Executive Compensation in Changing Financial Markets

Subject: Business
Type: Argumentative Essay
Pages: 1
Word count: 388
Topics: Human Resources, Finance

Owing to globalization that is characterized by unpredictable outcomes in terms of financial performance in businesses, the ever-changing financial environment has caused a dilemma among employers in light of the remuneration of employees. In the usual business setting, the dilemma arises between compensating employees for the purpose of motivation and retention and ensuring cost-effective strategies to the organization to enable it to compete effectively and efficiently in its markets. According to Mello (2015), an entity’s compensation strategy plays a key role in determining organizational effectiveness by meeting its goals while retaining employees. This paper looks at compensation in relation to imperfect financial markets that are characterised with an ever changing financial environment.

An organization seeking to leverage on the growth and motivation of its staff, needs to get the right mix in strategic compensation. According to Mello (2015), the modern approach to compensation is multifaceted and has a tendency to offer rewards as follows; employees’ performance and contribution, providing benefits that meet employee needs, providing intermittent rewards rather than waiting for the traditional end-of-year appraisal, the alignment of rewards to organizational goals and objectives, and rewards being individual tenets rather than being applied across the board in the organization. 

According to Cullen (2014), recent times have shown difficult situations in the compensation of executives in organizations during instability usually demonstrated by bullish and bearish markets. Incentive pay programs which are targeted towards rewarding employees based on individual, unit, or organizational performance have been shown to be effective in that they align to organizational performance in the short term (Mello, 2015). These pay plans are effective for retention because the incentive pay is not based on a time period and is aside of base pay: furthermore, it could be re-earned in subsequent time periods (Mello, 2015). 

The task of remunerating employees, especially those that are charged with executive decisions, remains a hard task for shareholders to decide especially during unpredictable financial changes. Nevertheless, organizations willing to have an edge in financial growth especially during imperfect situations in market trends, need to reward positive outcomes that emerged from taking calculated risk from their executives that led to growth. Such is the case, that entrepreneurial ability requires reward where executives advance financial goals whether short or long-sterm during unpredictable financial situations in organizations (Mello, 2015).

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  1. Cullen, J. (2014). Executive Compensation in Imperfect Financial Markets. doi:10.4337/9781782549291
  2. Mello, J. A. (2015). Strategic human resource management (4th ed.). Stamford, CT: Cengage Publishing.
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