Its Not Fair

Summary:
In any organization, compensation is the key factor for an employee to get
satisfaction. So, employees more concentrate on their salaries, based on this
motivation and input level will varies. Similarly deciding salaries to top
management is tough task to compensation committee. But it creates huge
differences while comparing with low-level employee. Based on the equity theory
the compensation is decided, but the critics from cooper will make committee to
think about the success of firm not the status. Where the pay ratios which created
from 1950s make into eight times more than its ratio will make these
determinations as Its Not Fair.

Facts:
How fair is deciding the pay to Top-Management?
As per the case, the top management people were highly payable by the
firm. By the cooper words, the compensation to top level is 20 times more
than the low-level employee. But, the critics says that it is eight times more
than its proportion of 1950s, that which misleads their pay into inequitable.
Indeed of their job role, responsibility, revenue and success their salary
raises up. Because of that reason this case can be called as Its Not Fair.

Compensation is determined by EQUITY theory

Many of the researchers /compensation committee follow the equity theory
to regulate the chief executives pay. It discuss the how much an individual
will puts his inputs to get the output that which compares with other input
and output levels. Here hardwork, commitment, loyalthy etc, are towards the
job which says as input and the salaries, recognition, reward etc, are called
as output. As per this theory employee get distorted when it posses
inequitable levels between input and output levels.

 Comparison with other firms compensation

The given information says that board members are suggested to decide the
compensation by comparing with other firms, which posses similar inputs
and levels. Based on this, the pay is fixed to make the employee in a positive
inequity manner. In that, one should feel that he/she are over rewarded on a
company to others. By comparing the top management of large firms with
similar type of large firms and smaller firms with similar type of smaller
firms.

For compensation, success is the key factor not status

The debate rises on inequity proportions of compensation to superior
employee, not bothering with the firms success. Some of the critics, says
that based on the profits of the company the rewards can be distributed to the
employee regarding to their inputs. Here, the importance is given to their
efforts not to their positions. By this nature, the employee can be motivated
to firms growth and success.

Questions:
1. How does the executive compensation issue relate to equity theory? Who
do you think should be the referent others in these equity judgments?
Fairness and equity are the two key elements for to make the employee get
motivated. Whereas, the equity theory deals with comparison of individuals
inputs and outcomes with others and influences them to eliminate the
inequities between them. It mainly focuses on the distributive justice, that
how an individual will receive reward from the management. The top
management of large firms with similar type of large firms and smaller firms
with similar type of smaller firms are comes under referent others in these
equity judgments.
2. Are there any positive motivational consequences of tying compensation
pay closely to firm performance?

Yes, there are positive motivational consequences like productivity,

satisfaction, job involvement, self determination, organizations commitment
and turnover variables etc, are related to the compensation pay closely to
firm performance.