the structure of compensation another set of factors influencing job choice and work effort...

The Structure of CompensationThe Structure of Compensation

Another set of factors influencing job Another set of factors influencing job choice and work effort decisions: employer choice and work effort decisions: employer compensation policies both at one point in compensation policies both at one point in time and over several period of time.time and over several period of time.

1. The Economics of Fringe Benefits1. The Economics of Fringe Benefits

1)1) Employee Preferences:Employee Preferences:Two categories of benefits:Two categories of benefits:

a)a) Payment in kind: compensation in the form of some Payment in kind: compensation in the form of some commodity, e.g., insurance, paid vacation.commodity, e.g., insurance, paid vacation.

Other things equal, people would rather receive $X Other things equal, people would rather receive $X in cash than a commodity that costs $X. However, in cash than a commodity that costs $X. However, ‘other things” are not equal. In kind payments offer ‘other things” are not equal. In kind payments offer employees a sizable tax advantage because for the employees a sizable tax advantage because for the most part, they are not taxable under current income most part, they are not taxable under current income tax regulations.tax regulations.

b)b) Deferred compensation: compensation that is Deferred compensation: compensation that is earned now but will be paid in the form of money earned now but will be paid in the form of money later on. E.g., pension benefitslater on. E.g., pension benefits

Deferred compensation schemes enjoy a tax Deferred compensation schemes enjoy a tax advantage over current cash payments. Because of advantage over current cash payments. Because of lower income and special tax advantages given the lower income and special tax advantages given the elderly, the tax rates actually paid are relatively elderly, the tax rates actually paid are relatively low.low.

Note: With both kinds of benefits there is a loss of Note: With both kinds of benefits there is a loss of discretion in spending one’s total compensation, discretion in spending one’s total compensation, which tends to render fringes inferior to cash which tends to render fringes inferior to cash payments in generating utility. On the other hand, payments in generating utility. On the other hand, the special tax advantage of benefits as compared the special tax advantage of benefits as compared with cash payments tend to increase the demand for with cash payments tend to increase the demand for fringe.fringe.

2)2) Employer Preferences Employer Preferences Suppose employers are totally indifferent about wheSuppose employers are totally indifferent about whe

ther to spend $X on wages or $X on fringes, then thther to spend $X on wages or $X on fringes, then the composition of total compensation is a matter of ine composition of total compensation is a matter of indifference to the employers, only the level of compedifference to the employers, only the level of compensation is of concern.nsation is of concern.

Suppose a firm must pay its workers $X per years to Suppose a firm must pay its workers $X per years to remain competitive in both the labor and the product remain competitive in both the labor and the product markets.markets.

→→The various compensation packages a firm is willing The various compensation packages a firm is willing to offer fall along the zero-profit isoprofit curve drato offer fall along the zero-profit isoprofit curve drawn between wages and fringes.wn between wages and fringes.

Wage Rate

Nominal Employer Cost of Fringe Benefits

Employer’s Zero-Profit Isoprofit Curve

The slope of the isoprofit curve is negative reflecting the fact that the firm can increase fringes only if it reduces wages. In this case, the isoprofit curve has a slope of –1, reflecting employer’s indifference about the composition of compensation.

Note: By increasing compensation in the form of fringes rather than wages, employers can often avoid taxes and required insurance payments that are levied as a fraction of payroll. This will make it more costly for an employer to increase compensation by increasing salaries than by increasing benefits.

→A dollar spent on fringes could cost employers more or less than a dollar nominally spent on wages or salaries. When fringes enhance productivity more than a similar expenditure on wages would, the isoprofit curve will flatten. When fringes increase other costs or reduce productivity, the isoprofit curve will be steeper.

Wage Rate


X

X

A

B

3) The Joint Determination of Wages and FringesWage Rate


Worker Y

Worker Z

WY

WZ

FY FZ

X

X

XX traces out the actual offers made by all firms in this labor market.

Those employees who attach relatively great importance to the availability of current spendable cash will choose to accept offers in which total compensation comes largely in the form of wages. (such as worker Y) employees who may be less worried about current cash income but more interested in the tax advantages of fringe benefits will accept offers in which fringe benefits form a higher proportion of total compensation. (worker Z)

Note: Because firms that pay high wages usually also Note: Because firms that pay high wages usually also offer very good fringe benefits, it often appears to the offer very good fringe benefits, it often appears to the casual observer that wages and fringes are positively casual observer that wages and fringes are positively related. Casual observation in this case is misleading related. Casual observation in this case is misleading because it does not allow for the influences of other because it does not allow for the influences of other factors, such as the demands of the job and the factors, such as the demands of the job and the quality of workers involved.quality of workers involved.

2. Current Status and Future Prospect of 2. Current Status and Future Prospect of Fringe BenefitsFringe Benefits

1)1) Current StatusCurrent Status There are three major types of benefits provided to There are three major types of benefits provided to

employees:employees:a)a) Paid: vacations, holidays, sick leave maternity leave Paid: vacations, holidays, sick leave maternity leave

etc.etc.b)b) Insurance Plans: medical care, life, disability etc.Insurance Plans: medical care, life, disability etc.c)c) Retirement and Saving Plans: defined benefit Retirement and Saving Plans: defined benefit

pension, profit sharing, employee stock pension, profit sharing, employee stock ownership etc.ownership etc.

d)d) Additional Benefits: parking, educational Additional Benefits: parking, educational assistance, employee discount etc.assistance, employee discount etc.

2)2) Future ProspectFuture Prospect Over the past few decades there have been Over the past few decades there have been

considerable changes in the composition of considerable changes in the composition of employee benefits offered to workers. While employee benefits offered to workers. While many of these changes have brought a new many of these changes have brought a new philosophy, and a new administration of philosophy, and a new administration of employee benefits, all indications point to a employee benefits, all indications point to a continual expansion and redefinition of continual expansion and redefinition of employee benefits packages. employee benefits packages.

a)a) Early RetirementEarly Retirement Early retirement programs are designed to assist an Early retirement programs are designed to assist an

organization in achieving some measure of cost saviorganization in achieving some measure of cost savings in their direct wage bill. Typically, as employeengs in their direct wage bill. Typically, as employees’ tenure with an organization has grown in years, ts’ tenure with an organization has grown in years, these employees’ salaries have risen to high levels. hese employees’ salaries have risen to high levels. To address this concern, and realizing that age discrTo address this concern, and realizing that age discrimination laws may be affected an incentive prograimination laws may be affected an incentive program to encourage these worker to sever their ties with m to encourage these worker to sever their ties with the organization.the organization.

→→The key issue in early retirement programs is to proThe key issue in early retirement programs is to provide enough incentive for the employee to voluntarivide enough incentive for the employee to voluntarily take an early retirement, while simultaneously allly take an early retirement, while simultaneously allowing for the direct wage bill of the organization to owing for the direct wage bill of the organization to be reduced.be reduced.

b)b) Parental LeaveParental Leave Parental leave can be defined as any leave from worParental leave can be defined as any leave from wor

k, paid or unpaid, for employees to attend to child ck, paid or unpaid, for employees to attend to child care responsibilities for a newborn infant or newly aare responsibilities for a newborn infant or newly adopted child.dopted child.

→ →Although the Family and Medical Leave Bill permitAlthough the Family and Medical Leave Bill permits this time off, there is a financial concern: The 9 to s this time off, there is a financial concern: The 9 to 5 organization estimates that fewer than 40 percent 5 organization estimates that fewer than 40 percent of working women would be financially able to takof working women would be financially able to take an unpaid leave.e an unpaid leave.

→→There was an even greater controversy surrounding There was an even greater controversy surrounding parental leave-do fathers deserve the same time off parental leave-do fathers deserve the same time off as mothers with respect to family leave? Under the as mothers with respect to family leave? Under the Family and Medical Leave Bill passed in 1993, they Family and Medical Leave Bill passed in 1993, they do!do!

c)c) Children and EldercareChildren and Eldercare Another major trend affecting corporations today is the push fAnother major trend affecting corporations today is the push f

or an increase in child- and elder-care benefits.or an increase in child- and elder-care benefits.

→ →Dual-career couples with children and/or elderly live-in parentDual-career couples with children and/or elderly live-in parents need to have some assurance that child- or eldercare progras need to have some assurance that child- or eldercare programs are available to them without major disruptions to their livms are available to them without major disruptions to their lives.es.

→ →Companies are beginning to recognize that when its employeeCompanies are beginning to recognize that when its employees are faced with a choice between their jobs and their families,s are faced with a choice between their jobs and their families, the vast majority of employees clearly place their job second. the vast majority of employees clearly place their job second.

→→American Express, IBM, Work Family Directions, and AllstatAmerican Express, IBM, Work Family Directions, and Allstate Insurance have joined forces to offer quality childcare at a fe Insurance have joined forces to offer quality childcare at a facility that is in close proximity to all of their employees. In cacility that is in close proximity to all of their employees. In coming years, we can only expect such cooperative arrangemeoming years, we can only expect such cooperative arrangements to continue when they are feasible to both the employer ants to continue when they are feasible to both the employer and the employee.nd the employee.

d)d) Flexible Benefits: A benefit program in which Flexible Benefits: A benefit program in which employees are permitted to pick benefits that most employees are permitted to pick benefits that most meet their needs, within monetary limits imposed.meet their needs, within monetary limits imposed.

1.1. Flexible Spending Accounts.Flexible Spending Accounts.

2.2. Modular Plans.Modular Plans.

3.3. Core-plus Options Plans.Core-plus Options Plans.

4.4. Add-on Plans.Add-on Plans.

3. The Compensation of Executives 3. The Compensation of Executives

There has been a lot of interest in recent years in the There has been a lot of interest in recent years in the salaries of high-level executives, such as chief salaries of high-level executives, such as chief executive officers, or CEOs. American CEOs have executive officers, or CEOs. American CEOs have much higher salaries than their counterparts in much higher salaries than their counterparts in Germany and Japan. For example, the average salary Germany and Japan. For example, the average salary of the top 20 executives in the United States is $4.8 of the top 20 executives in the United States is $4.8 million, as compared to $1.8 million in Germany, and million, as compared to $1.8 million in Germany, and $530,000 in Japan.$530,000 in Japan.

排名 ( )產業別樣本數平均值標準差最大值最小值

1 ind8(2) 環境衛生及污染防治服務業、社會服務業、出版業、廣播電視業、娛樂業及旅館業。

7941000 4823882 11352000 4530000

2 ind314(37) 資料處理設備製造、資料儲存媒體製造、資料終端裝置製造、資料輸入週邊設備製造、電腦零組件製造業。

6987516 6146558 35561000 70000

3 ind3(119) 電力及電子機械器材，運輸工具製造配修、精密機械製造、及其他工業製品。

5819706 5727460 39674000 0

4 ind317(41) 電子管製造、半導體製造、光電材料及元件製造、被動元件製造業。

5439781 6350059 39674000 0

5 ind6(78) 運輸業、倉儲業、通信業、金融業、保險業及不動產業。

5207227 5446836 32186000 125000

6 ind7(4) 建築及工程技術服務業、商品經紀業、顧問服務業、資訊服務業、廣告業、及其他工商服務業。

4940750 2174278 7335000 2981000

7 ind2(105)

化學材料製造、化學製品製造、石油及煤製品、橡膠製品、塑膠製品、非金屬礦物製造、金屬基本工業、金屬製品製造、機械設備製造配修業。

4203594 3121513 14677000 0

8 ind5(16) 批發、零售、及餐飲業。 4174288 2695108 11445000 24000

9 ind1(66) 食品及飲料製造、紡織業、成衣服飾品、家具及裝設品、紙類、及印刷有關事業。 3842774 2836575 13941000 76000

10 ind4(21) 水電燃氣業、營造業。 3765139 2151109 9736319 738000

11 ind316(14) 有線通信器材製造、無線通信器材製造、其他通信器材製造業。

2721929 2173319 7556000 6000

1999年董事長薪資統計資料

資料來源：高階經理人薪酬的揭露程度與公司治理 - 劉念琪 ( 中央大學助理教授 ) 、李思瑩 ( 中央大學碩士 )



8545500 6158192.9 12900000 4191000


8291264 12372835 80806000 0


7225657 11326955 70916000 0


6786179 9735585 80806000 0


5608600 4117007.3 11231000 522000


5110894 4970794.5 30953000 180000

7 ind5(14) 批發、零售、及餐飲業。 4984263 2548457.2 11445000 1360000

8 ind2(116) 化學材料製造、化學製品製造、石油及煤製品、橡膠製品、塑膠製品、非金屬礦物製造、金屬基本工業、金屬製品製造、機械設備製造配修業。

4503687 3417734.7 19054000 0


4380743 2582013.5 9791000 18000

10 ind1(72) 食品及飲料製造、紡織業、成衣服飾品、家具及裝設品、紙類、及印刷有關事業。 3822326 3223166.4 19549000 0

11 ind4(23) 水電燃氣業、營造業。 3465417 2059382.9 7423000 0

2000董事長薪資統計表




9703000 _ 9703000 9703000


6517337 7424517 40016000 120000


5914440 5367500 30164000 1580000


5306580 5249470 40016000 28000


4564938 2889486 15560000 386058

6 ind1(46) 食品及飲料製造、紡織業、成衣服飾品、家具及裝設品、紙類、及印刷有關事業。 4425384 3575602 22793000 30000

7 ind2(81) 化學材料製造、化學製品製造、石油及煤製品、橡膠製品、塑膠製品、非金屬礦物製造、金屬基本工業、金屬製品製造、機械設備製造配修業。

4404152 2900219 16655000 72000


3487333 887361.4 4406000 2635000


3466600 2296103 8032000 28000

10 ind5(10) 批發、零售、及餐飲業。 3186174 1686555 6192000 1348000

11 ind4(17) 水電燃氣業、營造業。 2902130 1697768 6377776 300000

1999年總經理薪資統計資料


1)1) The Principal-Agent ProblemThe Principal-Agent Problem

The analysis of CEO compensation also raises a number of The analysis of CEO compensation also raises a number of important questions in economics. In particular, what should important questions in economics. In particular, what should be the compensation package of a person who runs the firm, be the compensation package of a person who runs the firm, yet does not own it?yet does not own it?

The CEO is an agent for the owners of the firm (the owners The CEO is an agent for the owners of the firm (the owners are also called the principals). The owners of the firm, who are also called the principals). The owners of the firm, who are typically the shareholders, want the CEO to conduct the are typically the shareholders, want the CEO to conduct the firm’s business in a way that increases their wealth.firm’s business in a way that increases their wealth.

The inevitable conflict between the interests of the The inevitable conflict between the interests of the principals and the interests of the agent is known as the principals and the interests of the agent is known as the principal-agent problem. The structure of CEO principal-agent problem. The structure of CEO compensation can be interpreted in terms of a tournament compensation can be interpreted in terms of a tournament where the vice-presidents compete for promotion, and where where the vice-presidents compete for promotion, and where the winner runs the company. This interpretation explains the winner runs the company. This interpretation explains why the “prize spread” is larger when executives are why the “prize spread” is larger when executives are promoted to CEO than when executives are promoted from promoted to CEO than when executives are promoted from junior to middle-level management.junior to middle-level management.

Suppose there are three levels of management: the Suppose there are three levels of management: the CEO, senior vice-presidents, and junior vice-CEO, senior vice-presidents, and junior vice-presidents. Junior vice-presidents compete among presidents. Junior vice-presidents compete among themselves for promotion to senior vice-president, themselves for promotion to senior vice-president, who in turn compete among themselves for who in turn compete among themselves for promotion to CEO. Executives who won the first-promotion to CEO. Executives who won the first-level tournament and were promoted to high-paying level tournament and were promoted to high-paying jobs as senior vice-presidents may find that the jobs as senior vice-presidents may find that the compensation in their current position “meets all their compensation in their current position “meets all their needs,” and therefore may not want to compete for needs,” and therefore may not want to compete for promotion to CEO. In order to elicit work effort from promotion to CEO. In order to elicit work effort from the senior vice-presidents, the prize associated with the senior vice-presidents, the prize associated with becoming a CEO must be even larger than the prize becoming a CEO must be even larger than the prize associated with becoming a senior vice-president. associated with becoming a senior vice-president.

2)2) The Link between CEO Compensation and Firm The Link between CEO Compensation and Firm PerformancePerformance

In order to continuously elicit the correct incentive In order to continuously elicit the correct incentive from the person who wins the tournament, the from the person who wins the tournament, the CEO’s compensation will have to be tied to the CEO’s compensation will have to be tied to the firm’s economic performance. The CEO would then firm’s economic performance. The CEO would then be restrained from taking actions which reduce be restrained from taking actions which reduce shareholder wealth. The empirical evidence shareholder wealth. The empirical evidence indicates that there is indeed a positive correlation indicates that there is indeed a positive correlation between firm performance and CEO compensation, between firm performance and CEO compensation, although the elasticity of CEO pay with respect to although the elasticity of CEO pay with respect to the rate of return to shareholders is small.the rate of return to shareholders is small.

the structure of compensation another set of factors influencing job choice and work effort...

Documents

composition of compensation

level of compensation

structure of compensation

employer compensation

deferred compensation

b deferred compensation

tax rates

sizable tax advantage