Tesco Plc's compensation philosophy and executive pay strategy

¶ … drive decision making about compensation is known as the compensation philosophy of a company. In general terms a compensation philosophy details that reasons and the ways of the choices it has and the decisions taken based on the choices to pay employees and other stakeholders. While such compensation philosophy differs from organization to organization, it company tries to formulate a compensation philosophy so that it is able to attract the best talent available in the market and retain the best talent. The sentiment or the philosophy for compensation is expressed in the settlement or compensation packages given to employees or o the stakeholders (Armstrong & Stephens, 2005).

There can be several types of philosophies that result in several types of compensation. Some companies follow the percentile-based compensation philosophy that is based on percentiles spells out where wages will fall in relation to the regional wage markets and comparable to the best practices in a particular industry. For example, if a company pays its employees at the 50th percentile of the regional wage market means that its employees will earn more than 50% of the general market rate.

Other businesses follow the principle of specific numbers for compensation and have their compensation packages graded according to various parameters like experience, education, etc.

Some other companies follow the compensation package breakdown where the package includes all the compensation that the company would be liable to pay and employee or a stakeholder (Gerig Meyer, n.d.).

Nonspecific compensation philosophies generally describe and follow policies of compensations that would motivate and inspire employees to strive towards excellence such as rewards or bonuses to top performers without clearly stating the amount for the same.

In this paper we discuss the compensation philosophy of Tesco Plc, one of the oldest and largest retail traders of the world. We choose this company as their philosophy for compensation is interesting and is well thought out to attract and retain the best talent in the industry.

Compensation Philosophy of Tesco Plc

The company in this question is Tesco Plc. Tesco's compensation philosophy is directed towards the upholding of the interests of the shareholders and in doing this the company believes that the compensation philosophy and the resulting policy should be such that it enables attracting, retaining, and motivating top quality management personnel, especially executive officers (Tesco-careers.com, 2015).

The Tesco Plc compensation document says: "we believe that we will be able to align the interests of our executive officers with those of our shareholders." The company wants to achieve the above by offering competitive compensation packages that maintain an appropriate relationship between executive pay and the creation of shareholder value (Tescoplc.com, 2015).

This means that the philosophy for compensation of its employees, especially the managers and other critical decision makers in the business, would be so formulated that the best is got from them which would translate into greater financial gains for the company and its shareholders (European commerce sector: Tesco PLC, 2007).

The principles that emerge out of this compensation philosophy of Tesco for the executives and other employees of the company are:

The annual base cash compensation packages for employees would be such that the a level would e set which makes the company competitive in the market and in relation to the rivals for business opportunities and attracting talent

The achievements of short-term objectives by employees should be recognized through annual cash bonuses and (www.tescoplc.com, 2015)

In order to ensures maintenance of a continuing stake of the management in the company's long-term success, the long-term objective of growth through innovative technology and the long-term goal of creating value for the company's shareholders, equity-based incentive awards such as stock options, restricted stock units and performance stock units for executives, should be able to contribute ot financial progress (Tesco-careers.com, 2015).

Conclusion

Tesco's compensation philosophy is aimed to cater to serve the interest of the shareholders. The company has defined how the shareholders would be benefitted by their compensation philosophy and how the company wants to hire the best executive talent in the industry to translate into greater financial benefits of the company and greater productivity. This would serve to further develop the company and thus benefiting the shareholders.

For the non-executive employees however, the company compensation policy is a little different. In this case primary basis is a combination of job function and acquired competencies. It does not talk about competitive compensation which needs to be included in the company's compensation philosophy for non-executives to obtain better performance from the non-executive employees and further the objective of company development.