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Custom Compensation Practice Essay

Apple Corporation was formally known as Apple Computer, Inc. It is an American based multinational company. Company’s headquarters are located in Cupertino, California. Apple develops, designs, and sells computer software, consumer electronics, and personal computers. One of its most popular products is the Mac line of computers, iPhone, iPad, and iPod. Some of its software includes iTunes, media browser OS X, and the iOS operating systems. The company was started on April 1, 1976 and registered as Apple Computer on January 3, 1977. The word "computer" was taken from its earlier name in the year 2007. This was intended to reflect company’s new attention to customer electronics after the introduction of the iPhone. Apple is world's second biggest information technology company by revenue after Samsung Electronics. It is also world’s number three corporation in phone making after Nokia and Samsung. In the year 2008, the company was the most admired company by United States citizens. At the end of 2012, the company had 394 retail stores all spread in 14 countries. This made Apple company be the second largest publicly traded company globally by market capitalization. In January 2013, the company was estimated to be worth 414 bln USD. As of September 29, 2012, the company had a total of 72,800 permanent full-time employees. It also had 3,300 temporary full-time employees globally.

Apple Corporation Compensation Strategy

From the perspective of Apple Company, the money it pays to its employees in return for the work that they do is something that the company needs to focus on to ensure efficient operations. Unless the company and employees are in a broad agreement, the net result will be frustration from employees standpoint and friction in the bond. Apple can thus use compensation strategy as a way of binding effectively with its large pool of both permanently and temporally employed workers. This can further be outlined in a mutually binding legal document or contract that spells out exactly how much compensation each employee in the company will get. The binding document should also elaborate on the components of the compensation package.

Apple company's objective for its executive or employee compensation platform is to attract and retain a gifted, entrepreneurial, and an imaginative team of executives. These officials will help in providing leadership to ensure company’s success in competitive and dynamic markets. The company pursues to achieve this objective in a manner that is allied with the long-term welfares of company’s stakeholders. The compensation committee oversees the compensation program and determines the compensation for company's top officials. Apple company believes that compensation strategy for the named executive officers and other stakeholders can help the company improve its financial performance in the challenging macroeconomic environment.

In the year 2009, Apple company's revenues grew to 36.5 billion USD. This was a positive increase of 4.1 billion USD in comparison to the previous year. This was a 12% increase. Net income increased to 5.7 billion USD in the year 2009. This was an 18% or 870 billion USD increase prior to 2009. Additionally, the number of company’s total stakeholders increased drastically by 857%. These changes can be said to have resulted from the compensation strategies employed by the corporation.

The corporation has confidence in that the executive compensation strategy has been the critical tool towards its achievement. This has made executive compensation strategy remain the mostly desired by the compensation committee. This compensation strategy involves three basic elements: long-term equity rewards, base salaries, and yearly performance based money bonus awards. An example to this was that Mr. Jobs, who was company’s pioneer, received a total compensation salary of 1 million USD every year.

Apple Corporation continues to rely primarily on long-term equity awards in the form of RSUs. This ensures retention and attraction of outstanding executive team. It also ensures a strong connection between compensation strategy and financial performance of the company. Company’s committee, which is solely dedicated to compensation matters, once a year analyzes remaining unvested equity rewards of the named employees. This is aimed to determine whether supplementary rewards are necessary to stimulate employees' performance. In general, Apple's RSU awards to the named employee were given after two years. This was done without any shares vest formerly to the end of an estimated 4 year conferring or vesting period.

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Apple Corporation puts less emphasis on the total monetary compensation than on extended term equity rewards. Consequently, this shapes company’s annual performance based cash bonus platform from the named executive employee. In the year 2009, company’s compensation committee altered performance criteria used in company’s bonus program from revenue and operating income. This was done in accordance with the United States GAAP to adjust to sales and operating income. Adjusted operating income and adjusted sales differ from United States in that they dismiss the effects of payment related to total sales, that is Apples’ television and iPhones.

Performance-based cash incentive is also another compensation strategy that Apple Corporation uses. This compensation strategy has been instrumental in helping Apple attain its business goals, objectives and fair in light of company’s robust financial performance comparative to that of its peer group.

Apples’ Application of Compensation Practice to Determine the Positive or Negative Impact to the Company and Its Stakeholders

Compensation impact on organizational effectiveness is one of the key indications of the effectiveness of a fair and equal pay plan. Compensation satisfaction results in positive work attitude and behavior among employees. In turn, this has positive impact on corporation’s performance and effectiveness. Apple Corporation uses a committee that is strictly dedicated to determining compensation plans. It reviews compensation plans every year. Apple uses highly competitive strategies to determine effects of compensation on its top executive officers, permanent and part-time staff, and finally, all its stakeholders.

Apple has adapted various governance techniques and charters to determine the impact of compensations. The established committee periodically reviews the compensation policy, and if it is appropriate, it approves the benefit policy, incentive, and total compensation policy to any employee, particularly top executive officers. In order to determine the impact of compensation on the company, the committee also performs annual evaluation of performance of the chief executive officer together with Apple’s governing board. This aims at acknowledging the efforts of hard working executives. Those people who make a significant impact on company’s financial base are compensated well.

Compensation-Related Challenges Facing Apple Corporation

Retaining and Attracting New Talented Employees

Compensation management is more than just providing a pay check. In many corporations, employees' performance relative to company’s goals functions as the basis for compensation. However, identifying important performers in an organization is not always easy. Whether brought by social, economic, technology changes or by any other business factor, coming up with an effective compensation strategy remains a challenge to Apple Corporation. Ensuring that compensation management remains a systematic approach in providing monetary value to employee in exchange for work done is also difficult.

Increasing competition in the labor market for employees is a challenge that Apple’s compensation committee has to acknowledge. This has become a nightmare to company’s compensation planning committee. Apart from this, the increasing demand for competitive salaries and talented employees by the upcoming multinational companies has resulted to compensation wars among corporations dealing with software and computer related technologies. Therefore, a compensation committee in Apple Corporation has to do extra work and develop proper compensation planning for qualified and high-end employees. A compensation committee has to develop more complicated compensation strategies to enhance staff retention. This is not easy and remains to be a considerable challenge to the company.

Controlling Labor Costs

Labor costs set up the biggest line in a corporation's budget. In some nations where Apple has established its outlets, the economies are tight and thus have a flat or shrinking pool of funds. This is aggravated by increasing compensation wars between information technology companies. This makes the cost of labor higher than the amount paid to company’s employees. This poses a challenge to the company in creation of effective compensation strategies.

Multinational Operations

Apple company is a multinational company operating in different states and countries. Compensation strategies must then reflect a balance in expectations and needs of employees in different countries. Compensation strategies adopted by the company must show conformity with local customs and laws against global corporate policies. At times, this becomes a challenge to Apple Corporation.

Ways in which Laws, Labor Unions, and Market Factors Impact Apple’s Compensation Practices

Compensation strategies that Apple company rely on adhere to compensation laws established both globally and in individual countries in which it operates. This means that compensation laws and regulations may undermine or improve a compensation strategy that Apple may choose (Bhatia, 2010). Any compensation strategy established must conform to the law. It must conform in areas such as working hours, compulsory leaves to employees, and minimum salaries to both permanently and temporally employed workers. Compensation strategies adapted by Apple must also take into consideration compulsory bonuses that must be given to employees. This makes it hard for any corporation to use such compulsory bonuses as a compensation token to their employees. Compensation strategies must also include cases such as workers working overtime. The law establishes that all overtime work done by an employee must be compensated effectively. For example, the National Labor Relations Act seeks to protect private employees from unfair labor practices of employers. It forms the Federal Labor Law, which regulates employer, union, and employee relations.

Labor unions also have a substantial impact on compensation and work lives of non-unionized and unionized workers. They help increase workers' bargaining power. Labor unions have a potential to directly affect salaries, wages, and total compensations of workers. For example, Cory Molly, who is a part-time worker at an Apple Store in San Francisco, formed a workers union to advocate for better salaries and total compensation of part-time employees. According to Molly, he makes only 14 USD an hour. He claims that if there is an effective labor union, all part-time employees would get appropriate compensation for work done.

Market factors heavily impact compensation strategies undertaken by Apple Corporation. an increasing competitive information technology market means that Apple company has to increase its finances set aside for compensation matters. As a result, employees at Apple witness an increase in total compensation. Every year, the compensation committee evaluates compensation strategy that will bring more profits through employee motivation.

Effectiveness of Traditional Base for Pay (Seniority and Merit) Against Incentive-Based and Person-Focused Compensation Approaches

The underlying aim of a given compensation strategy is to motivate, retain, and attract talented staff. Making the right choice of compensation strategy is the key to ensuring consistent financial success to any corporation. There exist some differences between traditional bases for pay, person-focused compensation, and incentive-based compensation strategies.

A traditional pay model offers consistency and is perceived to be quite fair. However, this approach can have counterproductive and unintended results. In real practice, merit pay arrangement necessitates practices to bind to ongoing staff training and can involve high costs. This is against both person-focused and incentive-based compensation approaches. The traditional base for pay, that is seniority and merit, is more effective in that it facilitates a centralized control on matters pertaining to compensation approaches. This approach provides a corporation with a criteria based on which to evaluate whether the company is paying its employees more than necessary. Unlike the person-focused compensation and incentive-based compensation strategies, it also serves as a useful tool for assessing company’s internal pay equity. This is because all jobs in practice are based on a single system. It thus enables the corporation or company to compare what employees across the practice are getting.

Additionally, traditional base pay facilitates market testing of company’s pay scale competitiveness. This approach allows job practice to be given a score using methods that are equivalent to those used in other practices. This approach is also quite objective. Even though quantification does not guarantee fairness, it makes a pay system dependable and consistent. This means that employees will not be fully satisfied with the compensation strategy available, but at least they will not see compensation program as arbitrary.

When contrasted with incentive-based and person-focused compensation approaches, traditional base for pay may have some shortcomings. It reinforces an upward career orientation, where top officials continue to get more compensation. It also reinforces bureaucracy and hierarchy in an organization. Finally, this approach fails to accurately compensate for the performance of talented employees.

Custom Compensation Practice Essay

Code: Sample20

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