Assignment 2: Compensation Plan Outline

Compensation Practices

Teona Goodman

Strayer University

Professor Tara McNealy

October 24, 2019

Compensation Practices

Adidas is an international corporation that was founded in and had its headquarters in Germany. This company designs and manufactures clothing, shoes, and accessories. In Europe, it is the largest manufacturer of sportswear and the second largest in the world.

Adidas has constituted a comprehensive reporting on matters regarding compensation of executive and supervisory boards. The managerial committee reviews compensation plans for the administrative board. The remuneration system adopted by the company is geared towards the development of an incentive for effective management and value-oriented corporate enhancement. Some factors are deliberated before the creation of a compensation plan for the workers and administrative board members. The factors include the situation of the economy, the company size, and global orientation and compensation levels of other companies in the same industry (Adidas Group, 2018).

Adidas has adopted a compensation system that is meant to serve the administrative board and stakeholder's interests. The system was approved in 2018 during the AGM. The compensation package constitutes the total annual cash bonus, fixed compensation, and long term based bonus. Also, pension benefits and other benefits are included. The supervisory committee decided to adopt this system of payment because it felt that it was easier to comprehend. This compensation system uses clear performance criteria that are associated with long term and short terms goals of the organization. This ensures that the interests of the administrative board members and stakeholders are aligned. There are also non-performance related elements that are included in the compensation package for the executive board members. Non-performance elements include fixed compensation and other benefits. The fixed remuneration entails the annual fixed salary. This salary is paid in the form of monthly installments for twelve months. Remarkably, the salary remains the same during the period of the contract (Adidas Group, 2018).

Other reimbursements are comprised of the executive board members' payments to non-cash benefits like contributions or premiums to insurance schemes. The company car provisions or fees regarding car allowances are also included in these benefits.

Performance-related components constitute the performance bonus. The performance incentives serve as the remuneration of the performance of the administrative board members, and it is connected to the short term growth of the business. The overall amount of performance incentives is centered on the accomplishments of some criteria. Notably, if an executive member is out of office in the financial year, the calculation of performance bonus is through a prorate temporis, which is determined by the degree of goal achievement in a specific fiscal year (Adidas Group, 2018). The performance bonus is paid after the financial statements have been consolidated and approved.

Performance-related compensation elements are based on multi-year performance and future associated standards. The design has been made in a manner where all positive and negative developments have been accommodated. The performance compensation is gauged through the achievement of pre-agreed goals. In such a case, no subsequent changes can be adopted in the performance targets because such behavior is not permitted. Adidas has taken a compensation system that aims at an outstanding remunerating performance that may moderate compensation based on performance when objectives are not met. The supervisory committee has the responsibility of reviewing compensation levels regularly to make any required adjustments (Adidas Group, 2018).

Some of the challenges faced by Adidas in terms of compensation are offering competitive pay. Any organization that wishes to compete for the best talent pool available should provide a competitive compensation program compared to its competitor. In this case, Nike is Adidas' biggest competitor, although there are other players in the industry. There are also generational differences in expectations. There are different work ethics and expected compensation, which falls along generational lines, and the company has been struggling to achieve the best in its workforce. Older staffs are likely to work for longer hours in exchange for their salary while younger workers expect higher pay levels even when productivity is aided by technology. Adidas being a multinational must balance the expectations and needs of workers from several countries. The compensation program should balance conformity with laws and customs of the host nations against global corporate policies. The company also grapples with control of the cost of labor (Woodside, 2019). Costs of work comprise recruitment, turnover, training, infrastructure and overhead, and such impact productivity.

Adidas has some compensation practices which determine a positive or negative impact on the organization and its stakeholders. Incentive compensation is a critical issue for workers, employers, and shareholders. One of the ways Adidas applies a compensation practice is by making pay a year-round conversation. This means that the organization does not think of payment as an annual event but an all through year issue. This shows that the organization is always thinking about the impact of pay to the employees, which affects the organization and the stakeholders. That gives the management time to study the positives or negatives that may be experienced when the pay is not harmonized or does not reflect the company operations. Another practice is that Adidas pays more for competitive jobs and higher performers. This means that the competitive vacancies are highly paid because they attract the best to fill such positions and expect them to be equal to the task. The company also rewards high performers in the organization in terms of bonuses, promotions, career development, or pay increase. When the management is doing all that, it keeps in mind the impact such actions have on the organization and to the stakeholders, and they have to harmonize everything to ensure positive results are realized. Adidas also trains managers to deal with some pay issues because they get a pulse on employee engagement more frequently (Karla, 2019). Learning and development to hiring and retain high performers are offered. The managers are trained on how to talk to staff members about compensation and come to an agreement. The animosity between the workers and management on matters payment can lead to adverse outcomes, which may taint the image of the organization and affect the stakeholders in the long run.

In the recent past, attention has moved from focusing on the role incentives compensation plays in attracting and retaining workers to concentrate on risks that are essential in incentive compensation arrangements. Most times, the chances are hard to identify and manage; hence, the organization is required to have a robust risk management process to align incentive compensation with objectives and the company's risk appetite. On tackling the risks, Adidas undertakes steps to ensure that risks in designing the incentive compensation plan are mitigated while aligning with external conditions and the strategy of the institution. Adidas modifies its incentive compensation program to allow the incorporation of short and long term components of its incentive compensation plan, which supplements the existing compensation program. This is a risk management-oriented approach that seeks to attain a balance between risk and rewards. It establishes a designed incentive compensation plan and balances fixed and at-risk pay. Any change to workers' compensation, whether positively or negatively, affects their aspects of employment. Adidas provides proper communication and implementation when implementing any compensation plan because it is the only way to ensure it works successfully. The participants of any compensation plan know that workers have to understand what they are incented to clearly. Lastly, Adidas carries out qualitative and quantitative assessments to assess the performance of a program once it has been implemented against the intended behaviors and designs. Any deviations noted from the expectations are communicated to the stakeholders. The key drivers of a plan deviation should be known so that they are appropriately addressed through modifications (Detoro & Pohle, 2015). The qualitative and quantitative assessment of compensation plans helps organizations to understand trade-offs between the risk and reward entrenched in the compensation plans.

There are internal and external factors that affect staff compensation. The labor market affects the compensation practices of Adidas. For instance, the demand for and supply of labor influences staff compensation. When a low wage in the industry is offered, the demand for labor is less compared to the supply. This is because the salaries are not high enough and many people will search for opportunities elsewhere. On the other hand, when the wages are highly fixed, the demand is higher than the supply of labor. Labor unions in organizations influence compensation plans in companies. These labor unions are formed in cases where the need for energy is more, and the supply is less or workers are engaged in dangerous work, and they demand more pay for endangering their lives. However, Adidas is a non-unionized company; hence they enjoy more freedom in fixing the compensation plans. Laws passed by the government also affect how companies apply their compensation practices because they are meant to safeguard the workers from exploitation from employers. For instance, the minimum wage act of 1948 stipulates the minimum amount of wages that organizations should pay workers. The payment of bonus act 1965 mandates the employers to give their staff some bonuses for work done as a way of motivating them and recognizing them for work well done; hence, organizations are bound by law to issue the rewards. Lastly, the equal remuneration act of 1976 stipulates that workers should be awarded equitable remuneration for work done without any form of discrimination, whether by age, gender, religion, sex, race, or otherwise (Raphael, 2016). Such laws determine the compensation plans for organizations such as Adidas.

The traditional pay bases in Adidas have been active because they use the two different types of conventional pay bases. The seniority pay system is the one in which the primary basis for an increase in payment is the tenure of the worker. Adidas has been increasing the pay of some of the employees who have worked in the organization for a long time. This is a form of motivation as well as recognition for their unwavering loyalty working with the company. In some cases, the seniority payment system takes into account the performance of an employee. Still, for Adidas, they mainly increase the pay of a senior worker based on their tenure as the main factor. This has been ongoing for some time, and it guarantees a worker job security, and it avoids a perception of someone being favored. Adidas also uses the longevity pay, which is a contractual agreement to pay a worker based on the length of employment in the organization (Moussa, 2014). The company has been engaging its employees who have had the most prolonged stay working for the company to reward them for enhancing the perception that all employees are treated fairly. Adidas mostly uses this system of payment when a worker reaches the maximum amount of pay at which their pay can go. This payment system facilitates the administration of the pay program because hesitation could lead to a nosedive of the program, which is necessary. Additionally, it guarantees benefits and promotions because workers are always aware that when they attain a certain period of working for Adidas, they may be promoted or given benefits.

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