Part A

While deciding on the distribution of compensation amongst the top executives, we as a

group decided on the following criteriaA. Past performance and future incentives
B. Number of employees supervised
C. The relative importance of each function
While each function is in-expendable, the nature of the organisation warrants assigning
different weights to different functions in order of their importance.
A

Total

Ratio

Salary

CEO

15

.0704

168960

VP-Legal

15

.0704

168960

VP-Finance

10

.0407

97680

VP-Personnel

.0422

101280

VPManufacturin
g

14

.0657

157680

VPPurchasing

10

.0407

97680

VP-Sales

13

.0610

146400

VPEngineering

13

.0610

146400

Accounting

.0422

101280

Control

.0375

90000

Treasury

.0328

78720

Industrial
Products

12

.0653

156720

Consumer
Products

13

.0610

146400

Motors

11

.0516

123840

International
Assembly

10

.0407

97680

Raw Materials 4

.0375

90000

Finished Parts

.0422

101280

Industrial
Sales

.0375

90000

Consumer
Sales

11

.0516

123840

International
Sales

.0375

90000

Total

213

Error of 1.05% in salary is due to rounding-off of the ratios.

Part B
It is our opinion that the additional information provided in this part does not alter our
original analysis. The reasons for which are enumerated below.
1. Year in Present Position- Consider a scenario where an employee works in the position of
a VP for 10 years and has been promoted to President in the last six months. This promotion
has been due to his exceptional performance as a VP. Now, the year in present position for
him would be 6 months. If he wouldnt have been promoted it would have been 10 years.
Hence, if this criterion had been applied it would have dis-incentivised promotion.
2. Seniority with Company- This variable rewards nothing but loyalty. In the effort to bring
in expertise, it is possible that the company hires a new VP. The seniority with company for
him measured in terms of years would be less as compared to those hired much before. This
has no standing on the nature of work performed by him and his position in the organization,
and hence presents a poor co-relation function for salary. (Similar to VP Sales in our case)
3. Age and Education- If our task was to design a compensation structure for entry level
employees, we could have considered education to be a factor as it represents potential. But
at the levels of VP and CEO, the fundamental parameter that decides the compensation
should be the value added by the individual to the organization, which along with the effect
of age is impossible to quantify given the information provided in part (B).