Chapter Eleven Personnel and Compensation. Copyright © Houghton Mifflin Company.All rights reserved. 11–2 Principal-Agent Issue Employer -- Employee Customer.

Slides:

Advertisements

Similar presentations

Chapter 21 Rewarding Performance Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney.

Advertisements

1.

The Pay Model Chapter 1.

Business and Society: Ethics and Stakeholder Management, 5E Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All.

Modern Principles: Microeconomics Tyler Cowen and Alex Tabarrok Copyright © 2010 Worth Publishers Modern Principles: Microeconomics Cowen/Tabarrok Chapter.

1-1 McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved Human Resource Management Gaining a Competitive Advantage Chapter 5 Human Resource.

Financial Performance Measurement Skyline College Lecture Notes

Chapter 05 Human Resource Planning and Recruitment

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 Incentive Pay.

Chapter 12 Labor Market Contracts and Work Incentives Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Labor Economics,

Moral Hazard and performance incentives M/R chapter 6 The primary aim: Look at factors that influence the board and the personnel department when designing.

11-1© 2006 by Nelson, a division of Thomson Canada Limited. Corporate Governance Chapter Eleven.

Human Resource Management: Gaining a Competitive Advantage

Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 15: Incentive Compensation McGraw-Hill/Irwin.

Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 14: Attracting and Retaining.

11-1© 2006 by Nelson, a division of Thomson Canada Limited. Corporate Governance Chapter Eleven.

Managerial Economics and Organizational Architecture, 5e Chapter 16: Individual Performance Evaluation McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill.

Managerial Economics and Organizational Architecture, 5e Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. McGraw-Hill/Irwin Managerial.

Corporate governance: Why it matters for strategy and ethics

Copyright©2000 by Houghton Mifflin Company. All rights reserved. 1 QUESTION.

The Organization of the Firm

Chapter 8 Compensation Practices, Planning, and Challenges

Making Human Resource Management Strategic

Ethics in Finance PGDM-Session 7.

Copyright © 2001 by Houghton Mifflin Company. All rights reserved. 1 Economics THIRD EDITION By John B. Taylor Stanford University.

Ch 14 Agency. Principal-Agent Relationship Principal owns an asset Agent works on principal’s behalf to preserve on enhance the value of the asset Problem.

Transparency 10-1 Used in corporations to establish order between the firm’s owners and its top-level managers Corporate Governance is a relationship among.

Chapter 5 (cont’d) Costs (Long-Run). Sony Morita: Came to U.S. in 1955 hoping to sell his new radio. His story is illustrated in this diagram

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 20 Strategy, Balanced Scorecards and Incentive Systems.

Unit 4 : Reading Quiz # 12 : 6 points

Chapter 13 Evaluating and Rewarding International Employees.

Asymmetric Information

Executive Compensation Dilemmas Lecture 5. Shareholder dilemmas Do all shareholders want the same thing? How much emphasis should be placed on short term.

Compensating Employees Definition Objective Bases Types Determining Reward Job Evaluation Compensation Structure.

Transparency 10-1 Chapter 10 Corporate Governance Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Robert E. Hoskisson.

Building and Managing Human Resources

This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley.

Compensating Employees Definition Objective Bases Types Determining Reward Job Evaluation Compensation Structure.

When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Preview the aggregate supply-aggregate demand.

Ethics in Finance.

Chapter 11 Establishing a Pay Structure. MGMT Chapter2 Decisions About Pay Job Structure –Relative pay for different jobs within the organization.

Chapter Six Real Interest Rates. Copyright © Houghton Mifflin Company. All rights reserved.6 | 2 Investors care about how much they can purchase with.

Moral Hazard and performance incentives M/R chapter 6 The primary aim: Discuss how the board and the personnel department design incentive efficient payments.

Jayendra Rimal 1. Introduction 2 In the wake of financial scandals involving major companies like Enron and WorldCom (especially their inflated accounting)

Chapter 13 Designing an Entrepreneurial Organization.

Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 1 The Role and Environment of Managerial Finance.

Chapter Six Profit Maximization: Seeking Competitive Advantage.

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Attracting and retaining qualified employees Personnel economics.

Chapter 3 Performance Copyright © Houghton Mifflin Company.All rights reserved. 3–23–2 Market Process Recall the survey -- scarce goods and resources.

MGRECON401 Economics of International Business and Multinationals LECTURE 7 Motivating Employees and Performance Evaluation in a Complex Organization.

The Labor Market Economics, Sixth Edition Boyes/Melvin Chapter 30.

Lecture 5 Financial Incentives This lecture is paired with our previous one that discussed employee benefits. Here we focus on the reasons why monetary.

Incentives & Gain sharing

1 Incentive Issues CHAPTER 12 PowerPointPresentation by PowerPoint Presentation by LuAnn Bean Professor of Accounting Florida Institute of Technology ©

Human Resource Management

Chapter 9 Managing Compensation

Joe Mahoney University of Illinois at Urbana-Champaign

Implementing Organisational Change - Chapter Wam

© 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 12 Variable.

Milgrom and Roberts (1992): Chapter 6 Economics, Organization & Management Chapter 6: Moral Hazard and Performance Incentives Examples of Moral Hazard:

Chapter 1 Ingredients of Change: Functions and Models.

Incentives – Performance linked Pay Part 2. Types of incentive plans.

©1999 South-Western College Publishing

Chapter 10: Corporate Governance

Chapter 11: Compensating Executives

Financial performance measures and reward systems

CHAPTER 11 COMPENSATION PowerPoint Presentation by Charlie Cook

Who Controls Our Business?

©2003 South-Western Publishing Company

Presentation transcript:

Chapter Eleven Personnel and Compensation

Copyright © Houghton Mifflin Company.All rights reserved. 11–2 Principal-Agent Issue Employer -- Employee Customer -- Supplier Manager -- Subordinate CEO -- Middle managers CEO -- Board of directors Shareholders -- Board of directors Shareholders -- CEO

Copyright © Houghton Mifflin Company.All rights reserved. 11–3 Principal-Agent Issue What we might call the “Internal Labor Market” is what goes on between managers and employees inside a firm. How, for instance, can the managers ensure their employees are the best out there?

Copyright © Houghton Mifflin Company.All rights reserved. 11–4 The Internal Labor Market Efficiency wages: Pay more than opportunity costs. What would this do for the employee? Two things: It would make employees not want to shirk and get fired and They would be attracted to the firm only if they were indeed the best and could meet expectations.

Copyright © Houghton Mifflin Company.All rights reserved. 11–5 The Internal Labor Market Compensation profile: a comparison of compensation and productivity or value to the firm.

Copyright © Houghton Mifflin Company.All rights reserved. 11–6 Pay Years with Firm What if the compensation pattern over time looked like this?

Copyright © Houghton Mifflin Company.All rights reserved. 11–7 The Internal Labor Market Why would compensation rise over time? Perhaps because employees become more valuable to the firm, that is, they become more productive.

Copyright © Houghton Mifflin Company.All rights reserved. 11–8 Pay Years with Firm Actually, in most cases, compensation and productivity are different. compensation Compensation/Productivity Profile

Copyright © Houghton Mifflin Company.All rights reserved. 11–9 Pay Years with Firm compensation Compensation/Productivity Profile Here, compensation is greater than productivity in later years and less in earlier years productivity

This type of relationship between compensation and productivity is called backloaded compensation. What would it mean for an employee to face a backloaded compensation scheme? The employee would want to remain with the firm for many years

Copyright © Houghton Mifflin Company.All rights reserved. 11–11 Backloaded Compensation What would downsizing mean if compensation is backloaded? It would send a signal to employees that they might not ever capture their backloaded wages – this could lead to lower quality employees.

Copyright © Houghton Mifflin Company.All rights reserved. 11–12 Other Internal Market Characteristics There are efficiency or economic reasons for everything you observe working in a firm. For instance, can you explain: What is the purpose of a bonus? What would you tie a bonus to? What is the purpose of a promotion?

Copyright © Houghton Mifflin Company.All rights reserved. 11–13 CEO Compensation For Fortune 500 companies, the average CEO makes 200 times more than the lowest paid employee Many say this is excessive. Is it?

Copyright © Houghton Mifflin Company.All rights reserved. 11–14 CEO Compensation Issues to consider: Incentives. Are managers (CEOs) exempt from performance pressures? What can be done if a manager is not performing well----not increasing shareholder value, that is?

Copyright © Houghton Mifflin Company.All rights reserved. 11–15 CEO Compensation Issues to consider: Perhaps the board of directors can fire the CEO. What is board of director’s objective? Perhaps the firm can be taken over and the CEO fired. What about golden parachutes, greenmail, or poison pills? Are these efficient or inefficient – explain.

Copyright © Houghton Mifflin Company.All rights reserved. 11–16 CEO Compensation What is the role of stock options? How do they tie CEO compensation to the performance of the firm? How did the use of options go so wrong in the early 2000s? The problem was that the link between CEO compensation and firm performance was at best very weak.

Copyright © Houghton Mifflin Company.All rights reserved. 11–17 Another Issue in the Internal Labor Market Is the Architecture of the Firm Piece Rate Compensation: An individual is paid according to the amount the individual produces. A great example is Lincoln Electric. When would piece rate compensation not be efficient?

Copyright © Houghton Mifflin Company.All rights reserved. 11–18 Another Issue in the Internal Labor Market Is the Architecture of the Firm “Teams are the only way to be successful.” “When people work together, the team spirit spurs individual effort.” What is the situation with teams? What are the incentives of individuals in a team?

Copyright © Houghton Mifflin Company.All rights reserved. 11–19 When would teams work and when not? When production is easily tied to individual productivity? When the productivity of the individual is costly to measure?

Copyright © Houghton Mifflin Company.All rights reserved. 11–20 Subjective Evaluations This occurs when a superior evaluates someone but the evaluation is not quantitative but more “touchy-feely” or opinionated. Why would subjective evaluations be efficient? To increase cooperation among employees or to create an incentive for behaving in a way that benefits the firm that is not easily measured.

Copyright © Houghton Mifflin Company.All rights reserved. 11–21 Risk What happens when an employee’s compensation is based on factors that are not in the control of the employee? There are no incentives to perform. Thus, in circumstances when some of the employee’s compensation is tied to factors beyond the employee’s control, we say the employee is subject to risk (non-diversifiable risk).

Copyright © Houghton Mifflin Company.All rights reserved. 11–22 Risk The efficient compensation scheme must reduce the negative incentive effects that occur from risk. The firm must share the risk with the individual. This is one reason that compensation is based on individual performance, team performance, firm performance, and subjective evaluations rather than just on one of these factors.