Determining Executive Pay

In the last few years, human resource management has spotlighted unhealthy trends in compensation, such as excessive pay to executives. For example, the head of Citigroup was paid close to $100 million in 2010. The logic in paying such huge pay to executives is multifaceted, but stakeholders have come up to demand a re-evaluation of the procedure or determinants of executive pay (Dessler, 2018). Also, stockholders have strongly inquired from qualified advisers and diligent independent HRMs to formulate a reasonable and fair formula through which executive pay may be decided. That way, HRMs determine the executive pay by considering business strategy, corporate trends, and, most importantly, short- and long-term goals.

Every entrepreneur relies on a business strategy to achieve their business objectives. A business strategy is a set of decisions or a master plan through which business management implements to compete in the market. Therefore, the business with a genius business strategy secures a more competitive position compared to its counterparts. Also, some jobs are complex in terms of the span of control, the management levels, and the number of functional departments (Dessler, 2018). Such businesses require more sophisticated business strategies to mobilize resources, attain effectiveness, mitigate threats, and attain competitive positions. Such strategies are often inspired by individuals, whom business owners rely on for advice or incorporate in the boards. Inarguably, the value of such an individual is based on the success of their business strategies in their experience. That way, qualified advisers and diligent independent HRMs determine the value for the executive’s business strategies, to determine their pay.

Corporate trends dictate the approximate values for which executive employees are paid. Often, corporate trends are inspired by the need to increase competitiveness and reduce risks. For instance, businesses keep on revising their compensation strategies to avoid loss, and employees keep on analyzing the value for their services. Such trends induce active peer pressure in both firms and employees to keep up with their competitors. That way, businesses have ended up utilizing a mix of cash and equities to pay their employees, putting caps on incentive payouts, insisting on the long-term performance of employees, and evaluation performance on more than one performance measure. All these strategies sophisticate the compensation strategies to reduce the risk of failure and increase the retention of best talents. Businesses are likely to use such strategies, even at an extra cost, to maintain competitiveness. That way, current corporate trends helps business owners to determine executive pay.

Lastly, business goals determine the type of talents to hire, and thus the executive pay. As mentioned above, managers may vet the value of an executive employee on the past success of their business strategies. That way, depending on the short- or long-term goals that a business anticipates to achieve, business owners hire the best available talent. The talent is further influenced by the human capital value of the employee (Dessler, 2018). That is the area of study, their educational level, and experiences. Notably, experienced candidates are ideal for short term goals since they have tested and verified many strategies. An entry-level executive employee may suit long term goals since they would have ample time to research, test, revise business strategies. That way, business goals influence the paid value of an executive.

To sum up, managers use business strategy, corporate trends, and short- and long-term goals to determine executive salaries. The most successful business strategy has a higher value, hence higher pay. Corporate trends are critical since the trends in corporate compensation may enable a business to retain talents. Short term goals may require experienced executives, unlike long term goals, thus creating a pay differential.

References

Dessler, G. (2018). Fundamentals of human resource management + mymanagementlab with pearson etext access card (5th ed.). [Place of publication not identified]: Prentice Hall.