Page 66 - Appreciating Organization's Biggest Assets

mechanistic in nature operated in Literature Review
a stable environment and hence According to Gregg et al. (2011),
lesser flexi- bility was required in the size of company is directly
executive’s competencies. Whereas linked with the remuneration
modern organizations which op- of executives. Zhou, Yang and
erate in an unstable environment Li (2010), state that executive
like information technology adopt compensation is positively corre-
organic oriented sys- tems. To handle lated with company performance.
these systems, higher flexibility and Diminishing companies pay lower
variety is needed as executive’s com- than flourishing ones. Yang and
petency. Therefore the executives in Huang (2010), the top executives
the latter organization are paid more can improve the performance of
than the former. the firm if they are motivated by

Capacity to pay: Executive the salary offered. Asafo- Adjei
compensation is directly (2015), top executives take reckless
proportional to the paying capacity risks if the firm offers bonus driven
of the firm. And paying capacity structures. However, Hough (2011)
of the firm is directly dependent believes the opposite that these
on the earning capacity. Hence, bonus driven structures help in
flourishing organizations pay more attracting, rewarding, motivating,
than declining organizations due to and retaining experienced ex-
high profit margins. ecutives for the firm’s success.
Organisational philosophy: Studies say that there is a positive
Organizations who believe in relationship between impacts of
hiring the best in class execu- tives executive incentives on corporate
and retaining them pay higher to performance. Gopalan and Gormley
organizations who does not believe (2013), when an exec- utive is not
this. After liber- alization, many paid justify able amount, it may
multinationals entered India which lead to agency costs as the executive
paid high compensation. This won’t be inter- ested or motivated to
compelled Indian firms to level up improve performance and profits of
with the other MNC’s. the company

International Impact: Berle and Means (1932), Modern
International human resource firms are those where ownership and
management practices have impact management are sepa- rated. Agency
on setting executive compensation theory played a crucial role in the
across many countries. twentieth century in understanding
the corpo- rate governance and

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