The Effects of Tightening the Belt on Employees
Written by Geoff Newman on 6/10/2010
The overall market situation has affected firms’ sales and profits, which has led to a decline in the share prices of the firms facing decline in profits and sales. This uncertainty has led to a haphazard situation when it comes to rewarding the top executives and other persons working at senior positions in a company. There is a chaotic situation when it comes to rewarding employees who have been working hard for the company’s sake but still their profits are declining.
The Financial Services Authority blames the credit crunch, where profits are declining solely on the rising executive rewards. But this is not the case with every organisation, because every organisation has its own profit and payment incentives.
The Director’s Remuneration Report Regulations has brought many changes in the past 6 years, reviewing what should be done regarding the remuneration strategies, policies and practices to ensure that the economy can be stabilized in this credit crunch. But these changes have influenced the rewards of other staff members. The base salary of Chief Executives has been increasing 7%-10% during the last 3 years. Shares and bonuses have been increasing as well. These increments led to the six or seven figure numbers when it comes to the earnings of executives and senior management, which makes everyone suspicious.
But we should consider the fact that if a company is in the hands of a great leader, it could benefit an organisation to a great extent. The overall performance of the organisation is improved. It can benefit in a way that:
The executives and the senior staff are paid according to their performance. It is argued that the executives should be paid according to the share price and financial performance of the company and if the share holders are facing losses or financial performance is not that great then it is not justifiable to pay increased amount to executives. But at the same time, it is argued that they do not have to share the loss with shareholders.
The focus should be laid upon long-term plans, that is, what strategy would benefit the organisation in the long run and should be followed when it comes to bonuses, and other benefits provided to the senior members of the organisation.
Executives are able to benefit the organisation to a huge extent. If they apply a superior strategic approach with good operational ability, and work within an environment that is beneficial in creating the market or their production, then no doubt the organisation would be benefited in the long run.
The organisation must focus on all the aspects. It is not justifiable to provide huge amount of rewards to the executive staff while providing average basic salary to the employees. A balance between the rewards of other staff and the executive staff should be maintained.