Compensation management system in multinational companies

Running head: COMPENSATION PRACTICE 1

COMPENSATION PRACTICE 9

Compensation Practice

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Abstract

Compensation practices have been used by the Apple Company, which is a multinational company based in America with its headquarters located in Cupertino. The Apple Company is known for developing, designing and selling computer software such as iTunes, iOS operating systems, among other consumer electronics. Their popular products in the Mac line are computers, iPads, iPhones, and iPods. The company is ranked number three in the phone making category, after Nokia and Samsung. The company has penetrated in more than 14 countries making it, by market capitalization, one of the largest publicly traded global companies.

Apple Company has an objective for employees on the platform of compensation. The company aims at attracting and retaining their executives since they ensure succeeds in the market competition. The company strives to achieve the objective on the company’s stakeholders. Compensation committee in the company determines the compensation for the executives of the company as well as overseeing the compensation program. Executive compensation strategy has been the greatest tool in the achievements of the company. Another compensation strategy used by Apple Company is performance-based cash incentive. Apple’s compensation committee determines the compensation plans of its employees and executives.

The company employs competitive strategies in finding out the compensation effects on the senior officials, employees, and stakeholders. There are three major challenges facing Apple Company, as well as attracting new employees, who have strong talents, controlling the labor costs and multinational operations challenge. Apple Company has employed compensation strategies that conform to compensation laws used globally and at the local country it operates. The traditional base for pay focuses on giving merits on seniority and therefore becomes effective since it facilitates a common ground to control compensation matters.

Compensation Strategy of Apple Company

For any company, they need to focus on the efficiency of operations since they pay their employees in return for the work done (O'Grady, 2009, p. 67). To avoid employee frustrations and bond frictions, a company and employees need to have a broad agreement on binding documents about the compensation package. Therefore, in that perspective, Apple Company has an objective for employees on the platform of compensation. The company aims at attracting and retaining their executives since they ensure succeeds in the market competition. The company strives to achieve the objective on the business’s stakeholders. Compensation committee in the business determines the compensation for the executives of the company as well as overseeing the compensation program. Through a good compensation program, the company believes that financial performance can improve in the challenging macroeconomic environment if compensation management is effective.

Executive compensation strategy has been the greatest tool to the achievements of the company. The strategy involves rewards such as base salaries, yearly bonuses out of the performance and long-term equity rewards. Notably, the strategy has ensured retention of performing executive leaders, as well as attracting the most outstanding executive team. Besides that, the strategy aims at determining supplementary rewards that stimulate the performance of the employees. The company rewards the mentioned employees with long-term equity rewards after every two years. The company does not stress so much on the overall monetary compensation but on equity rewards, thus, shaping its annual performance-based cash bonus from the named executive employee ("Apple, Inc. Executive Salaries & Other Compensation | Salary.com," n.d.).

Another compensation strategy used by Apple Company is performance-based cash incentive. The strategy has help Apple Company in attaining its goals, objectives as well as attaining better financial performance as compared with its competitors.

How the Compensation Practice Has Determined Positive/Negative Impacts to the Apple Company and Its Stakeholders

One way of indicating fair and equal plan effectiveness is through compensation impact. Employees show that they are satisfied with compensation programs through their behavior, as well as presenting a positive work attitude. Thus, the company benefits from the employee’s actions of higher performance and improved effectiveness. Apple Company has a compensation committee that determines the compensation plans of its employees and executives. The compensation plans are reviewed every year. The company employs competitive strategies in finding out the compensation effects on the senior officials, employees, and stakeholders. Besides this, the company has employed different governance techniques as well as charters so as to determine compensation impact. Occasionally, the committee reviews the policy on compensation to consider if it is still appropriate for use. Moreover, the committee approves the incentive, benefits policy, and the entire compensation policy of any employee, but more so, that of senior executive officers ("AAPL Apple, Inc. Executive Compensation," n.d.).

Also, compensation impact is assessed by the committee through annual performance evaluation. The same is also done by the governing board of Apple Company. Through this, the efforts of hard working executive members are acknowledged, as well as the individuals that partake in the financially based impact of the company.

Challenges Related to Compensation Strategy Used by Apple Company

There are three major challenges facing Apple Company. To begin with is retaining, as well as attracting new employees who have strong talents. Due to high competition in the labor market for employees, the Apple’s compensation committee must recognize that and factor in the increasing competitive salaries and talented employees. The competition has raised wars in the multinational companies dealing with computer and software technologies. Therefore, Apple’s compensation committee is expected to aim higher and come up with a good enticing compensation plan for qualified and talented employees. Again, the compensation committee should aim at enhancing employee retention by developing a more complicated compensation strategy ("Apple, Inc. Executive Salaries & Other Compensation | Salary.com," n.d.).

Another challenge the Apple Company is facing is controlling the labor costs. The company’s budget has constraints in the countries that have constricted economies; meanwhile, war arises among information technology companies. Thus, the labor costs go up than the amount paid to the employees. As a result, the creation of effective compensation strategies becomes challenging.

Finally, Apple Company is facing a multinational operations challenge. Apple being a multinational company operating in different countries, it should, therefore, have strategies that balance expectations and employees’ needs in the various countries. Again the compensation strategies chosen should conform to the local customs and laws against global corporate policies. Sometimes adjusting this has been a significant problem for Apple Company.

How Laws, Market Factors and Labor Unions Impact Compensation Practices of Apple

Apple Company has employed compensation strategies that conform to compensation laws used globally and at the local country it operates. In this case, compensation laws and regulations become critical to Apple Company as it can undermine or improve compensation strategies used. Therefore, any established compensation strategy must conform to the law. Again, Apple should agree with the country’s compulsory leave to employees, bonuses, working hours, and minimum salaries for both permanent and temporary employees ("Apple, Inc. Executive Salaries & Other Compensation | Salary.com," n.d.).

Again, the compensation strategies should also consider the workers are working overtime. According to the law established, then all workers working overtime should be compensated effectively. For instance, the National Labor Relations Act states that private employees must be protected against the unfair labor practices of employers. Federal Labor Law is formed to regulate unions, employers, as well as employee relations. Labor unions have a greater impact on compensation since they have employees’ bargaining power. Therefore, they can directly affect employees’ wages, salaries, and total compensations. Through effective labor unions, employees can get the best compensation for the work done.

The market factors have impacted compensation strategies of Apple Company. Due to increasing competition in the information technology market, Apple Company must compete favorably by setting aside some finances for compensation. By doing so, evaluation reports are given by the compensation committee every year which says that the employee performance is increasing since they are motivated.

Effectiveness of Traditional Base for Pay approach

According to Need (2006), compensation strategy aims at motivating, retaining and attracting the most talented employees to the Apple Company. To ensure consistent financial success for the company, choices on compensation strategy must be made right. A traditional pay approach is perceived to be consistent and fair. The same approach can produce either productive or non-productive results. The truth of the matter is, with merit pay calls for binding to the ongoing employee training that can result in high costs.

The traditional base for pay focuses on giving merits on seniority and therefore becomes effective since it facilitates a common ground to control compensation matters. The approach provides a company with good criteria based on compensation evaluation. Reports should be drawn to show whether employees are rewarded more than necessary. The approach also serves as an important assessment tool on the company’s internal pay equity. Since all jobs in practice are based on a single system, it enables the company to compare what employees are getting across the board. More on that, the approach facilitates company market testing on the competitiveness of the pay scale. Again the approach allows all jobs to be scored using methods equitable to the other practices ("AAPL Apple, Inc. Executive Compensation," n.d.). Thus making the approach quite objective and again makes the paying system dependable as well as consistent. Hence employees won’t see compensation program as arbitrary.

Unlike other compensation approaches, such as incentive-based and person-focused, traditional base for pay may have some shortcomings. The approach emphasizes an upward career orientation, and senior executives continue getting the compensation. It also emphasizes on bureaucracy as well as the hierarchy in an organization. Finally, this approach fails to accurately compensate for the performance of talented employees.

In summary of the above discussion, Apple Company’s compensation strategy is not just to build a strong competitive edge, but supports human resource processes and helps the company in becoming highly efficient in these processes and leading in the information technology industry. The strategy has managed to attract top talents from global job markets to the company; therefore, retaining the talents for the best outcome of the company.

References

AAPL Apple, Inc. Executive Compensation. (n.d.). Retrieved on October 29, 2016, from http://insiders.morningstar.com/trading/executive-compensation.action?t=AAPL

Apple, Inc. Executive Salaries & Other Compensation | Salary.com. (n.d.). Retrieved on

October 29, 2016, from http://www1.salary.com/APPLE-INC-Executive-Salaries.html

Need, W. C. D. H. P. (2006). Human resource management: Gaining a competitive advantage.

O'Grady, J. D. (2009). Apple, Inc. Westport, CT: Greenwood Press.