Organizations decide executive compensation packages, consisting of basic pay, allowances, perquisites, stock option etc. based on a number of factors. The United States compensation institutes’ Phoenix Plan uses 28 compensable factors:
Phoenix Plan – Compensable factors:
1) Job related experience 2) Training time required 3) Frequency of review of work 4) Utilization of independent choice 5) Frequency of reference to guidelines 6) Frequency of work transferred through supervisor 7) Analytical complexity 8) Time spent in processing information 9) supervisors reporting to position level 10) Travel outside work location 11) Salary grade to which this position reports 12) Salary grade of positioning supervised 13) Management responsibility 14) Revenue size 15) Asset size 16) Employment size 17) Budget size 18) Payroll size 19) Time spent in planning 20) Contact with suppliers / customers 21) Impact on departmental budget 22) Directing of others 23) Training of staff / physical stress experienced 24) Times spent working under deadlines 25) Time spent in hazardous conditions.
The Hay group another specialized US agency use three compensable factors accountability, problem solving and know how. Sibson Ad Company determines base compensation depending on the market value of the job, its relationship to other positions in the organizations and the person’s value of the organization based on long term performance and experience. The Compensation survey Report of Business International Asia–Pacific limited, Hong Kong considered the following factors to determine executive compensation: education, experience, scope of activities, need to negotiate, types of problems handled, decision making authority, influence on results, size of the units managed, number of people supervised, number of reporting steps to the head of unit.
Executive compensation in India is basically built around three important factors; job complexity employers’ ability to pay and executive human capital. The complexity of a chief executive‘s job would depend on the size of the company as measured by its sales volume earnings and assets growth, the geographical dispersal of the units etc. The employer’s ability to pay is also a major factor to be considered while deciding executive compensation. A sick bank for instance, cannot afford to pay the same kind of salary to its executives as that of a healthy and growing bank. This partly explains why executive compensation in public sector undertakings is less when compared to sector units.
Executive Compensation Private Sector versus Public Sector:
In a well-publicized front page news sometime back The Economic mentioned about the miserable salary levels of top executives in public sector units in India. For example the State Bank Chief is paid 10% of HDFC Bank’s Managing Director. BHEL’s chief gets about Rs 10 to 12 lakhs per year as against ABB’s MD who gets nearly Rs 40 to 50 lakhs. Indian Oil Corporation’s chief gets Rs 10 to 15 lakhs per annum as against Reliance Industries Ambanis who gets a package of over Rs 10 crore per annum. Salary levels in hot private sector such as BPOs, hospitality, bio-technology Media, IT, Telecommunication, Oil, Automobiles and Insurance are way above the packages offered to executives in public sector for various reasons such as over-staffing, inefficient processes, pressure on margins due to competition appointment of people without requisite skills at the top level. Political interference especially in pricing the products or services, legal constraints etc.
The economic theory of human capital says that the compensation of a worker should be equal to his marginal productivity. The productivity of an executive likewise depends on his qualifications, job knowledge, experience and contribution. Indian companies usually structured executive compensation along the following factors: salary, bonus, commission, PF, family pension, superannuation fund, medical reimbursement, leave travel assistance, house rent allowances and other perquisites.