Which component of compensation is most essential to motivate executives to lead companies toward competitive advantage?
Which component of compensation is most essential to motivate executives to lead companies toward competitive advantage?
DQ
Please select ONE of the three questions below to answer:
1.Which component of compensation is most essential to motivate executives to lead companies toward competitive advantage? Discuss your rationale.
2.Discuss your position on executive compensation. Is executive compensation excessive or appropriate?
3.Discuss the differences between enhanced benefits and perquisites.
Guidelines: In your answers please draw from your own professional experience and provide examples from your own life, either as a leader, helper, employee, or observer. Review the reading, draw from your own ideas, examples or experience– and conduct some additional research as needed.
R
Hello Class,
Compensation is an essential tool for attracting, retaining, and motivating executives to lead companies towards competitive advantage. The three primary components of executive compensation are base salary, performance-based incentives, and long-term incentives. Each component plays a unique role in motivating executives, but the most crucial component to drive competitive advantage is performance-based incentives. This essay will discuss the rationale behind this claim.
Performance-based incentives are designed to reward executives for achieving specific performance targets. These targets may include financial metrics such as revenue growth, profitability, and return on investment, or non-financial metrics such as customer satisfaction, innovation, and sustainability. By aligning executive compensation with the company’s strategic goals and objectives, performance-based incentives motivate executives to focus on activities that drive competitive advantage.
Research suggests that performance-based incentives are the most effective component of compensation to motivate executives. According to a study by McKinsey & Company, companies that use performance-based incentives in their compensation plans outperform those that rely solely on base salaries or long-term incentives (Barton, 2015). This finding is consistent with other studies that demonstrate a positive correlation between performance-based incentives and firm performance (Ittner, Lambert, & Larcker, 2003; Jensen & Murphy, 1990).
Performance-based incentives drive competitive advantage by creating a clear link between executive performance and company performance. When executives are rewarded for achieving specific performance targets, they are motivated to focus their efforts on activities that generate the desired results. For example, if the company’s strategic goal is to increase revenue growth, performance-based incentives can motivate executives to develop new products, enter new markets, or improve customer retention rates. By incentivizing executives to focus on activities that drive competitive advantage, performance-based incentives can help companies outperform their peers and gain a sustained competitive advantage.
In conclusion, while all three components of executive compensation play a vital role in motivating executives, performance-based incentives are the most essential component to drive competitive advantage. By aligning executive compensation with the company’s strategic goals and objectives, performance-based incentives motivate executives to focus on activities that generate the desired results, leading to sustained competitive advantage.
References
Barton, D. (2015). Reinventing the CFO. Harvard Business Review Press.
Ittner, C. D., Lambert, R. A., & Larcker, D. F. (2003). The structure and performance consequences of equity grants to employees of new economy firms. Journal of Accounting and Economics, 34(1-3), 89-127.
Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264.
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Management
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