A pension fund manager compensated only based on performance earned $1.4 million last year. Concerned, the fund’s board of directors proposed to cap the fund manager’s compensation to $200K. Provide arguments in favor and against the proposal.
In a classic corporate system, firms give set fixed wage against the work done; however, in the contemporary corporate system, firms only offer monetary compensations to employees for channelizing their efforts to improve the performance of companies. The strategy is based on the concept of incentive. Studies have inferred, based on the evidence, that incentives motivate individuals to perform extraordinarily. Incentives, which grow with performance (incentives that are positively correlated with performance) tend to excite people to perform exceptionally (Kressler).
When we study the given scenario in detail, we learn that the pension-fund manager earned around $1.4 million because of his/her (gender has not been specified) exceptional performance. It suggests that monetary compensation, which the pension-fund manager received, was an incentive that grew with performance. The Board of Directors intends to cap the compensation to $200k, which is a drastic reduction in the monetary compensation against the performance.
PROS OF CAPPING FUND MANAGER’S COMPENSATION
- By capping fund manager’s compensation, the company will have sizeable funds to disperse among other employees. The dispersing of funds among other exceptional employees will affect the overall performance of employees.
- When a large number of employees are compensated for performing better than the average (rather than an individual), a positive work environment will emerge that will increase positive work-deviance.
CONS OF CAPPING FUND MANAGER’S COMPENSATION
- Capping fund manager’s compensation will discourage managers.
- The incentive will motivate managers to perform exceptionally to a particular point ($200k).
- When a manager would not have any incentive to work or perform exceptionally beyond a certain point, he/she would not perform (probably). It will affect performance as an employee will not be exploiting his/her full potential.
- The capping of manager’s compensation may adversely affect his/her performance, and it may become the reason for negative work deviance (Barling and Cooper).
Work Cited
Barling, Julian and Cary L Cooper. The SAGE Handbook of Organizational Behavior: Volume One: Micro Approaches. SAGE, 2008.
Kressler. Motivate and Reward: Performance Appraisal and Incentive Systems for Business Success. Palgrave Macmillan, 2003.
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