Page 268 - Encyclopedia of Business and Finance

eobf_E 7/5/06 3:00 PM Page 245

Employee Discipline

utive compensation results from exercising stock options, Milkovich, George T., Newman, Jerry M., and Milkovich, Car-
which were quite valuable in the recent bull market. Yet olyn (1996). Compensation (8th ed.). New York: McGraw-
ordinary working-class Americans are outraged by the Hill/Irwin.
shocking contrast in pay raises: annual executive pay at Pauline, George B. (1997, March/April). “Executive Compensa-
large companies rose 54 percent in 1996, whereas the pay tion and Changes in Control: A Search for Fairness.” Com-
raises of most working-class people were in the 3 percent pensation and Benefits Review 29: 30-40.
Reingold, Jennifer, and Borrus, Amy. (1997, May 12). “Even
to 5 percent range during the same period.
Executives Are Wincing at Executive Pay.” Business Week, 40-
An executive compensation package is typically com- 41.
posed of (1) base salary, (2) annual incentives or bonuses,
Reingold, Jennifer, and Melcher, Richard A. (1998, April 21).
(3) long-term incentives (e.g., stock options), (4) executive “Executive Pay.” Business Week, 58-66.
benefits (e.g., health insurance, life insurance, and pension
plans), and (5) executive perquisites. Considering the high
turnover rate of competent executives, offering a competi- Lee Wonsick Lee
tive salary is crucial in attracting the top candidates.
Frequently, annual bonuses play a more important
role than base salary in executive compensations. They are EMPLOYEE DISCIPLINE
primarily designed to motivate better performance. In
Discipline refers to the actions imposed by an organization
order to underscore the importance of financial perform-
on its employees for failure to follow the organization’s
ance, usually measured by the company’s stock price, top
rules, standards, or policies. Traditional approaches to dis-
executives are offered stock options. Sometimes, exercis-
cipline, based on punishment, are known to promote
ing stock options yields more cash benefits to executives
than do annual salaries. adversarial relationships between leaders and followers. A
more effective approach now being used by many compa-
In addition to monetary compensation, executives
nies recognizes good performance and encourages
enjoy many different types of perquisites, commonly
employee commitment to the organization and its goals.
called perks. Such executive perks include the luxurious Once employees see the discrepancy between actual and
office with lush carpets, the executive dining room, special expected performance, the burden is on the employee to
parking, use of a company airplane, company-paid mem- change. Even with more positive approaches to discipline,
bership in high-class country clubs and associations, and organizations still need to have some form of disciplinary
executive travel arrangements. Many companies even offer procedure, whether formal or informal, that carries succes-
executives tax-free personal perks, including such things as
sively stiffer penalties for repeated or more serious offenses.
free access to company property, free legal counseling, free
home repairs and improvements, and expenses for vaca-
tion homes or boats. ESTABLISHING AND
COMMUNICATING WORK RULES
Another perk that became popular recently is the so-
called golden parachute—a protection plan for executives A first step in the disciplinary procedure is to establish work
in the event that they are forced out of the organization. rules that are in line with the organization’s goals or objec-
Such severance frequently results from a merger or hostile tives. These work rules become the basis for disciplinary
takeover of the company. The golden parachute provides actions when the rules are broken. They are generally estab-
either a significant one-time sum to the departing execu- lished jointly by management, the organization’s human
tive or a guaranteed executive position in the newly resources unit, and employees, who should have an oppor-
merged company. tunity for input to ensure that rules are fair and can reason-
ably be followed. Work rules are directly related to work
SEE ALSO Employee Benefits
behavior and productivity. Employees who continually vio-
late the rules are candidates for a disciplinary procedure.
BIBLIOGRAPHY Employees must know the rules that have been estab-
Henderson, Richard I. (2006). Compensation Management in a lished. Even though employees might have had input in
Knowledge-Based World (7th ed.). Upper Saddle River, NJ:
the development of the rules, it is the employer who cre-
Pearson/Prentice Hall.
ates the final version. The organization’s work rules should
Henderson, Richard I. (1994). Compensation Management:
Rewarding Performance (6th ed.). Englewood Cliffs, NJ: Pren- be presented in a printed format, and each employee
tice Hall. should be given a copy. This is usually accomplished in
the form of an employee handbook. The handbook may
Klein, Andrew L. (1996). “Validity and Reliability for Compe-
tency-Based Systems: Reducing Litigation Risks.” Compensa- have other information, but the work rules are a critical
tion and Benefits Review, 28(4): 31-37. part of it.

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