Strategic Human Resource Management

Section Four

Executive Compensation

The human resource function has been criticized for its failure
to provide compensation systems that support companies’
strategies. Probably the first and most important step needed
to obtain alignment between strategy and compensation
systems involves designing the system for compensating
executives.^43 The impact of executive compensation systems
has been described by Luis Gomez-Mejia and David Balkin as
follows:

Executive pay is perhaps the most crucial

strategic factor at the organization’s disposal. It

can be used to direct managerial decisions and

indirectly channel the behavior of subordinates.

Because most organizations follow a pyramidal

structure, whatever is rewarded at the top is

likely to have a multiplier effect throughout all

segments of the business... mechanisms used

to reward executives are likely to have an

enormous effect on the company’s future.^44

The approaches used for executives are obviously critical
to the implementation of strategies. Unfortunately, the
problems of executive compensation, particularly with chief
executive officers, continue to be particularly troublesome in