INTRODUCTION TO FINANCIAL MANAGEMENT

Introduction to Financial Management

Introduction to Financial Management

The salaries and bonuses of company executive are often performance based, and linked to the growth of sales or profits.

Many of my clients are beginning to worry more about employee retention than they have in the past few years. While rewards programs are by no means the only mechanism for improving retention, they certainly can be part of the solution. One of the reasons for the resurrected concern about retention, It may believe that it is because reward programs in many organizations have not received a lot of attention in the last few years. As organizations struggled in a challenging economic environment, many aspects of the rewards program moved to the back burner. Salary increases were frozen in some firms, or minimal in others. Salary ranges, if they have moved at all, did not move much. Bonus programs did not generate meaningful rewards in many organizations because company performance did not warrant it. Stock option awards were less frequent. And employers asked employees to share more of the ever-increasing cost of health insurance. The world of rewards has not flourished. (Harrison, 2000, 12)

But the economy is showing signs of improvement, and many organizations believe that now is the time to "catch up" with the rewards program. We believe they are right: it is a perfect time to step back and think about what are trying to accomplish with rewards program. In other words, it's a perfect time to make sure have the rewards strategy that makes sense for organization.

For example, some organizations will adopt a philosophy of having low base salaries, high bonus potential and a moderate benefits program. These organizations may be in a highly cost competitive environment. (Watson, 2001, 12) By having a modest salary program, it has a better chance of controlling its fixed costs. By having an aggressive bonus program, it can reward individuals appropriately, but only when company performance warrants it. They try not to spend too much on employee benefits because they have a culture of high performance and they want to emphasize the "high risk" of performance based bonus programs rather than the "comfort" of generous benefit plans.

Other organizations will have a competitive base salary program, no bonus program at all, and a generous employee benefits program. This model is common in non-profits. Many non-profits are not comfortable offering bonuses. Their salaries are often competitive with the non-profit sector, but lower than for-profit organizations. They try to make up for these factors by offering a generous benefits program and/or an attractive and flexible work environment. Some non-profits also attract employees who might be particularly committed to the mission of the organization. (Kilmann, Saxton, Serpa, 2002, 87) Still other organizations will offer high base salaries, and modest bonus and benefits programs. These organizations may be in a difficult recruiting environment. If they are having a hard time finding the right people, it may force them to offer high ...