Assignment task:
Please response to each below using this discussion question.
Which component of compensation is most essential to motivate executives to lead companies toward competitive advantage? Discuss your rationale:
Please cite references for each response:
1) Executives play very important roles within the organizations they work for. They are representative of the organization; they help to create and implement organizational goals, make strategic decisions to help achieve these goals, and can be some of the most influential individuals within the organization. Therefore, it is important for businesses to have a solid compensation package in place in order to retain top executive leadership. Some compensation options for executives include base salary, bonuses, stock options, deferred compensation, and short-term and long-term incentives (Martochhio, 2020).
Essential aspects for executive compensation do exist, but they vary based on the organization, its size, and its location. Long-term incentives are perhaps the best way to motivate executives toward a competitive advantage and meet organizational goals and strategies. And it is best for the companies to evaluate compensation regularly to ensure compensation aligns with company goals and the executive leadership. Long-term incentives are usually delivered in equity that can include, stock options, restricted stocks, and performance shares (Groysberg, 2021). This type of incentive can be delivered over a longer length of time and is usually established as a fixed amount that is gained once the goal is met. It is estimated that 41% of executives get their incentives in cash bonuses and 51% in equities (Groysberg, 2021).
Companies need to show not only a relationship between executive compensation and performance, but they must also demonstrate they pay the appropriate level for performance. This is especially crucial when attracting and retaining top executives that can drive performance metrics. Executives are motivated the desired performance increases under the right incentive plan when conditions such as transparency shown between performance and compensation and when executives understand the performance goals and view them as achievable. The ones responsible for setting up executive compensation plans should also be able to provide sound rationale for the goals and the approach they selected (Wang, 2008).
References:
Groysberg, B, et.al. (2021). Compensation Packages That Actually Drive Performance. Harvard Business Review.
Martocchio, J. (2020). Strategic Compensation: A Human Resource Management Approach (10th ed.) Pearson.
Wang, D. (2008). Setting Goals for Executive Incentive Plans. SHRM.
2) Geryl Zolvik
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The key aspect of compensation that plays a vital role in encouraging executives to steer companies towards gaining a competitive edge is equity-based compensation. It connects their individual financial goals with the sustained success and expansion of the business.
Equity-based compensation is a method of compensating executives through the allocation of shares or equity in the company, rather than using cash. This form of compensation can be provided as a supplement to or as a replacement for part of an employee's salary (IRS, 2024).
At the heart of equity compensation lies the fundamental idea of aligning interests by transforming employees into stakeholders through the provision of a share in the company ownership. This approach not only deepens commitment among employees but also links executive's financial futures directly to the company's performance and growth (Incentiv, 2024).
In conclusion, equity-based compensation acts as a pivotal element in motivating executives to guide their companies towards competitive advantage. By linking personal financial objectives with the sustained prosperity and growth of the business, this approach cultivates a stronger commitment and aligns the interests of executives with those of the company's stakeholders. In the end, this strategy not only boosts dedication but also links the financial well-being of executives directly to the overall performance and success of the company.
References:
Incentiv. (2024). Equity Compensation: What It Is and How It Works.
IRS. (2024, June 25). Equity (Stock) - Based Compensation Audit Technique Guide