Designing a Compensation Package

EXECUTIVE COMPENSATION CLASS CASE

Green Loaf Grocery Executive Compensation Class Case

Compensation Proposal Development

From the onset, it would be prudent to note that there are a wide range of factors that influence the compensation package of the various employees of a firm, including top executives. These factors are inclusive of, but they are not limited to; the performance of the company (i.e. with regard to the bottom-line), the various labor laws or regulations in place governing employee compensation (i.e. workers’ compensation laws), employment market forces, the strategic objectives of an enterprise, etc. (Ellig, 2014). These are some of the factors that ought to be considered in the design and implementation of a competitive compensation package.

In seeking to develop an ideal package in the present scenario, there are a number of factors that are unique to Greenleaf Grocery that will be taken into consideration. These have been highlighted below.

i. The need to ensure that the CEO, Jack Lawrence, is motivated enough to stay with the company: To a large extent, the current CEO has been instrumental in efforts to further promote the growth of the company. More specifically, as has been indicated in the case, he has managed to not only grow the number of stores (from 62 - 118), but he has also increased the company’s profitability (Cox and Crocker, 2018). The company also needs Jack in his role as CEO for the successful execution of its midterm goals, i.e. over the next 5 years, especially as it seeks to pursue an initial public offering (IPO.)

ii. Competitors’ compensation package for the position of CEO: There would also be need to take into consideration just how much competitors of Greenleaf Grocery pay their CEOs. The intention in this case is not to ‘copy-paste’ what is advanced by the said competitors, but to guide deliberations on the ideal package.

iii. The performance of Greenleaf Grocery: There would also be need to factor in the present performance of the enterprise and whether the compensation package would be in line with the present earning potential of the company.

iv. The salary and benefits package of other employees: It would be prudent to note that in the present scenario, the other employees of the firm have in the past raised concern over the difference between the average worker’s salary and Jack’s salary. This is a factor that cannot be ignored owing to the fact that it has the potential to negatively impact employee motivation going forward.

v. Concerns of other Stakeholders: The other key stakeholders whose opinions ought to be taken into consideration are inclusive of customers and shareholders. The compensation package in this case should be designed in a manner that quells the fears of these stakeholders, i.e. especially in relation to fears of the company’s deviation from its organizational culture as well as excessive focus on the bottom-line (i.e. in instances whereby the compensation package appears to be solely tied to company performance).

vi. Legal mandates: Some aspects of the compensation package in this case ought to be in line with the various standards and laws governing employee compensation, i.e. in relation to mandatory retirement plans.

Components of the Compensation Package

Tyson (2012) points out that the assemblage of a competitive compensation package could be an uphill task. The factors highlighted above will be used as a guide in the development of an ideal package. Below are the crucial components of the proposed CEO compensation package.

1. Base Salary: This could, to a large extent, be this particular package’s largest component. To ensure that other employees of Greenleaf Grocery do not feel shortchanged, especially as has been highlighted elsewhere in this text, the decision should be made to increase base salaries across the board. The company’s net income has been on an upward trend over the last two years. The present earnings of the company, thus, justify a salary raise for all employees. We would propose that all employees of the firm, including Jack, have their base salaries increased by 4% from the last year’s base salary.

2. Bonus: There would be need to provide a competitive performance incentive for Jack. The bonus, which will be paid out on an annual basis, will be founded on an ideal performance rating or accomplishment of specific business goals. Suggestions in this case could be inclusive of, but they are not limited to; i) increase in market share ii) improved profitability iii) successful execution of the IPO within the set deadlines, etc. This particular component can be defended before the various stakeholders on the basis of the fact that it advances the interests of the firm, and is not tied to the bottom-line only. The bonuses will also come in handy in efforts to ensure that Jack is sufficiently rewarded for not only growth of the enterprise, but also reasonable risk-taking.

3. Benefits: The benefits that Jack presently receives as CEO should be revised to ensure that they either reflect or exceed those offered by competitors of the same size as Greenleaf Grocery. Specific benefits that will be revised and/or incorporated in this plan are inclusive of i) worker’s compensation, ii) Medicare, iii) social security, and iv) paid holidays.

4. Prerequisites: In appreciation of the fact that the company heaps upon the CEO more demands as well as responsibilities than it does for any other employee, there will be need to attach to the position of CEO certain perks that may not necessarily be available to other executives and employees of Greenleaf Grocery. Ideally, the said perks will be presented as a way to ensure that Jack performs his role as Chief Executive more effectively. Two perks will be included on this front; i) one company-paid home help ii) hired driver.

The various components listed/highlighted above have been presented in tabular format below:

Component

Estimate (PA)

· Base Salary

· Bonus

· Benefits

1. Workers Compensation

2. Medicare

3. Social Security

4. Paid Holidays