Page 18 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

4 The Complete Guide to Executive Compensation

Capital-Intensive People-Intensive

Centralized Moderate Low
Decentralized High Moderate
Table 1-3. Percentage of executives in centralized and decentralized vs. capital-intensive
and people-intensive organizations

top of the organization). Whereas a decentralized, people-intensive organization would have
a moderate percentage of executives relative to total employment because executive decision
makers would be at all levels, with a relatively small workforce. With a centralized, capital-
intensive organization, there would be fewer executives and, therefore, a moderate ratio.
Moving from a people-intensive to a capital-intensive organization, the number of executives
decreases more slowly than the non-executive population. The reverse is also true in moving
from a capital-intensive to a people-intensive organization. This generalization will not
apply in many situations because of the various definitions used for executives—some being
more liberal than others. Nonetheless, capital-intensive vs. people-intensive is a factor in
determining the weighting of executives to non-executives in an organization.

THE COMPENSATION

Extrinsic vs. Intrinsic Compensation

It may be easier to think of pay as a form of extrinsic compensation whereas work environ-
ment, type of work, learning, developmental opportunities, and extent of recognition form
intrinsic compensation—often called psychic income. Other forms of intrinsic compensation
include autonomy and power. Combined, extrinsic and intrinsic compensation constitute
the total reward structure.
Organizations that are visibly successful may be providing some intrinsic compensation
to their executives (i.e., a pride in membership). Since such organizations usually pay at least
competitively, the intrinsic pay reinforces the retention capability of direct pay. Conversely,
less successful organizations, which may be unable to afford fully competitive pay, place
additional pressure on the pay package since intrinsic compensation may actually be low to
negative and must be offset to retain the individual.
As shown in Figure 1-1, all jobs have a combination of intrinsic and extrinsic compensa-
tion. I believe that to the extent the job does not have a desired level of intrinsic compensa-
tion, an offsetting level of extrinsic compensation is required. This could explain why garbage
collectors earn almost as much pay as some college professors. No one will ever mistake
garbage collecting for a job with high levels of intrinsic compensation. Conversely, the intrin-
sic appeal of being a college professor or a prominent politician (e.g., U.S. senator) explains
why the extrinsic pay in these professions seems low as compared with other jobs.
Executives are somewhere in the middle of the curve, either shedding intrinsic needs due
to positive pay-performance situations (e.g., for-profit sector) or increasing searches for high
intrinsic compensation because the direct pay-performance link is not sufficiently strong
(e.g., nonprofit sector). In addition to seeking a position that has sufficient extrinsic compen-
sation to meet ego and other needs, most are looking for work that is high in intrinsic