To meet business challenges today and tomorrow, companies must maximise the potential of their workforce while increasing efficiency. In a highly competitive business environment, companies can differentiate themselves through their employees. Employees understanding the business carry out operations, mitigate risk, and build strong brands.
Today, there is much more concentration and focus on the strategic outcomes of human resource activity than ever before. The area of compensation is no exception. Compensation can be used to recruit and retain qualified employees, to increase or maintain morale / satisfaction, reward and encourage peak performance, achieve internal and external equity, reduce turnover and encourage company loyalty.
As a result, pay-for-performance systems using variable pay components are becoming more and more popular to reward for exceptional job performance. There is far more interest in more closely linking the reward mechanisms to the achievement of corporate objectives. Performance pay as one component in the total employee compensation can be assessed based on individual or team contribution, on business unit results or a corporate profit or share price. It can be rewarded through traditional salary adjustments but also through variable pay techniques such as lump-sum bonuses or stock options. There are no standard schemes or rules on how and to what volume a company should integrate variable pay into its total compensation systems. It not only depends on what the company focuses on but also on the company’s employees, their attitude to work and to the company as a whole. But employers should have in mind that a compensation plan that fails to motivate employees can stagnate a company as fast as any other factor.
Table of Contents
- Overview
- Introduction
- Compensation Components
- Drivers of Employee Motivation
- Why Stimulating Labour by Motivation
- Behavioural Theories
- Maslow's Hierarchy of Needs
- Herzberg's Hygiene-Motivator Theory
- Adam's Equity Theory
- Application of the Models
- Variable Compensation
- Overview of Variable Compensation Options
- Principles of a Successful Compensation Plan
- How to Build a Prosperous Compensation System
- Aligning with Organisational Objectives and Strategies
- Clear Communication and Appropriate Messages
- Linking Pay to Performance
- Creating a Performance Culture
- Creating an Efficient Compensation System
- Successful Performance Rewarding
- Critique on Variable Compensation Plans
- The Range of This Critique
- Variable Pay Does Not Always Benefit
- A Question of Common Justice
- The Horizon in Human Behaviour
- Practical example: Variable Components in the Executive Compensation of the TUI AG
- Company Profile of TUI Group
- Compensation Components of the Supervisory Board
- Compensation Components of the Executive Board
- Principles of the Executive Compensation System
- Conclusion
Objectives and Key Themes
This paper aims to explore various options for variable compensation, analyzing their effectiveness in motivating employees and aligning with organizational goals. The authors examine relevant motivational theories and their application in designing compensation plans. A case study of TUI AG's executive compensation provides a practical illustration of the concepts discussed.
- Employee Motivation Theories and their Application
- Principles of Effective Variable Compensation Design
- Critique of Variable Compensation Systems
- Alignment of Compensation with Organizational Objectives
- Case Study Analysis of Variable Compensation in a Large Corporation
Chapter Summaries
Overview: This introductory chapter lays the groundwork for the subsequent analysis of variable compensation. It provides a brief introduction to the topic and defines key compensation components, setting the stage for a deeper dive into the motivational factors influencing employee performance and the design of effective compensation systems.
Drivers of Employee Motivation: This chapter delves into the core principles of employee motivation. It explores various behavioral theories, including Maslow's Hierarchy of Needs, Herzberg's Hygiene-Motivator Theory, and Adam's Equity Theory, to understand how these frameworks impact employee behavior and performance. The chapter analyzes how understanding these theories is crucial for creating effective compensation strategies that resonate with employees' needs and expectations.
Variable Compensation: This chapter provides a comprehensive overview of variable compensation options. It outlines the key principles for building a successful and effective compensation system. This includes aligning compensation with organizational objectives, ensuring clear communication, linking pay to performance, fostering a performance culture, creating efficient systems, and rewarding successful performance. The chapter serves as a guide for developing and implementing effective variable compensation plans.
Practical example: Variable Components in the Executive Compensation of the TUI AG: This chapter presents a detailed case study of TUI AG, focusing on the variable components within their executive compensation. It examines the compensation structure of both the supervisory board and executive board, analyzing the various components and their underlying principles. The chapter provides a practical application of the theoretical concepts discussed in previous sections.
Keywords
Variable compensation, employee motivation, Maslow's Hierarchy of Needs, Herzberg's Two-Factor Theory, Adam's Equity Theory, compensation design, performance-based pay, organizational objectives, TUI AG, executive compensation, case study.
Frequently Asked Questions: A Comprehensive Guide to Variable Compensation
What is the overall topic of this document?
This document provides a comprehensive overview of variable compensation, exploring its effectiveness in motivating employees and aligning with organizational goals. It examines relevant motivational theories and their application in designing compensation plans, culminating in a case study of TUI AG's executive compensation.
What are the key themes explored in this document?
The key themes include employee motivation theories (Maslow's Hierarchy of Needs, Herzberg's Hygiene-Motivator Theory, Adam's Equity Theory) and their application to compensation design; principles of effective variable compensation design; critiques of variable compensation systems; aligning compensation with organizational objectives; and a detailed case study analysis of variable compensation within a large corporation (TUI AG).
What are the main components of the document's structure?
The document is structured into several key sections: an overview introducing variable compensation and its components; an in-depth examination of employee motivation drivers and relevant behavioral theories; a comprehensive exploration of variable compensation options and the principles for creating successful plans; a practical example using TUI AG's executive compensation structure as a case study; and finally, a concluding section.
What employee motivation theories are discussed?
The document delves into three prominent behavioral theories: Maslow's Hierarchy of Needs, Herzberg's Hygiene-Motivator Theory, and Adam's Equity Theory. Each theory is examined for its implications on understanding employee behavior and designing effective compensation strategies that align with employee needs and expectations.
What are the key principles of a successful variable compensation plan?
Building a successful variable compensation system involves aligning it with organizational objectives and strategies, ensuring clear communication, directly linking pay to performance, fostering a performance culture, creating efficient systems, and rewarding successful performance effectively. The document emphasizes the importance of these elements for achieving desired outcomes.
What are some critiques of variable compensation plans?
The document acknowledges that variable pay doesn't always benefit employees and raises questions of fairness and equity in its application. It highlights potential downsides and areas where variable compensation might fall short of its intended purpose, considering its impact on human behavior and long-term organizational goals.
What is the purpose of the TUI AG case study?
The TUI AG case study provides a practical application of the theoretical concepts discussed throughout the document. By analyzing the variable components in TUI AG's executive compensation (for both the supervisory and executive boards), the document illustrates how these concepts translate into real-world compensation structures within a large corporation.
What are the key takeaways from the TUI AG case study?
The TUI AG case study demonstrates how a large corporation structures variable compensation for its executive boards, highlighting the specific components of their compensation plans and the underlying principles guiding those decisions. It serves as a real-world example of the theories and principles discussed earlier.
What are the key words associated with this document?
Key words include: Variable compensation, employee motivation, Maslow's Hierarchy of Needs, Herzberg's Two-Factor Theory, Adam's Equity Theory, compensation design, performance-based pay, organizational objectives, TUI AG, executive compensation, and case study.
- Quote paper
- Nadine Pahl (Author), Axel Hinze (Author), Anne Richter (Author), 2007, Options for Variable Compensation, Munich, GRIN Verlag, https://www.grin.com/document/124633
