Issues with Executive Compensation and Benefits in El Camino Hospital - Research Paper Example

? Issues with Executive Compensation and Benefits Introduction Executive compensations and benefits are often considered to be one of the most debated topics relating to the field of Human Resource Management (HRM). It basically deals with the issue relating to the remuneration offered to the top-level management personnel in an organization. Rendering emphasis to this issue, the discussion henceforth intends to provide a critical description of the historical development of EL Camino Hospital. The discussion would also highlight current challenges that are being faced by the association. In this regard, cases of other organizations facing similar forms of challenges will also be reviewed in this essay. Moreover, assessing the strategies adopted by those organizations to mitigate such challenges, recommendations for the management of EL Camino Hospital will be drawn on how to resolve the situation. Historical View of El Camino Hospital El Camino Hospital is regarded as one of the oldest non-profit healthcare organizations operating in the state of California, the United States. The construction of the hospital building started in the year 1958 with a total investment of around US$ 7.3 million. It is worth mentioning that the funds invested were generated though issuance of funds to the general public. The hospital started operating in the year 1961 with a total of 300 beds, which gradually increased over the years. The hospital often been regarded to be the first to implement computerized medicinal information system. This particular development attracted a larger volume of people to avail the services offered by the hospital. Since its establishment, the hospital has also acquired a substantial number of well-known medical institutions under its name, making it one of the biggest as well as oldest non-profit healthcare organizations in the state of California (El Camino Hospital, 2013). Assessment of Current Challenges As revealed in the article, i.e. ‘El Camino Hospital Officially Files Lawsuit over Executive Pay Cap’, the hospital has filed a lawsuit against Service Employees International Union (SEIU). SEIU is a form of international labor union, which aims to protect employee welfare and to mitigate the problems faced by the labors while conducting various sorts of operational functions (SEIU, n.d.). The prime intention of the lawsuit can be interpreted as to negate a voter-backed initiative that would limit the compensation of the executives of the hospital. Thus, from this particular notion, it can be affirmed that the current challenge faced by El Camino Hospital is linked with executive compensation. Relating to the article, it can further be observed that the people or the individuals within the hospital county voted to support the clause measure M taken to restrict the compensation obtained by the top-level management of the hospital, which was then accounted to be less than twice the salary of California’s governor. The lawsuit of the hospital identified two officials named Kary Lynch and Laura Huston as defendants, stating that they were found to be the main individuals who supported the clause (measure M). It is worth mentioning that the hospital also filed a suit against the chief Human Resource Manager of the hospital for being equally liable in motivating the employees to support the clause under the guidance of SEIU. Lawyers were also appointed by the non-profit healthcare organization to restrict the measures into healthcare districts, which were being supported by the SEIU. It is worth mentioning that although the hospital did not mention the name of SEIU, Mr. Lynch and Ms. Huston were directly addressed in the lawsuit (Herman, 2013; Modern Healthcare, 2013; Embarcadero Media, 2013). Review of Other Organizations That Had Similar Situation and the Strategy They Used To Address the Issue In the current phenomenon, there are certain organizations, which have to face similar issues concerning the arrangements of executive compensation. In this similar concern, Fannie Mae, one of the renowned finance related companies, can be taken into concern. Relating to the aforesaid issue, in the year 2004, the board of Federal National Mortgage Association (“Fannie Mae”) asked its senior officials, Mt. Franklin Raines and Mr. Timothy Howard to retire. The sudden decision of the management led the U.S. Securities and Exchange Commission (SEC) to measure the earning that the company had earned while conducting various operational functions. The departure of the two top level personnel was, however, termed as retirement, allowing a substantial retirement package. The arrangement of the compensation package which was provided to the executives at the time of their retirement was further considered to be quite casual, resulting in generating the issue at large. It is worth mentioning that the pay-outs, provided to the executives at the time of their retirement, were totally unrelated with the set of procedures followed in the company; thus, increasing the portion of their overall compensation by a greater level. On the other hand, it can also be viewed that Fannie Mae had an issue with the accounting process as well, which resulted in generating high amount of retirement pay-out for both the executives. As can be observed, proper in-depth investigation strategy was adopted by the company in order to mitigate the issue related to executive compensation. Correspondingly, the main reason behind implementing the strategy of investigation was to attain a clear view of the happening for effectively addressing the issue (Bebchuk & Fried, 2005). Apart from Fannie Mae, the other organization, which faced a similar issue concerning executive compensation, is ConocoPhillips. ConocoPhillips is regarded as a multinational energy corporation, listed among the companies paying the biggest package of retirement to its CEO in the year 2012. James J. Mulva, who retired after 10 years of his serving as the executive officer of the company, was provided with a total pay-out of US$ 156 million, which listed the executive as one of the highest earning position. This led to many questions in the minds of the subordinates. On a close study, it was revealed that most of his pay-outs had been generated from the market value of stock gains, pay-outs from cash surveillance in the form of bonus and additional retirement funds among others. The company confirmed that the pay package was disclosed to the shareholders and stakeholders resulting in no further investigation. With this regard, it can be observed that the company had adopted the policy of job evaluation, anticipating that any sort of conflict shall be mitigated between the top level officials and the subordinates of the company (Joshi, 2013). Theories and Strategy That Should Be Contemplated to Address the Situation For an organization, to maintain a proper relation with its employees and most significantly, resolving issues concerning executive compensation, it is quite essential that proper theories and strategies must be contemplated with efficiency. In accordance with the case of ‘El Camino Hospital Officially Files Lawsuit over Executive Pay Cap’, it can be affirmed that the emergence of the issue concerning executive compensation eventually led towards the adoption along with the execution of the clause, Measure M, against the top level officers of the healthcare unit (Martocchio, 2011). In this similar context, one of the significant theories or strategies that a firm can adopt to mitigate or to address such a situation can be referred as internal consistency. This particular theory relates to the design of an effective compensation system and can be adopted to mitigate the issues concerning executive compensations and benefits. The theory can be regarded as a process, which defines the value of all jobs within an organization helping it to represent the job structure or hierarchy in an effective manner. The steps of designing a proper internal consistency theory have been stated hereunder. Step 1: Job analysis is considered to be a descriptive process of designing a compensation system within an organization. It is a systematic process of documenting and analyzing all vital information that are required while evaluating job roles as well as functions. It is worth mentioning that effective job analysis helps in defining proper job content, which might resolve the ambiguity related to the finalization of employee compensation by a certain degree (Martocchio, 2011). Step 2: Job evaluation is the second and the most vital step for designing a proper compensation system in an organization. Compensation professionals/HR managers of various organizations often execute the process of job evaluation to observe pay differentials amid the workers (Martocchio, 2011; Matiza, 2013). Apart from the aforesaid theory of internal consistency, it can be viewed that various strategies co-exist, which can be utilized in mitigating the issues relating to executive compensations and benefits in an organization. A few of the strategies that can be adopted as well as executed to address the aforesaid critical situation have been depicted hereunder. Incentives: Incentives are regarded as an extra pay, entitled to the workers in lieu of their extraordinary commitment and productivity towards the organizational goals. It is a global process usually adopted in various companies to motivate and also to improve the performance of the workers. Through incentives, the remuneration entitled for company executive, as a proportion of the profit earned, will no more be restricted to the top-level management and thus, shall also get allocated to the subordinates in the organizational hierarchy. Hence, conflicts related to executive compensation can be mitigated to an extent (Hull, 2013; Matiza, 2013). Benefits: Providing various benefits to the workers like quarters, free education facilities and free medical check-ups, rather than augmenting the compensation of the executives solely, might support “Fannie Mae to mitigate the issues related to executive compensation by a certain degree. It can be affirmed that providing the above stated benefits would not only help in decreasing conflicts, but would also aid in enhancing the overall performance of the employees, resulting in better functioning of the organization (Hull, 2013; Matiza, 2013). Recommendations to Management on How to Address/Resolve the Situation The issue concerning executive compensation has been a continuous challenge for various organizations in this present day context. Recent campaigns conducted by labor unions have also highlighted the impacts of the aforesaid issue. In this similar concern, though it can be apparently observed that many organizations provide valid reasons behind the compensation package provided to their respective top-level executives at the time of retirement, others are observed to restrain themselves from following a proper set of organizational guidelines causing conflicts between the subordinates and the top officials. In this scenario, it can be viewed that El Camino Hospital has filed a lawsuit against two of the top level officers of SEIU for supporting the implementation of Measure M, a clause, which restricts the payroll of the executives no more than twice the salary of California’s governor. In relation to the case of El Camino Hospital, certain valuable recommendations to the management of the hospital, addressing the critical situation have been portrayed hereunder. Firstly, the policy of providing a salary chart along with the percentage of incentives that would be provided to the person based on the level of authority must be depicted. This would not only help in minimizing the chances of conflict, but would also help in motivating employees to reach the higher level in the organizational hierarchy chart, resulting in better performance of the employee and subsequently, of the organization. Secondly, the management team of El Camino Hospital should introduce the policy of paying incentives and extra wages to the employees for their above the margin performance. Conducting meetings to seek for valuable suggestions from employees, before implementing new policies or strategies in an organization, can also be performed to build a better understanding within the management and the subordinates within the organizational culture. Thirdly, the policy of conducting group meetings and segregating the employees into various groups might support the management team of the hospital to address the situation more critically and likewise, frame accurate strategies to solve the problem efficiently. Finally, the management team of the hospital can assess or measure the job description of its various personnel and adopt effective strategies in accordance with their job description maintaining transparency and cohesiveness. Conclusion Compensations and benefits are two important motivational factors that help an organization to suffice its goals in a convenient manner, by mitigating any chances of internal conflicts. The strategy of compensating and providing benefits to the top-level executives is widely accepted among all organizations throughout the globe. On the basis of the above discussion, it can be stated that excess paying of monetary benefits to the executives of the company, may result in generating conflicts between subordinates and the top-level management in an organization. Contextually, the adoption, as well as the execution of various strategies, such as offering incentives and non-monetary benefits among others, may further help in mitigating the issue concerning executive compensation by a considerable level. References List Bebchuk, L. & Fried, J. (2005). Executive compensation at Fannie Mae: A case study of perverse incentives, non-performance pay, and camouflage. Retrieved from http://www.law.harvard.edu/programs/olin_center/papers/pdf/Bebchuk_et%20al_505.pdf Embarcadero Media. (2013). Mountain View Voice. Measure M Ruled Unconstitutional 21(56), pp.8-32. El Camino Hospital. (2013). History & milestones. Retrieved from http://www.elcaminohospital.org/About_El_Camino_Hospital/History_Milestones Hull, P. (2013). Motivation mystery: how to keep employees productive. Retrieved from http://www.forbes.com/sites/patrickhull/2013/05/23/motivation-mystery-how-to-keep-employees-productive/ Herman, B. (2013). El Camino Hospital officially files lawsuit over executive pay cap. Retrieved from http://www.beckershospitalreview.com/compensation-issues/el-camino-hospital-officially-files-lawsuit-over-executive-pay-cap.html Joshi, P. (2013). Golden parachutes are still very much in style. Retrieved from http://www.nytimes.com/2013/06/30/business/golden-parachutes-are-still-very-much-in-style.html?_r=0 Martocchio, J. J. (2011). Strategic compensation: a human resource management approach. India: Pearson Education India. Matiza, L. (2013). Human resource management. Munich: GRIN Verlag. Modern Healthcare. (2013). Regional News/West: El Camino Hospital suing to overturn Calif. law that limits pay of public hospital executives, and other news. Retrieved from http://www.modernhealthcare.com/article/20130119/MAGAZINE/301199979 SEIU. (2013). Stronger together. Retrieved from http://www.seiu.org/ Read More