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Accounting Assignment Question
Write a Research in Accounting Practice
Accounting Assignment Solution
A well-designed compensation package is integral in retaining and attracting top talent into an organization. An ideal compensation structure should be a judicious mix of fixed, variables and equity-based compensation. An organization should have a well-formulated policy around compensation. Compensation can also be used to motivate the employees and hence both intrinsic, as well as extrinsic motivations, should be considered while designing the compensation policy. There should be an executive compensation committee to formulate policies around executive compensation and in defining the overall compensation landscape in an organization.
Elements of a compensation package
The elements of compensation packages are:
- Basic Salary: The base salary is a fixed part of the compensation structure.
- Other bonus comprises of the peer, outstanding abnormal accomplishments and boss)
- Quarterly/ Annual Bonus: Bonus can be a cash bonus that is linked with the performance of the company.
- Stock units: This refers to equity ownership. The compensation structure can be structured in such a way that it includes equity ownership awarded to the employees.
- Stock options: This refers to the employee stock options, which is a form of executive compensation tied with the performance of the employee and the company.
- Health and Wellness comprises of dental, vision, medical and employee assistance program
- 401k contribution comprising of Roth and Pre-tax
- Life and Accident Insurance comprises of long-term disability, basic life insurance, dismemberment, and accidental death and survivor income benefit)
- Other Insurance comprises of legal and travel
- Perks comprise of internet service, cell phone, and its services, food, company train, plane or bus, gym memberships, company discounts, on-going education/ university funding, electric car chargers, massages, etc.
Assumptions of Agency Theory
In a company, the owners and management of a company are different. The management and employees of the company are agents who act in the best interests of the shareholders. Hence, monetary as well as non-monetary compensation and benefits help to motivate the employee to act in the best interests of the company. Few key assumptions in the agency theory are:
- When human acts, the number of elements becomes minimum. The first element is the mentality. Without a mentality i.e. any mind, one cannot act. The minimum elements for a human to act are referred to as mentality, the ability to hold one, action and intent.
- An agent should be able to act. Without the possibility to act, an entity can’t be classified as an agent.
- The mind-action chain contains the minimum elements that can make the mentality to result in action.
- Each and every human is an “ego agent” who exists in their individual social world.