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Compensation is considered one of the main elements of employee retention. It can be defined as a financial benefit that an employee receives from an employer (Martocchio, 2020). In many ways, compensation is a key feature that affects employee retention and engagement. If employees of any rank are satisfied with their pay and benefits, they are motivated to work productively (Martocchio, 2020). Similarly, when organizations do not provide sufficient compensation, employees may decide to leave. Thus, for employees to remain committed to the organization, pay must be competitive and aligned with other employees.
The higher is the rank of an employee, the higher is their value to the company. Consequently, retention of the companys senior management figures and executives is vital for the companys survival. In this context, the basic feature of compensation, such as the base pay of the current core compensation, tends to be significantly higher compared to regular employees. According to Economic Research Institute (2023), a companys CEO can be paid up to 351 times higher. Understandably, it is one of the main factors contributing to their decision to stick with the company.
Apart from the current core compensation, the executive compensation package contains other vital benefits, such as deferred core compensation and clawback provisions. The former stands for partly making executives the owners of the company, increasing their equity interest (Martocchio, 2020). This practice binds executives with the companys future value, directly motivating them to contribute to the companys success. In turn, the latter implies specific monetary compensation in case the companys performance fails to achieve desired levels (Martocchio, 2020). This way, clawback provisions safeguard executives from the detrimental impacts of external factors, such as financial crises or fraudulent practices.
References
Martocchio, J. J. (2020). Strategic Compensation (10th ed.). Pearson.
Economic Research Institute. (2023). Chapter 6: Compensation strategy. Web.
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