Compensation Structures and Strategic Planning, Essay Example

McKesson is a drug wholesaler in the United States that has recently come under fire for the manner in which their compensation policy is ineffective, weak and many way unjust. This is because the compensation policy for high ranking officials, such as the CEO is purely based on the profitability of the company regardless of any losses, in terms of company assets, that are incurred under their tenure. (Silverman, 2013)

In recent years, McKesson has paid out over $1 billion to resolve legal and regulatory issues and disputes. Despite this, the company’s CEO received compensation to the tune of $131 million in 2012 (Silverman, 2013). The compensation policy at McKesson does not apple any “Clawback Policy” within their compensation strategy.

The company has in the last recent years lost a significant amount of assets due to the increasing number of legal and regulatory cases levelled against it. However, the value of these lost assets has not been recovered in any way. This is regardless of the fact that the CEO continues to receive incredible amounts in compensation. The flaw in the McKesson compensation policy is that misconduct is defined as actions that are on an international level, irrespective of the harm caused by such activities, as long as they do materially harm McKesson (Silverman, 2013).

This compensation policy may be improved by instituting a pay-for-performance policy for executives. This would be geared towards discouraging the executives in activities that may inflict significant financial damage to McKesson. Furthermore (Greene, 2010), instituting a “Clawback Policy” would further deter senior executives from such behaviour. The “Clawback Policy” would ensure that in the case where significant financial harm comes to the company under an executive’s tenure, such loss would be recovered from the respective executive’s compensations.

References

Greene, R. J. (2010). Effectively managing base pay: Strategies and programs for success. Society for Human Resources Management.

Sammer, J. (2007). Weighing Pay Incentives. HRMagazine, 52(6).

Silverman, E. (2013, July 30). McKesson Fights Big Investors Over A Clawback Policy. Retrieved from Forbes.com: http://www.forbes.com/sites/edsilverman/2013/07/30/mckesson-fights-big-investors-over-a-clawback-policy/

Smith, S., & Mazin, R. (2004). Compensation: How should employees be paid? In S. Smith, & R. Mazin, The HR answer book : an indispensable guide for managers and human resources professionals (pp. 98-116). New York: AMACOM.

Society for Human Resource Management. (2010). Introduction to the human resources discipline of compensation. Society for Human Resource Management.