J.J. (ed.) Handbook of Human Resources Administration, 2nd ed., McGraw-
Hill, New York.

5. Teague, B. W. (1972) Compensating Key Personnel Overseas, The Conference
Board, New York.
References (contd.)
6. George Milkovich and Jerry Newman (1987) Compensation, 2nd ed. ,
Homewood IL: BPI/Irwin.

7. J. Lublin (1989) Grappling with the Expatriate Issue, The Wall Street Journal,
December 11, 1989, p. B1.

8. Tim Healy (1999) In A Deep Freeze Asiaweek, March 5, pp. 47-54.

9. The Asiaweek Salaries Survey Asiaweek, March 5, 1999, pp.48-49.