Management Compensation and Business Analysis

Real-World Application: Management Compensation and Business Analysis

After recruitment,  managers should be motivated, rewarded, and retained. Management compensation rules and procedures govern how managers are compensated (Berber et al., 2017). They may contain a set payment (salary), a bonus (based on the accomplishment of period performance targets), and benefits (also called perks like travel, membership in fitness clubs, medical benefits, and other extras paid for by the firm). Top management should keep the firm’s particular strategic conditions in mind while designing the compensation plan and making adjustments when strategic conditions change (Grey et al., 2020). Top management may successfully create aversion by carefully balancing overall remuneration’s pay and bonus components. Apple Company has been chosen as the application for this project. With this corporation, I will demonstrate how management compensation and business analysis can be used to optimize financial resource allocation strategy.https://penstrokeswriters.com/?p=1164&preview=true

Astute employers understand that retaining great employees entails offering a fair wage and benefits package. Wages, salaries, bonuses, and commission arrangements all constitute compensation. Employers should not overlook the benefits component of employee remuneration and perks, as benefits sweeten employment contracts by addressing the needs of most employees. Developing an appropriate pay strategy results in increased work satisfaction. The optimal compensation plan incorporates advantages in addition to all other potential bonuses. The correct remuneration scheme invests people in their job, which results in a greater sense of fulfillment when the business succeeds. They are aware that their efforts will be rewarded; everyone enjoys being recognized.

Apple Inc., originally Apple Computer, Inc., is a technology company based in Cupertino, California. It manufactures personal computers, smartphones, tablet computers, computer accessories, and software (Li, 2020). Apple has been one of the world’s most valuable firms since 2010.

Employees at a business are often compensated for the services they provide. While most people believe that salary and compensation are synonymous, the fact is that compensation is more than a payout package. The Apple Company’s present pay structure has had several far-reaching consequences. Apple’s compensation strategy has bolstered the company’s competitive edge. Long-term equity awards are made through limited stock corporations. Cash incentive compensation has been critical in assisting Apple in achieving its business goals and objectives and is reasonable given its excellent financial performance compared to its peer group.

The other type of pay is based on base salary. The remuneration committee is entirely comprised of independent directors. The executive or employee compensation platform’s primary objective is to recruit and maintain a talented, enterprising, and creative leadership team. These authorities will contribute to the company’s success in competitive and dynamic marketplaces by offering leadership.

Apple believes that its executive compensation approach has been a crucial component of its success. As a result, the pay committee’s top priority continues to be CEO compensation planning. The performance-based cash incentive compensates a designated executive officer for exceptional performance as a payment system. These duties or responsibilities may include accomplishing or realizing specific financial targets or goals established by the pay committee. Each year, the compensation committee establishes these financial objectives. The committee bases these objectives on Apple’s internal strategy or business plans’ operating and revenue targets. According to the remuneration committee, the existing compensation plan is justified by the company’s strategy. Thus far, the salary has attracted highly enterprising, bright, and creative people. It has contributed to the company’s dynamic and effective leadership, which is highly competitive in the market. However, unless the firm and employees reach a comprehensive agreement, it will result in employee dissatisfaction, resulting in a rift and friction in the employer-employee relationship. Apple may thus leverage its remuneration model to form successful bonds with its massive number of permanent and temporary employees.

The Apple corporation sees its whole management team. The business takes a comprehensive approach to remuneration, taking into account various aspects, including managers’ backgrounds and experience. Compensations differ as a result of these factors. Managers’ real compensation may be based on their talents, experience, and certifications. Managerial positions inside the organization may be eligible for discretionary bonuses or commissions and relocation assistance. Each Apple employee also has the chance to become a shareholder, as they are eligible for stock awards and a discount on Apple stock purchases. While this is intended to motivate and impress employees, financial concerns may develop. Money is required for payment. Profitability is also a goal of the business. This is where financial analysis comes into play – remuneration must be calculated based on various elements within the organization, one of which is its financial health. When CEO compensation is much higher than lower-level employees, there may be cause for worry. This is where management compensation and business analysis come into play, assisting the firm in determining the most effective means for compensating employees.

The objectives of management compensation are to motivate managers to exert maximum effort toward achieving top management’s objectives, to provide an incentive for managers acting autonomously to make decisions consistent with top management’s objectives, and to develop fairly the rewards earned by managers for their effort, skill, and decision-making effectiveness. When establishing bonus compensation, Apple should consider many factors. Bonus compensation is the company’s fastest rising component of overall pay. Bonus plans may be classified into three categories based on their compensation base (how bonus pay is determined), compensation pools (the source of bonus pay funding), and payment alternatives (how the bonus is awarded). Apart from grasping these principles, Apple’s senior management should know the bonus pay structure. Bonus compensation can be determined using the stock price, strategic performance metrics such as cost, profit, sales, investments, or balanced scorecard performance (Tsang et al., 2021). The rationale for bonus payments must be determined based on the firm’s compensation objectives. After establishing the baseline, Apple must devise a method for determining the bonus amount depending on the actual degree of performance relative to the objective.

Another critical factor to examine is the bonus compensation pool. Bonus payout pools may be unit- or firm-based in nature. The manager’s unit’s success determines a unit-based bonus; the amount of the bonus paid to any manager is unrelated to the performance of other managers. A firm-wide pool holds the total bonus accessible to all managers; incentives are contingent upon the firm’s overall success (Okeke & Ikechukwu, 2019). The firm should know when it is appropriate to use either of the pools. Apart from achieving the three primary objectives of compensation plans, Apple should select plans that minimize tax liability for both the corporation and its management. For example, several benefits are tax-deductible by the employer and are not considered income to the manager (for instance, club memberships, company vehicles, and entertainment).

Additionally, the company’s compensation programs should be designed to influence the firm’s financial statements positively. This is when issues of business analysis come into play. Business analysis is a term that refers to a collection of methods used to assess a firm’s competitiveness and financial performance (Blocher et al., 2019). Business analysis is divided into three primary sections: strategic and competitive analysis (strategic positioning and SWOT analysis), assessment of instruments for executing strategy, such as the balanced scorecard, and ratios to evaluate individual managers’ and the overall company’s performance. These sections should be considered while determining management compensations. The balanced scorecard evaluates a business, similar to how CSFs evaluate and compensate managers. A good assessment occurs when the CSFs outperform the benchmarks and the preceding year’s performance. The organization should decide the amount to reward its management using financial ratio analysis, value-added economic analysis, business valuation, discounted cash flow analysis, and enterprise value analysis.

Finally, the corporation may also consider to compensate its management using the payback technique. Cooremans and Schönenberger (2019) discovered that the payback method’s utilization increases as the degree to which management compensation is contingent on accounting results increases. Additionally, there is an indirect influence on the payback approach due to financial objectives followed in capital planning. The more management compensation is based on accounting earnings; the more critical management views the earnings objective in capital budgeting. Conflicts between owners and managers and management’s self-interested conduct driven by employment contracts all contribute to the usage of the payback approach.

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