Executive Compensation Packages And Its Effect On Authoritarian Management Style

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Executive Compensation Packages And Its Effect On Authoritarian Management Style


Abstract


The study examines executive compensation packages and authoritarian management style of fast consuming goods companies. Precisely, the study focused on Cadbury, Nestle and Dangote Nigeria Plc. The study employed descriptive survey method. The population of the study comprises of all management staff of Cadbury, Nestle and Dangote Nigeria Plc. The study adopted simple random sampling technique to select the sample for the study. Data for the study were collected through the use of structured questionnaire. The data collected were analyzed through the use of descriptive statistics of mean and standard deviation while the hypothesis was tested using regression techniques. All analysis was carried with the aid of SPSS.

The result from the analysis reveals that executive compensation packages such as long term incentive and retirement plan has positive and significant effects on authoritarian management style of fast consuming goods companies. It was also found out that annual incentives, bonuses and supplemental retirement plan has negative and significant effects on authoritarian management style of management staff of fast consuming goods companies. It was recommended that Fast consuming goods companies should encourages long term incentives plan and retirement plan for their management staff as it increases authoritarian management style for the management staff.


Chapter One


Introduction

1.1 Background To The Study

The method adopted by organizational managers in directing, guiding and controlling the employees in their service determine the pace of progress in such organization (Clark, 2010). That is if the business managers control, direct or guide the staff under them properly by adopting appropriate leadership style, employees will show greater commitment to their duty. However in some organizations, managers are no longer effective and committed to their duties. Employees on their part become nonchalant about their work duties which invariably have negative impact on performance of the organization. According to Adamaechi & Romaine (2012) management is very essential in any kind of group or organisation and it can mean the difference between success or failure of any group or joint activity. Hence for enterprise to achieve its goals the management position of such enterprise must be occupied by competent leaders.

An effective management style must involve influencing others towards organisational performance and achievement of goals. According to Igbo (2012) management style should influence group activity towards achievement. It is the behaviour of an individual when he is directing and guiding the activities of the group towards a common goal. His success or failure in attaining the goals of the organization depends largely on his ability to effectively organise and manipulate the human and material resources available to him.

Scholl (2010) refers to management style as the pattern of behaviour use by a business manager in attempting to influence group members and make decision regarding the mission strategy and operation of group activities. Clark (2010) perceived management style as the manner and approach of providing direction, implementing plans and motivating people. It is important that business managers should adopt an effective management style that will lead to maximum organizational productivity. Ram (2011), Mgbodile (2014), Melling and Little (2014) described autocratic, democratic and laissez-faire management styles extensively. According to them an autocratic leader is a leader who is high-handed in his administration. He is a centre of all the activities that go on in the establishment where he is a manager. A prime determinant of action, all authority emanates from him and ends with him (Ram, 2011). He monopolizes the decision-making process and takes decisions all alone. He believes his ideas and thoughts to be superior to those of his subordinates and considers involving them in decision-making as a waste of time.

He uses threats and intimidation as a means of ensuring absolute obedience and dependence on him. He does not take opposition kindly as he tends to regard those with opposing views as enemies of his administration. He clamps down on opposition with some ruthlessness and strives for conformity of all to his directives. Workers under an autocratic manager may be seen as working under pressure and fear most of the time and often show dissatisfaction to this style of management by various means such as indulging in eye service, lateness to work, reduction of work output, sabotaging the work, seeking transfer or voluntarily resigning from the establishment (Clark, 2010). The autocratic manager finds it difficult to get genuine love, support and cooperation from subordinates who regard his administration as a “one man show’ According to Yalokwu (2010), Canadian Association of Student Activity Advisers (2004) and Umeakuka (2015) an autocratic manager has little or no trust and faith in his or her subordinates; takes decision alone; gives order and command without considering the subordinates; determines group policy; gives step by step directions and dictates task; believes he is always right and entertains no question from subordinates.

Nwankwo (2011) and Enoch (2009) described autocratic style as a management style in which production is emphasized at the expense of any human consideration, and where decision are made exclusively by the manager.

An autocratic style according to Pagewise (2012) is effective and should be used when new untrained employees who do not know which tasks to perform or which procedures to follow, effective supervision can be provided only through detailed orders and instruction and employees do not respond to any other management style. The Canadian Association of Student Activity Advisers (2004) also opined that autocratic management style is effective and should be used when time is limited.

It is important to note that both managers and subordinates are working towards the goal of ensuring organizational profitability to ensure their pay and compensations. The researcher is suggesting that authoritarian management style is worth considering when especially when executive compensation package policy is in place in the organization. Executive compensation packages differs substantially from typical pay packages for either hourly workers or salaried management and professionals in that executive pay is heavily biased toward rewards for actual results. Hence if a company underperforms, the executives typically receive a smaller fraction of their potential pay. Conversely, if a company meets its annual objectives and the stock price responds long term, the executives stand to receive a much larger payout. There is no doubt on the fact that any manager that receive poor pay must surely force the subordinates into serious work without much consideration for their welfare. Executive compensation package is structured to reward company performance and align executive pay with shareholder value. As a result, unlike most other employees, a majority of executive pay is at-risk; in other words, executives may never receive it. However, if executives and the company perform well, they along with the company’s shareholders stand to gain much more from superior performance. Based on all all these facts, the research found it worthwhile to examine executive compensation packages and its effect on authoritarian management style in selected fast consuming good company in Nigeria.


1.2 Statement Of The Problem

Canadian Association of Student Activity Advisers (2004) posited that autocratic management style should not be used when developing a strong sense of team work is the goal, there is some degree of skill or knowledge in members, and when the group wants an element of spontaneity in their work. The researcher opined that an autocratic management style is generally characterized by a decided performance for centralized decision-making power in the manager and reluctance to share position, power and authority with others. Tasks are assigned without consultation and the manager expects acceptance without questioning. In this scenario, command, control, fear, micromanagers pervades the atmosphere. Although, this might the driven by the organizational policy of executive compensation packages, a situation whereby the annual incentives and bonuses, long term incentive plans, retirement plans and supplemental executive retirement plans which are particularly determine the financial performance of the organization. Therefore, managers are left with their abilities to utilize a proper management style that will ensure high productivity in order to secure their future. Most multinational companies, especially those producing fast consuming good utilizes executive compensation package with authoritarian style of management. However, the researcher has seen the need to examine executive compensation packages and its effect on authoritarian management style in fast consuming goods companies since no academic has been conducted on it all over the world.


1.3 Objectives Of The Study

The general objectives of this study is to examine executive compensation packages and its effect on authoritarian management style in fast consuming goods companies while the following are the specific objectives:

  1. To examine the structure of executive compensation packages adopted by fast consuming goods companies in Nigeria.
  2. To analyze the effects of executive compensation packages adoption by fast consuming goods companies in Nigeria.
  3. To evaluate the effect of executive compensation packages on authoritarian management style in fast consuming goods companies in Nigeria

1.4 Research questions

  1. What is the structure of executive compensation packages adopted by fast consuming goods companies in Nigeria?
  2. What are effects of executive compensation packages adoption by fast consuming goods companies in Nigeria?
  3. What are the effects of executive compensation packages on authoritarian management style in fast consuming goods companies in Nigeria?

1.5 Hypothesis

HO: executive compensation package do not have significant effect on authoritarian management style in fast consuming goods companies in Nigeria.


1.6 Scope of the Study

The study is streamlined to executive compensation packages variables such as Annual incentives and bonuses (AIB), Long-term incentives plan (LTIP), Retirement plans (RP), Supplemental executive retirement plan (SERP), and authoritarian variables namely Command and control (CC), Fear (F), Micromanagers (MM), Rule driven (RD). The study is carried out in the Nestle Nigeria Plc, Cadbury Nigeria PLC and Dangote company in Lagos. The unit of analysis of the study is the employees of Nestle Nigeria Plc, Cadbury Nigeria PLC and Dangote company, Lagos at junior, middle-level, senior and management level positions.


1.7 Significance Of The Study

The following are the significance of this study:

The findings from this study will form a policy guideline for government, policy makers, business administrators, shareholders and the general public on executive compensation packages and its effect on authoritarian management style. It will also educate on the structure of compensation system in place in many organizations with consideration for the effectiveness of authoritarian management style.

This research will be a contribution to the body of literature in the area of executive compensation package and its effect on authoritarian management style in an organization, thereby constituting the empirical literature for future research in the subject area.


1.8 Definition Of Terms

Compensation packages:

A compensation package is the combination of salary and fringe benefits an employer provides to an employee. When evaluating competing job offers, a job-seeker should consider the total package and not just salary

Authoritarian management style:

This is when a leader dictates policies and procedures, decides what goals are to be achieved, and directs and controls all activities without any meaningful participation by the subordinates


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Frequently Asked Questions


What makes a great compensation package?

A great compensation package is not just a big salary, it is also a thoughtful expression of the CEO’s expectations, a response to the necessity and wisdom of harnessing incentive as a component of motivation and objective attainment and the ability to create a long term stable relationship.

Should ESG-related performance goals be part of compensation packages?

ESG-related performance goals currently remain far from common in senior executives’ compensation packages. But their adoption by some boards should not be ignored: In 2018, they were found in 71 Russell 3000 companies’ compensation disclosures.

Should executive pay align with corporate strategy?

When executive pay is structured to align with corporate strategy, it can drive better performance. Many firms struggle to achieve this alignment, and only a few best practices work in all situations. The company must start with a clear strategic objective and then consider several trade-offs as it designs compensation packages.

How can we fix the executive compensation system?

Remove the tax break for executive performance pay. • Allow greater use of ‘say on pay,’ by giving a firm’s shareholders the right to vote on top executives’ compensation.

What is a compensation package and why is it important?

A compensation package is a summary of all the ways that a company directly or indirectly pays employees. Also known as a total compensation statement, the compensation plan describes details about how the employer pays employees and what non-financial benefits they offer.

What are the pros and cons of strong compensation packages?

Strong compensation packages are often used to attract and keep good employees, and to promote certain company values. A business that does not pay the highest wages may still be competitive by offering free or inexpensive childcare to employees, for example. Employers may offer free child care to employees as part of a compensation package.

What do employees value most in a compensation package?

From an employer’s perspective, designing a good compensation package is often the key to attracting talented employees and keeping them for a long time. Offering higher wages is one strategy for improving a package, but employees also value their potential to earn more money later through raises and bonuses.

What are the different types of compensation packages?

There may be a standard compensation plan that applies to all employees, tiered compensation offerings or customized plans based on each position. A well-rounded compensation package can give you an incentive to work for a certain employer and be committed to your job. What is included in a compensation package?

How does ESG affect performance-based incentive pay?

While financial targets such as Total Shareholder Return (TSR) or Earnings Per Share (EPS) tend to be the driving force behind performance-based incentive plans, ESG-linked pay often forms a small portion of the overall remuneration package. ESG factors affect, on average, around 15% of the overall executive remuneration package.

Should we include ESG metrics in executive pay packages?

Including ESG metrics in executive pay packages is a tangible way to close the say–do gap for a skeptical audience, but is not without its challenges. There’s a risk of hitting the target but missing the point.

Can ESG targets be used to direct CEOs to benefit society?

There’s often an idea that ESG targets in pay can be used to direct CEOs to undertake activities that benefit society, which they wouldn’t undertake without the incentive. This misunderstands how board governance works.

How do you measure ESG success?

Individual KPIs and scorecards. It’s important to keep track of and measure progress toward ESG goals. Sometimes a company will have one or two critical ESG issues that tower above the others-such as a net-zero commitment-with a few essential KPIs.

Where can I find information about executive compensation?

All executive compensation information can be found in public filings with the Securities and Exchange Commission (SEC). The SEC mandates all public companies disclose how much they are paying their executives, how this amount is derived and who is involved in determining pay.

What is executive compensation and why does it matter?

Executive compensation is a significant thing to consider when evaluating an investment opportunity. Executives who are improperly compensated may not have the incentive to perform in the best interest of shareholders, which can be costly for those shareholders.

What are the new laws for executive compensation?

There have been many new laws passed to help satisfy investor concerns over executive compensation. Changes in SEC reporting requirements have forced companies to include an “Executive Compensation Discussion and Analysis” section to accompany future pay documentation in all SEC forms.

What is the best way to measure reasonable executive compensation?

There are three related avenues we could try. One approach is to attempt to devise a substantive test for what constitutes reasonable executive compensation. The test might be based on benchmarks for peer groups and adjusted to temper the spread between the pay of the most senior officers and that of the rank and file. 

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