The Problem with ESOP’s
February 12, 2025
Why Graduates are Flocking to Startups In recent years, many fresh graduates as well as experienced professionals want to work for startups as they feel that by doing so, they would be adding value to themselves as well as being part of an exciting and creative journey. The first aspect about adding value for themselves […]
Employee retention involves various steps taken to retain an employee who wishes to move on. An employee must find his job challenging and as per his interest to excel at work and stay with the organization for a longer period of time. The management plays an important role in retaining the talented employees who are […]
What is Quiet Quitting and Why is it Setting Off Alarm Bells in American Corporates? In recent months, there has been much media coverage about a workplace trend called Quiet Quitting, which signifies the reluctance of American workers to work beyond what is needed from them. In other words, Quiet Quitting refers to employees who […]
In the previous article, we looked at some of the factors that help the employers determine the level of compensation to be given to employees. In this article, we look at the factors that affect compensation from the perspective of the employee. What this means is that the employee should not be constrained by the […]
In one our write ups we mentioned the problem of succession planning in organizations. The basis was the SHRM survey of 2003 that found out that 60% of organizations have no succession planning at all. We discuss the phenomenon in detail here. What is succession planning and when did it emerge as a problem? What […]
In the contemporary world, rewards for better performance and success matter more than the actual achievement itself. Indeed, as the global financial crisis showed, rewards were everything for the bankers as they strove for more reckless bets and increasing risk taking. Because of the system of flawed incentives, rewards were seen to the ultimate prize that was greater than the actual process of winning. Hence, rewards management has to be seen in the context of what are proper and just rewards and what are disproportionate rewards.
The point here is that rewards ought to justify the performance and not exceed them. What we mean by this is that it is okay to reward a high performer for his or her stellar performance but not to the point where in the pursuit of rewards, the individual throws caution to the winds and indulges in unethical behavior.
For the present day generation, rewards matter more than the actual performance and this is reflected in their increasing demands from the employers for salary hikes and bonuses.
If not anything else, the millennial generation believes that excessive rewards are their due. Though this is not to say that only this generation behaves that way (this pattern can be seen in the Generation X as well), it is the case that undue emphasis is being placed on the rewards alone as opposed to the fulfillment one gets by getting the job done in a proper manner. If the baby boomer generation taught us anything, it is that doing the job for fulfillment sake is more important than the reward system in place. Of course, it goes without saying that in a world of diminishing resources, everyone is concerned with earning as much money as possible, and hence some of this behavior is indeed justified.
However, the point needs to be made that while rewards are one way to motivate individuals and incentivize good performance, they are not the be all and end all that everyone likes to believe. Hence, a proper reward system in organizations would be aligned with the correct strategic fit between internal motivation and external rewards and only when they are in balance can organizations grow in a healthy manner.
Much has been written about how excessive CEO compensation is hurting the corporate world and hence, the debate over whether CEO’s are being paid excessively is indeed justified in view of the ongoing global economic crisis.
The point here is that a reward system that does not increase the gap between the CEO and the lowest paid worker by more than a ratio of 15:1 is the correct one according to studies done in this field. Hence, all possible efforts must be made to decrease the gap between the lowest paid employee and the highest paid employee. Of course, in practice this might not be possible completely due to entry-level salaries being much lower. Therefore, a way out would be to determine the cap according to each company’s requirements and then pay the employees at all levels accordingly.
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