Problem
A. Identify the issues, incorporating equity theory and/or agency theory.
B. Develop a solution. Imagine that you are a compensation manager - what would you do to resolve the issue?
Compensation Dilemmas
• Assume that the supply of electrical technicians is low in the market, so Bill's Electric hires a group of them at $18/hour. Two years later, due to a recession, the supply of technicians is so high that the market rate for them is now $15/hour. Should Bill's Electric pay new hires $18 or $15 per hour? Given that Bill's Electric bases pay on supply and demand, should it lower pay of existing technicians to $15/hour?
• Peter Gibbons and Michael Bolton both work in the same department. Peter believes that Michael is being paid considerably more than he is. In actuality, both employees are being paid about the same amount. Peter wants a pay raise and complains to his boss and the compensation manager. What should the compensation manager say, assuming the firm follows a policy of not revealing the pay of individual employees? Should Peter be told the amount of Michael's pay? Or, should Peter only be told that there is a "misunderstanding" and that his belief is incorrect? Or, should nothing be said? Or, should some other approach be taken?
• In the final full year with General Electric, Jack Welch earned more than $16 million. During his tenure, GE increased market cap by $250 billion, and became number one market cap in the world. He negotiated a retirement agreement which provides him with an annual pension of more than $9 million a year and a health and life insurances. As a consultant to the company, he would be paid $86,535 for his first 30 days of work each year, plus $17,307 for each additional day. GE would provide him with financial planning services to manage his fortune, which is estimated at nearly $1 billion. In response to the news of retirement agreement, shareholders blasted GE's board for being irresponsible and reckless. Should GE renegotiate Welch's compensation package?