Designing an Effective Executive Compensation Plan: Cisco Systems Case

This report provides a detailed analysis of an executive compensation plan, focusing on the case of Cisco Systems. It examines various components of a compensation plan, including fixed salaries, commissions, bonuses, sales contests, and benefits, and how these elements are combined to incent...Read More

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Compensation Plan
Name:
Course
Professor’s name
University name
City, State
Date of submission

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Question 1
There are several components in a compensation plan and each one has a particular objective.
Fixed . It is a fixed sum of money and is paid at regular intervals. This is usually fixed based on
experience, competence and time in the position (Picciotto, 2004).
B. Commission. It is a payment based on a seller's short-term results. It is considered volume of
money or units of sale.
C. Bono. It is a payment that is made at the discretion of the board to reach or exceed a certain
degree of performance. Quotas are often the minimum measurement requirement.
D. Sales contests. It is an activity that is carried out among the sales personnel E. Benefits. They
are the basis of most compensation plans integrating these packages. They include medical
insurance, life, retirement plans, disabilities, etc.
CHARACTERISTICS OF THE COMPENSATION METHODS
A combination of base salary plus incentives.
Whether the base salary is combined with commission payments or bonuses, the administration
must
respond to other problems when designing effective plans for combined compensation.
1. Appropriate size of the incentive in relation to the base salary
2. Existence or not of a ceiling or cap on income through incentives

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3. When a specific sale is considered
4. Employ or not group incentives and how to distribute them among team members
5. The frequency or periods of payments for the incentives.
For an executives pay, the total sum of salary, option exercised, bonus, restricted stock grants
and long term incentive payout is what makes thee total executives’ pay. Using all these
variables. All these incentives are a way of maximizing the company’s value (Mellon, 2016).
Mr. Robbins compensation will be calculated according to his achievements as the new CEO for
sisco systems. Formulae for calculating the CEO’s executive pay.
salary Fixed
bonus 2% of the total revenue of the company
Restricted stock grants The number of shares will be determined by his
performance
Long term performance based
grants
Based on performance
Other compensation
Total

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Question 2.
When the company’s stock are down by 30%, it means that the CEO compensation will be
affected in an adverse way. Only the fixed salary will remain the way it is, the bonus will
decrease together with other incentives.
When talking about the system of CEO motivation, it often means only its non-material
components. For some reason, it is believed that the methods of material incentives have outlived
themselves: the employees have already satisfied their imaginary and unthinkable needs, and
only their status, public recognition, etc. are of interest to them (Cook, 2005). However, in the
opinion of the authors, monetary remuneration is still a powerful instrument of influence on staff,
so the article will focus primarily on various options for pay.
Of course, in addition to wages, there are many other opportunities to stimulate employees. It is
not difficult, however, to note that any component of the social package has its own cash
equivalent, and every experienced employee will try to at least mentally "monetize" the services
and benefits provided to him by the employer.
The main thing is that the system of motivation (and, to a greater extent, its intangible
component) should be consistent with the goals of the company and its corporate culture.
It is not without reason that they say: "What is good for a Russian, then for a German is death."
One of the most common mistakes of HR-directors is an attempt to use all forms of employee

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incentives known to them, which, incidentally, often can not be understood, which will
inevitably lead to their hidden sabotage (Colletti and Fiss, 2001).
That's why the system of motivation needs to be built in stages, and it is very important that
when it is implemented, the salary conditions for most employees do not deteriorate. Otherwise,
it will be necessary to change the system or personnel in a hurry.In addition, labor incentive
methods can not be developed once and for all - they must be flexible and always correspond to
the external conditions and objectives of the company (Berger and Berger, n.d.).

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References
Berger, L. and Berger, D. (n.d.). The talent management handbook. New York, NY [u.a.]:
McGraw-Hill.
Colletti, J. and Fiss, M. (2001). Compensating new sales roles. New York: AMACOM.
Cook, L. (2005). Financial valuation of employee stock ownership plan shares. Hoboken, N.J.: J.
Wiley & Sons.
Mellon, A. (2016). Taxation. San Francisco: Golden Springs Publishing.
Picciotto, S. (2004). International business taxation. London: Butterworths.