Total Rewards Programs for Firms This Is Essay

Excerpt from Essay :

total rewards programs for firms. This is from a large number of high profile scandals (i.e. Tyco) that are highlighting how these abuses have been taking place. To prevent these kinds of challenges in the future, there will be a focus on the current issues impacting companies and how they can address these issues. Once this happens, is when specific policies and procedures will be introduced to help firms overcome these kinds of problems in the future. This is the point that there will be a transformation in the operating environment and the relationship managers have with staff members. ("Time Line of the Tyco Scandal," 2002)

Over the last several years, the issue of compensation packages has been increasingly brought to the forefront. This is because there are disparities between the total rewards that are provided to employees in comparison with upper management. This issue has become so divisive, that a number of shareholders are beginning to revolt against these packages which are awarded to executives. (Greenburg, 2012)

A good example of this occurred recently when the shareholders of Citigroup rejecting the $15 million pay package for the CEO (Vikram Pandit). This was in response to the anger that was building over how executives were receiving large bonuses and benefits. While the company they were running, was facing tremendous financial challenges. In the case of Citigroup, this was particularly troubling, with the firm receiving government assistance and unable to improve their earnings. This is important, in showing how these issues are creating animosity in response to the total compensation packages offered. (Greenburg, 2012)

This pervasiveness is a part of a larger pattern which has been developing over the last several years. Evidence of this can be seen with a study compiled by the AFL CIO. They found that there is a 343% difference between the salary of top executives and employees. The historical problem has always been how firms can effectively address these HRM issues. To fully understand what is happening, a literature review will be conducted. This will be followed by specific recommendations. Once this takes place, is when insights will be provided highlighting how these challenges can be addressed over the long-term. (Liberto, 2010)

Literature Review

To fully understand the scope of problem requires looking at different sources. This will be accomplished by examining current academic and nonacademic literature on total rewards programs. When this happens, everyone will understand these challenges and how they can be rectified. This is the point that these ideas could be used by a variety of firms, to ensure that their rewards programs are taking into account the needs of different stakeholders.

The piece of literature that was written by Bebchuck (2004) is highlighting how all firms will compensate the managers differently in comparison with employees. This is because executives have greater responsibilities and more specialized knowledge for increasing the bottom line results. As a result, this group of individuals will naturally receive more compensation in comparison with staff members. This is when larger benefits are provided to them. The most notable include: retirement planning, stock options, fully covered health insurance, non-defined compensation programs and expense accounts. (Bebchuck, 2004)

The combination of these factors created a situation where managers will demand more rewards in comparison with employees. In the last several years, the strong economy and rising stock prices meant that they were provided with large amounts of compensation. When this happened, the overall disparities between employees and executives increased even more. This is troubling, as it is illustrating the justifications that are used to give managers greater amounts of compensation in comparison with staff members. Over the course of time, these areas and the rising profit margins are what created this situation. (Bebchuck, 2004)

Moreover, Conyon (2000) found that the underlying levels of compensation will vary depending upon the practices and regulations that are in place. To determine this he examined the total rewards that are offered to executives in Germany and the UK. What he found is that these amounts are lower in comparison with the U.S. (Conyon, 2000, pp. 504 -- 526)

However, inside the UK executive compensation is higher than Germany. This is because managers were able to receive stock options as a benefit (which has allowed the salaries of executives to increase by 95.5% since 1994). While Germany experienced a much slower increase in compensation with this rise coming in at 42%. These areas are highlighting how the total rewards for executives will depend upon what activities are allowed. In countries where greater amounts of creativity are utilized, is the point that the figures will be dramatically higher. As a result, one could argue that the reason why there are such vast disparities in compensation is because of: the lack of oversight and guidance. When this occurred, is it meant that executive compensation packages rose exponentially (resulting in large differences in comparison with employees). (Conyon, 2000, pp. 504 -- 526)

To make matters worse, a number of executives can also take on a dual role as a consultant. This is where they will serve in their traditional duties. Then, they will be paid added amounts of compensation that are beyond their job title. This will occur with managers receiving higher rewards from performing these jobs as a consultant. Once this happens, is when the firm will pay these individuals more for the same kind of work. While employees will have their duties expanded for lower amounts of compensation. (Murphy, 2010, pp. 247 -- 262)

Evidence of this can be seen with observations from Murphy (2010) who observed, "Executive compensation consultants face potential conflicts of interest that can lead to higher recommended levels of CEO pay, including the desires to cross-sell services and to secure repeat business. We find evidence in both the U.S. And Canada that CEO pay is higher in companies where the consultant provides other services, and that pay is greater in firms when the fees are paid to consultants for other services (relative to the executive-compensation packages)." This is showing how the total rewards programs are increasing for managers by: altering their duties and job titles. Once this takes place, is when there are possible conflicts of interest over the amount of compensation that someone is receiving. This is highlighting how creative approaches have been utilized to provide executives with even greater benefits in the future. (Murphy, 2010, pp. 247 -- 262)

These sources are illustrating how the total rewards for managers are exponentially higher than employees. This is because, firms are engaging in practices that will allow these individuals to receive more benefits including: retirement plans, stock options, fully covered health insurance, non-defined compensation programs and expense accounts. At the same time, executives are also given the flexibility to adjust their job titles (which results in higher forms of compensation).


To deal with these challenges, there must be some kind of transformation in the firm's policies and procedures. The way that this can be achieved is to have clearly defined guidelines that will highlight the total rewards. To include: the base salary, variable pay (which focuses on short-term / long-term incentives), other direct compensation, perquisites, benefits and performance management. When these areas have been clearly defined, is the point that compensation packages can be controlled in correlation with: the performance of the company and the contribution of the individual. Once this takes place, is when it will be more difficult for executives to seek out greater benefits that are outside of this structure. (Lyons, 2002, pp. 34 -- 40)

Moreover, executives should be prevented from serving on the board of directors. This is because this relationship gives them added amounts of influencing in determining their total rewards. Evidence of this can be seen with a study that was conducted by Hallack…

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