Compensation Practice Of A Publicly Traded Company – PepsiCo Inc

Compensation Practice for a Publicly Traded Company Research Paper Instructions

Research a publicly traded company for which you would like to work.

Write 7 pages paper in which you:

  1. Briefly describe the company you researched, its compensation strategy, best practices they are applying, and compensation-related challenges they are facing.
  2. Analyze how your company applies compensation practice to determine the positive or negative impact to the company and its stakeholders.
  3. Examine the ways in which laws, labor unions, and market factors impact the company’s compensation practices. Provide specific examples to support your response.
  4. Evaluate the effectiveness of traditional bases for pay at the company you researched.
  5. Use at least three (3) quality references. Note: Wikipedia and other Websites do not qualify as academic resources.

PepsiCo Inc Compensation Practice Research Paper – Sample Answer

This paper discusses PepsiCo, Inc. in terms of its compensation strategy, the best practices it applies, and its compensation-related challenges that it faces. Among other things, it will, also, analyze the manner in which the company applies compensation practice to determine the positive or negative impact to the company and its stakeholders. It is worth noting that PepsiCo Inc. is a multinational snack, food and beverage company based in the United States with its headquarters in New York. The company has interests in the manufacture, marketing as well as distribution of beverages, snack foods derived from grains, and many other products (PepsiCo., n.d.). The mission of the company entails provision of its global consumers with complementary, convenient, affordable, and delicious beverages and foods ranging from complete breakfasts to fun and healthy daytime beverages and snacks to wonderful treats in the evening.

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The compensation strategy embraced by PepsiCo comprises a number of aspects. The first aspect is the pay philosophy, which involves decision making by PepsiCo’s compensation managers based on external equity vs. internal equity, lag vs. lead, and attraction vs. retention (Martocchio, 2013). The company’s compensation philosophy entails recruitment, retention and motivation of employees in order to sustain its financial performance and growth. The compensation committee assumed the role of developing a compensation strategy in collaboration with external advisors. PepsiCo, also, embraces performances-related pay unlike other companies which base their compensation on skills, seniority and education. The company, also, embraces pay form in its compensation strategy. In this case, it offers both monetary and nonmonetary rewards in order to meet individual needs and encourage diversity. The company embraces nonmonetary rewards through holidays, recognition and promotions.

Regarding compensation practices, PepsiCo Inc. applies specific compensation programs across different ranks of its employees. For executive officers, the company offers long-term incentive plans, annual incentives, and base salary. These officers are, also, allowed to participate in the benefit plans of the company’s qualified and nonqualified employees (Thomas, 2013). The company applies these programs with the aim of providing retirement income. It is, also, worth noting that the company does not offer employment contracts for the CEO and other executive officers. It should be clear that the base salaries for the executive officers and the CEO are determined by their scope of activities as well as the underlying accountabilities of their positions. The review of salaries at PepsiCo is conducted on a regular basis. It should, also, be clear that the annual incentive compensation, which executive officers receive is performance-related, and is provided in accordance with the shareholder-approved 2004 Executive Incentive Compensation Plan (2004 EIC Plan) (Martocchio, 2013). The company, also, provides long-term incentive compensation as the best strategy for ensuring that the interests of PepsiCo’s shareholders and those of executive officers are aligned. In general, the company’s compensation strategy is based on the concept of total rewards where employees receive more than just a salary i.e. salary, wellness program, health care benefits, work/life benefits and retirement plans.

During implementation of compensation strategy, PepsiCo faces a number of challenges. The most common challenge, in this case, has been ensuring that the compensation strategy is aligned with the business strategy. In most cases, there have been scenarios where the business strategy impedes some compensation strategies thereby hindering implementation (Thomas, 2013). Interferences from trade unions and lack of satisfactory compliance with the laws (Equal Opportunity Act of 1963) have, also, posed a lot of challenge to the company. Compensation challenges, also, emerge from market practices in its various global divisions. These market practices are never stable and, therefore, as they change, there has to be an equal change in the compensation strategy. This is one of the points where the compensation committee experiences a lot of challenges. Turnover of skilled employees is, also, a serious compensation challenge faced by PepsiCo.

PepsiCo Inc. utilizes its human resource wing in the application of compensation practice to determine the positive and/or negative impact to the company and its stakeholder. The human resource utilizes compensation as one of the most essential tools for managing employees. As much as PepsiCo’s compensation strategy aligns with the overall strategies and goals, it, also, aligns with the strategy of its human resource. In this case, the company conducts regular planning and evaluation of its performance appraisal and compensations systems. Since compensation is a visible and essential element to employees, PepsiCo understands the significance of consistent communication of a clear message regarding the manner in which compensation decisions are made. The company, also, consistently involves key stakeholders in its compensation strategy, especially the pay-for-performance system (Thomas, 2013).  These key stakeholders are employees, owners/management, and the government. The company appreciates the fact that employees should understand their employment deal. The interest of the management is recruitment and retention of high-skilled employees at the compensation scales that the company finds comfortable. The interests of the government, on the other hand, entail achieving the best balance among competing interests, Immigrant vs. American workforce, non-union vs. union, and living wage vs. minimum wage (Thomas, 2013).

There are a number of ways in which labor unions, laws, and market factors impact PepsiCo’s compensation practices. In regard to the laws, it is significant to note that there are several local, state and federal laws, which PepsiCo requires abiding with during implementation of its compensation practice. These laws shape the benefits plan of the company, specify minimum amounts employees should receive, and define the various aspects of pay. The Equal Pay Act of 1963 and the Fair Labor Standards Act are some of the legislations that affect the compensation practice at PepsiCo. Labor unions, also, continue having a significant impact on the compensation practice at PepsiCo. Through labor unions, employees have been able secure their protection and legislated rights like safety and health, family and medical leave, and overtime compensation.  They have reduced wage inequalities and increased wages for unionized workers and set pay standards for nonunionized employees, especially part-time workers and improved the pension plans at PepsiCo. According to Martocchio (2013), there are internal and external factors that affect compensation practice at PepsiCo Inc. The internal factors include the company’s ability to pay its workers competitively thereby enabling it to attract superior personnel. Besides, employee factors such as potential, performance, seniority, and experience, also, comprise essential internal factors affecting the company’s compensation practice. The external factors that impact on the company’s compensation practice include laws and regulations, labor market, economy, and technological changes.

In evaluating the effectiveness of traditional bases of pay at PepsiCo Inco., it is worth noting any compensation scheme aims at attracting, motivating and retaining skilled employees. The company utilizes the traditional pay model where it pays the person and pays for the work. Though this model can, sometimes, be counterproductive, it has, in most cases, provided the company with the perception of fairness (Thomas, 2013). The use of traditional bases for pay at PepsiCo are effective in a number of ways: they boost centralized control; they are objective; they comprise a significant basis for performing internal evaluations.

In conclusion, this paper discussed PepsiCo, Inc. in terms of its compensation strategy, the best practices it applies, and its compensation-related challenges that it faces. PepsiCo Inc. applies specific compensation programs across different ranks of its employees. For executive officers, the company offers long-term incentive plans, annual incentives, and base salary. PepsiCo Inc. utilizes its human resource wing in the application of compensation practice to determine the positive and/or negative impact to the company and its stakeholder.

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