Question:
Write an essay on Elements of Compensation Packages.
From the given case, it is notable that Bill Strong, who has been the Chief Executive Officer (CEO) and founding Director of the Strong Built Construction Company, has designated Susan Bold as the company’s new Chief Financial Officer (CFO). Currently, the industry has witnessed a state of depression however this has not majorly affected the company. Despite this, a conducted survey disclosed that the company is facing an issue regarding poor employee motivation. The present approach of rewarding employees involves providing them with company shares. Bill believes that the approach of conventional agency theory motivates employees by providing them with monetary benefits. However, Susan has a different perception, who believes that intrinsic considerations are necessary while rewarding employees. Contextually, this part of the assignment will create a report from the perspective of Susan’s assistant.
There are different elements of compensation packages that the company can consider while rewarding its employees. In this regard, Gerhart, Minkof and Olsen (1995) suggested the base salary as one of the decisive aspects of employee compensation packages, which is the fixed salary paid based on the work performed. Moreover, according to Fogleman and McCorkle (2009), the compensation package to the employee includes bonuses, which may be on annual, half-yearly or quarterly basis. This largely motivates employees to perform well and contribute to the attainment of organizational goal. Besides, bonuses are provided for outstanding performances. According to the report published by Labour Department (2015), for employees’ motivation, companies provide compensations for health and wellness, which include medical, vision, dental and other health related assistance. Gerhart, Minkof and Olsen (1995) also suggested that several companies provide life and accident insurances to its employees, wherein monetary and other assistances are provided for accidental death of the respective employees, long-term disability and dismemberment. These types of compensations largely motivate employees and influence them to be loyal to the company. Furthermore, for attracting employees, several companies provide free travelling opportunities (Labour Department, 2015). In addition, the compensations such as food subsidy, internet services, cell phones, membership in premium clubs, and education funding among others provided to the employees motivate them to perform well (Gerhart, Minkof and Olsen, 1995). Thus, it is apparent that there are several different elements of compensation, which the Strong Built Construction Company can provide to motivate its employees.
There are certain key assumptions of traditional agency theory, which largely influence the concept of compensation. In this regard, Kivisto (2007) mentioned human assumptions as one of the forms of the theory, wherein most of the people within an organization are conscious about self-interest. It is assumed that the manager, the owner, as well as the employees of Strong Built Construction Company have self-interest, which in turn largely influences compensation. Human assumption also indicates the risk aversion characteristics of the manager as well as the employees, which considerably affect their performance, thereby resulting into low compensation. Human assumption also involves the bounded rationality, which suggests that the manager and the owner make decisions based on the limited information that they possess regarding the employees. This in turn largely affects their compensation (Rodriguez, Gomez-Meizia and Wiseman, 2012; Kivisto, 2007).
The other assumption of the traditional agency theory as mentioned by Kivisto (2007) is the organizational assumption, which indicates the persistence of goal conflicts among the internal stakeholders of the company. In the current company, there is a possibility that the owner, manager, and the employees have different individual goals. The employees might perform differently with respect to organisational goal, which in turn affects their compensation. Moreover, organisational assumption also includes the information irregularity between the owner and the manager. This affects the decision making process, thereby hampering the employees’ compensation benefits to a large extent (Rodriguez, Gomez-Meizia and Wiseman, 2012; Kivisto, 2007).
Ims, Pedersen and Zsolnai (2014) suggested of the relationship and difference between intrinsic and extrinsic motivation. In this context, the relationship between both these forms of motivation is to provide certain rewards to the individuals, which in turn encourages them to perform well. In the current organization, both these types of motivation encourage the employees to participate in the organizational decision-making and share common goal of interest. Thus, the relation between these motivations is to ensure mutual benefit of the employees as well as the organisation. However, extrinsic motivation occurs to gratify the external needs of an individual. On the other hand, intrinsic motivation attempts to satisfy the personal needs and desires of an individual. Extrinsic motivation factors are largely similar for different individuals. However, intrinsic motivation factor differs from individual to individual. Therefore, identification of intrinsic motivation factor is difficult in comparison with the extrinsic factors of motivation (Ims, Pedersen and Zsolnai, 2014; Sansone & Harackiewicz, 2000).
Pepper and Gore (2014) mentioned that there are two types of employee attitude within an organization, which are risk adverse and risk seeking. In relation to the concerned organization, the employees with an attitude of risk adverseness avoid taking additional responsibilities. This in turn affects their compensation. Besides, the risk adverse attitude of employees also discourages the manager as well as the owner to keep trust on them, which eventually affects their professional growth. On the other hand, the manager and the owner of the organization are highly encouraged by observing the risk-seeking attitude of the employees. Correspondingly, they trust the respective employees and offer higher responsibilities. Subsequently, they receive higher professional growth, which significantly increases their desired compensation (Pepper and Gore, 2014; Kumar, 2010).
Pepper and Gore (2014) suggested that the time when employees attain compensation benefit is a very decisive factor. Appropriate time of receiving the compensation by the employees largely influences their desire of availing the benefit. Concentrating on the given scenario, if the employees receive health or medical insurance support at the time of need, they will be highly satisfied. Besides, bonuses at the time of festive-occasions influence the employees to have greater desire for the benefit. Employees also desire for the base salary benefit to be received at the specified date of every month. On-time availability of the benefits largely motivates the employees, which in turn influences them to be loyal to the company and attain their desired benefits (Pepper and Gore, 2014).
Pepper and Gore (2014) mentioned that fair consideration to the employees of an organization plays one of the major roles in determining appropriate compensation. It is applicable to the given construction company as well. In this regard, fair consideration plays a significant role in ensuring desirable compensation, which in turn motivates employees to perform better. This encourages them to attain their individual objectives aligned with the organisational goal. The employees, who are not performing expectedly, are motivated because of fair consideration. Thus, fair consideration has the role of improving the employee productivity, which in turn ensures their professional growth, thereby determining greater amount of compensation (Greene, 2010; OECD, 2009).
The introduction of Executive Compensation Committee in Strong Built Construction Company will be of significant benefit in determining the appropriate compensation. The reason behind this as mentioned by Hermanson, Tompkins, Veliyath and Ye (2012) is that it ensures long-term incentive plans to the employees, which eventually contributes to employee loyalty in the organisation. Besides, it considers appropriate compensation philosophy, which involves the attainment of organisational goals, retention of employees, connection of the employee compensation with organisational goals, and providing fair as well as reasonable compensation. The committee also considers suitable documentation process, which ensures the determination of appropriate compensation (Sirkin & Cagney, 2015; Reda, Reifler & Stevens, 2014).
Strong Built Construction Company to obtain the best outcomes with respect to compensation requires introducing an Executive Compensation Committee. In this regard, for appropriate structuring of the committee, the organisation requires considering some of the decisive aspects. One such aspect as stated by Hermanson, Tompkins, Veliyath and Ye (2012) is the size of the committee, which typically comprises three to five individuals. Moreover, for appropriate structuring of the committee, the board of directors requires appropriate selection of the committee members. The selection is based on the qualification and knowledge of the members, their experience in the professional field along with adequate training (Sirkin & Cagney, 2015; Reda, Reifler & Stevens, 2014).
Conclusion
From the above discussion, it is apparent that for Strong Built Construction Company, determining appropriate compensation is necessary. Thus, it is recommended that the organisation apart from providing shares to the employees must offer compensations such as bonuses, health and medical insurance and other facilities. Moreover, it is also recommended that the company must focus on providing intrinsic motivation to the risk-seeking employees. It should also consider appropriate time and fair consideration while providing compensations. Furthermore, it should introduce an Executive Compensation Committee for determining appropriate compensation.
The mandatory implementation of revised ISA 700 Auditor’s report attempts to lessen the Audit Expectation Gap. Thus, considering this aspect, the research by Gold, Gronewold and Pott (2012) attempted to examine its effectiveness. Elaborately, the research aimed towards evaluating the present state of the audit expectation gap in Germany with respect to that of the revised ISA 700 auditor’s report through several experiments. The research also aimed at taking the support from several business students as unsophisticated users and business analysts as sophisticated clients, along with the auditors who have considerable experience performing in the field of work. These individual groups were asked to evaluate an unqualified ISA 700 auditor’s report. They were also correspondingly requested to provide response regarding the roles as well as responsibilities of the management and of the auditors along with the reliability of audit reports.
Gold, Gronewold and Pott (2012) perceived that the respondents might change their response after reading the subsequent questions. Thus, the purpose behind conducting the manipulation check is to ensure that the respondents do not go back to the previous question of the dependent variables after reading the corresponding questions. Thus, manipulation check ensured true and appropriate response of the provided questions.
The aim of the study by Agyei, Aye and Owusu-Yeboah (2013) is to evaluate the persistence of Audit Expectation Gap in Ghana. This assessment is made from the perspective of stockbrokers and auditors. The rationale behind conducting this particular research is that there have been no previously conducted studies relating to the Audit Expectation Gap in Ghana. On the other hand, the conducted study by Okafor and Otalor (2013) aimed at determining whether people are familiar with the regulatory, legislative and professional statements of the auditors. It also aimed to determine whether the responsibilities and duties of the auditors are appropriate to conduct.
Agyei, Aye and Owusu-Yeboah (2013) in their study to determine the audit expectation gap in Ghana incorporated qualitative approach, wherein calculation of no quantitative data has been conducted. The qualitative approach of measuring the audit expectation gap in Ghana has been done through the logical interpretation of collected data along with the concept generated from the literature sources. On the other hand, the research conducted by Okafor and Otalor (2013) integrated mixed approach, which involved both quantitative as well as qualitative analysis. The integration of mixed approach supported in cross-validation of data. Thus, noting both the approaches used in the respective studies, it can be evaluated that the mixed approach used in Okafor and Otalor (2013) is more rigorous. Owing to such approach, the results derived are believed to be more reliable, valid and relevant.
The study by Agyei, Aye and Owusu-Yeboah (2013) selected 20 stockbrokers along with 20 auditors as the participants for questionnaire survey. These participants were selected based on purposive sampling, believing that the stockbrokers and the auditors have provided valid, reliable, and relevant information. On the other hand, the research conducted by Okafor and Otalor (2013) involved randomly selected teachers and students from the University of Benin, Ambrose Alli University, Benson Idahosa University, Ekpoma, the investing public along with the Accountants in Practice in Edo State. On a comparing note, it can be evaluated that although the study by Okafor and Otalor (2013) integrated random sampling to reduce biasness, the research by Agyei, Aye and Owusu-Yeboah (2013) is more rigour with respect to selection of research participation. The reason behind such is that the involved participants, i.e. auditors and stockbrokers have adequate and appropriate knowledge regarding audit expectation gap.
The respondents involved in the research conducted by Agyei, Aye and Owusu-Yeboah (2013) was a total of 40, which comprised 20 stockbrokers and 20 auditors. Although the response rate was not significantly high in the study, the participants involved are extensively proficient in providing appropriate responses. However, the questionnaire survey conducted by Okafor and Otalor (2013) involved 130 respondents. In spite of the returned 94 questionnaire from the 130 respondents, which accounted to 72%, the value is sufficient to give unbiased result as a whole.
In the study by Agyei, Aye and Owusu-Yeboah (2013), the collected primary and secondary data are analysed through qualitative method. Elaborately, logical interpretation technique was used to analyse the collected data. The primary data that were collected from questionnaire survey were analysed and justified with the support of the concept developed from literature sources. On the other hand, in the research by Okafor and Otalor (2013), mixed analysis has been incorporated, which involve both quantitative and qualitative methods. The collected primary data were analysed through ANOVA, logit and probit, along with multiple regression, which supported in hypotheses testing. The collected primary data were also analysed from the concept generated from secondary sources. The use of both quantitative and qualitative method for analysis supported in cross validation of data, which thereby ensured greater reliability, validity and relevancy of research outcome. Thus, considering these aspects, it can be evaluated that the data analysis method used in Okafor and Otalor (2013) is more rigor. Moreover, the use of comparatively greater number of secondary sources in the study also ensured its analysis to be more rigorous.
The study conducted by Agyei, Aye and Owusu-Yeboah (2013) involved only stockbrokers and auditors as participants. In this regard, it can be commented that there are several users of financial statements, which were not involved in the study. Besides, the study did not incorporate quantitative analysis, which could have led to a further comprehensive research. Okafor and Otalor (2013), in their research have not included open-ended questions and interview. The other flaw in the study is that there were several secondary data considered that were published decades back. This limits its relevancy to the current day context.
References
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