Employee Reward (Executive Reward) Essay Example | Topics and Well Written Essays - 2750 words

Employee Reward (Executive Reward) - Essay Example The executive compensation system helps in the improvement of the existing system that helps in accomplishment of goals and objectives. A well structured compensation system helps in the attraction of dynamic and talented pool of executives who can help the company in gaining competitive advantage over its competitors (Browning, 2012).An integrated approach of designing a reward structure helps in developing a system which is directly related to the growth of the company . Executive reward system in a company is the result of a high level interaction between the company executives and the director to maintain an acceptable return on the investment at all times. The executives expect some kind of salary based on daily or annual basis. It also includes employment contracts, portable retirement benefits and deferred compensation (Haygroup, 2013). The company management instead wishes that the executive achieve specific goals and also include developing capabilities (Edge and Davis, 2004 ). A well constructed EC system is only feasible with the development of a leadership framework in which the responsibilities, duties and capabilities are clearly identified and sorted out as per the executive level. In the leadership framework the level, responsibility, capability and results are clearly defined which helps in identification of the opportunities and the development of a strategy. The traditional executive compensation system was developed by Mirrlees and Holmstrom in the year 1975 and later it was modified by Holmstrom and Tirole in the year 1993 (Haygroup, 2013). This theory was developed to help in building an incentive scheme which focuses on trade-off risk sharing and incentive, reward consideration. The theory was also formulated keeping in mind whether the management would be able to pay back the invested amount or not. The author laid emphasis on the fact that stock prices not only reflected the fundamental value of the organization but also signified a shor t term speculative amount. The various constituents of the executive reward systems are as follows: Direct Pay Base Salary The entire executive system would include the annual based salary which would be replaced by the executive salary plans. As per the leadership framework the executive total rewards system would be as follows. Base Salary Annual Incentives and Perks Long Term Incentives Career Development Responsibilities Short Term Success Long Term Success The capability and short term success would be considered The executive salary planning would start as per the market pay data and the desired competitive range would be decided based on the competitive performance of the executives. It also includes the inputs and growth in individual responsibility and the high level performance for the individual (Armstrong, 2002). The salary plans are developed on the assumption of the consistent performance for the executive reward system. Annual Incentive The executive reward system, an nual incentive plan also forms an important part of the total reward and incentive system for the executives (Lepak, 2013). It helps in benchmarking the total work as per the quantitative and qualitative performance standards (Lepak, 2013). To ensure individual accountability the incentive system is designed in such a way that executives are able to accomplish the goals