Tag Archives | compensation

Dealing with Employee Fraud

employee fraudRecently, I was visiting with a potential client who had been the victim of fraud.  Talking with him brought back unpleasant memories of the first time I discovered that one of my client’s employees had committed fraud against the company.  Despite the fact that it happened a long time ago, all of the emotions associated with the violation came flooding back.

Dealing with Employee Fraud

Betrayal

The first, and perhaps strongest, emotion is betrayal.  Anyone who has been a victim of fraud feels violated.  It’s not unlike finding out that your spouse or significant other has had a relationship with another person.  Most likely, the violator’s motive wasn’t personal, but it’s difficult not to take such treachery personally.

Shock

The next emotion I remember feeling was shock.  How could this have happened?  How could we have been so blind?  It’s hard to believe that this person you trusted could steal from you without you knowing it.  You feel duped and, as a result, may question your ability to judge a person’s character.

Anger

Once the hurt feelings and shock have passed, you will be angry. You may seek retribution. Unfortunately, it is often difficult to get your money back and district attorneys are reluctant to prosecute such cases unless there are large sums involved.  Even if they go forward with prosecution or seek compensation, any recovery is often less than the amount stolen.

Despite this fact, it’s important to pursue the matter regardless of the sum. It’s not just about you getting your money back.  It’s also about ensuring that this person doesn’t have the opportunity to violate someone else in the future.  Often, this is not the first time the person has committed fraud.  Even if you recover less than your losses, the paper trail created by the prosecution will be a red flag to anyone who runs a criminal background check on the individual in the future.

Eventually, most people move on past the emotions and learn to trust again.  Most likely, they won’t trust to the same extent, though.  The painful lesson learned is trust, but verify.

One of the positive outcomes of such an experience is tightened internal controls.  Because of this, the company can come out stronger in the end for having survived the theft.

How do you know if employee fraud is happening in your company? Check out our free Internal Analysis whitepaper to create the roadmap for your company’s success!

Dealing with Employee Fraud
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Dealing with Employee Fraud

Check out our article:  7 Warning Signs of Fraud

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Wage Rate

See Also:
How to compensate sales staff
Compensation Plan
Equity Interest
Capital Project
Damage Claim

Wage Rate Definition

The wage rate definition is the rate of compensation for a worker. It is one of the central themes of the study of human resources. It is determined by 2 factors: productivity at work or number of production hours.

This study is known as wage rate economics. It is an important factor to economics because the wages of the average worker form an important factor in both microeconomics and macroeconomics. That is, it effects both buyer behavior and governmental policy.

Wage Rate Explanation

Wage rate, explained as the compensation plan for any employee or set of employees, establishes the cost as well as income of human resources. Explained simply, wage rates are based on the amount produced or the number of hours worked. Sales staff, for example, are given a commission based on the number of sales they make. Conversely, hourly employees are paid a certain amount for each hour they spend at work.

Additional compensation methods exist for employees. Health benefits, medical benefits, bonus’, promotions, and even cafeteria plans amount with the above wages to result in the total wage rate for staff. Fringe benefits, like a company car or free products, are not technically considered part of the wage rate which a worker takes.

Many nations require a minimum amount of income per worker. For wage rate, us government calls this the “minimum wage”. the law requires businesses to pay employees at least this much money in order to continue operations.

Wage Rate Example

Let’s look at the following wage rate example. Hank is a worker at a major oil company. Hank, a father of 5, works to support his family. He must make a certain amount of income every day to make sure that he can provide for the necessities which his family needs.

Derek, on the other hand, works for the same oil company. As a young and successful man, Derek is looking to optimize his benefit. Derek is looking for a compensation plan that grows with his productivity. As a result, Derek is willing to risk something if the gain for success is higher.

Both men are sales staff of the same oil company. Luckily, the company has a “choose-your-own” wage rate determination. They can offer this because of the years of study of their employees and work habits. While one is paid an hourly wage, the other is paid mostly through commissions. This allows each to have the work environment that they want. It proves to be a successful plan: both men achieve the same level of productivity. If meeting with a manager, both men will say that they enjoy their work. It is because of the flexible wage rate decision that each can create the plan that best suits their lifestyle.

In order to determine which candidates are the right fit for your company, download and access your free white paper, 5 Guiding Principles For Recruiting a Star-Quality Team.

 

wage rate, Wage Rate Example, Wage Rate Definition

wage rate, Wage Rate Example, Wage Rate Definition

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Remuneration Definition

See Also:
Pension Plans
Cafeteria Plan
How to compensate sales staff
Passive Income
Electronic Funds Transfer (EFT)

Remuneration Definition

We can define remunerations as compensation for employment services. Remuneration can include hourly wages, fringe benefits, salary compensations, and other forms of compensation such as stock options and cash bonuses. Strategies differ across industries and companies.

Remuneration Strategy

A company’s remuneration strategy, or compensation strategy, serves as the basis for planning and addressing compensation issues throughout the organization. Compensation strategies vary across industries and even within companies, depending on the nature of the work and the level of the employee in the hierarchy. Remuneration strategies should include both long-term and short-term incentives, and should include both monetary and non-monetary compensation.

For instance, a remuneration strategy should entail a mixture of long-term and short-term incentives, and a mixture of monetary and non-monetary compensation. Lower level employees should receive more short-term monetary incentives, and to a lesser degree long-term non-monetary compensation. Whereas senior employees should receive a greater proportion of long-term non-monetary compensation, and to a lesser degree short-term monetary compensation.

Basic Remuneration

The most basic type of remuneration is periodic compensation. Under this type of pay plan, compensate workers for spending time at work. Pay rates can differ due to skill, seniority, or education level. With this type of remuneration, there is no direct connection between performance and compensation. Motivate the workers with the prospects of being promoted to a higher pay rate, and avoid demotion and dismissal.

Performance Based Incentives

In certain work environments, it is more appropriate to evaluate and compensate employees based on performance and results. Examples of performance based incentives include merit pay, contingent pay, and piece rate pay.

Merit pay is an incremental pay increase achieved after reaching a certain performance level. For example, merit pay is a pay raise. Contingent pay refers to pay received after achieving a specific objective. Contingent pay may complement a base-salary or wage. An example of contingent pay is a bonus received for hitting a certain sales target. Piece rate pay refers to a flat rate earned for completion of individual units of production or work. For example, a seamstress in a shoe factory might earn a certain monetary amount per shoe. That is piece rate pay.

Another form of incentive based on performance is commission. Employees working on commission earn income based on sales of company products. For a more detailed look at issues regarding commission, see the section below entitled Sales Commission Structures.

Profit Sharing Policy

A profit sharing policy at a company encourages the employees to consider the overall goals and performance of the organization. Profit sharing may be earned as cash, shares of company stock, stock options, or stock appreciation rights. It may be earned in the current period or it may be deferred to a later period. Allocate profit shares among employees based on seniority or other criteria. The idea is to incentivize employees to strive towards success and performance not only at their own individual level but for the company as a whole.

Non-Financial Remuneration

Employees also benefit from and appreciate non-financial forms of compensation. Examples of non-financial remuneration include awards for recognition, a pleasant work environment, opportunities for advancement, employee buy-in in decision-making processes, perks, and fringe benefits.

Sales Commission Structures

Offer employees performance based incentives as part of their compensation. For example, many salespeople work on commission. These sales people earn a certain percentage of each sale and therefore motivates them to sell more. But there are some issues to consider when establish the sales commission structure of employee compensation.

Many companies offer salespeople commission as a percentage of the selling price of the product being sold. This essentially motivates the salesperson to focus on selling the most expensive products so as to earn the highest amount of commission. However, this may not always be the best thing for the company as a whole since the most expensive products may not be the most profitable items.

One way to effectively incentivize sales employees in a way that maximizes the company’s profitability is to pay commission based on a percentage of the product’s contribution margin. Define contribution margin as selling price minus variable production cost. A product with a higher contribution margin is more profitable than a product with a lower contribution margin. Incentivizing sales employees to sell the products with the highest contribution margins – regardless of the selling price – can align the goals of the salespeople with the overall goals of the company.

Download and access your free white paper, 5 Guiding Principles For Recruiting a Star-Quality Team to determine which candidates are the right fit for your company.

Remuneration Definition, remuneration strategy

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Remuneration Definition, remuneration strategy

Source:

Barfield, Jesse T., Michael R. Kinney, Cecily A. Raiborn. “Cost Accounting Traditions and Innovations,” West Publishing Company, St. Paul, MN, 1994.

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Indemnity Clause

See Also:
Blue Sky Laws
Tips on How to Manage your Lawyer
Steps to Track Money In and Out of a Company
Accounting Asset Definition

Indemnity Clause Definition

The indemnity clause definition is the clause which compensates either party in a contract against loss. It is one of the most common ways for a party to mitigate the risk of a contract. Indemnity clause contracts provide repair, replacement, or payment for an indemnitee from an indemnitor.

Indemnity Clause Meaning

The indemnity clause meaning is a protection to one or both parties in a contract in the event a loss is incurred. Lawyers often refer to the concept as the “indemnity lottery”; though an indemnity clause in contract exists the outcome of said clause is still uncertain. Despite this, indemnity clauses are often included in contracts where one party has a distinct chance of experiencing loss as a result of problems with the transaction. Additionally, an indemnity clause hold harmless agreement exists to displace the damages of one party from another.

Indemnity Clause Example

Maggie is an experienced lawyer. Working with commercial clients, her hard work and attention to detail have created mutually beneficial outcomes for both her and her clients. She is hoping to achieve another one of these outcomes while finalizing a contract for one of her clients today.

Two Party Contract

The contract is for two parties: a car manufacturer and a car seller. Maggie represents the car seller. In the contract, Maggie writes the details of how to sell the vehicles and ship them from the car maker to the car seller. She also writes an indemnity clause in contract for the car seller to ensure that they will be met with fair compensation if the product is lost.

She completes this contract, then the consul representing the manufacturer reads it. Then both parties signs it. As she is doing other work, Maggie receives a call about the contract. It seems her client, the seller of cars to individual customers, has not received the vehicles. This was caused by a delayed at the manufacturing plant. In this call Maggie is thanked for including an indemnity clause in transfer because it covered the loss of income in the business. This business is a small company which needs consistent operations to meet the needs of their expenses.

Once again, Maggie helped another client. She vows to use her expertise to help her clients, as well as herself, for as long as she can.


Is it time to hire a CFO? Click to learn the 4 reasons why it may be time to hire a CFO. 

Indemnity Clause, Indemnity Clause Definition, Indemnity Clause Meaning

 

Indemnity Clause, Indemnity Clause Definition, Indemnity Clause Meaning

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Gross Up

See Also:
Adjusted Gross Income Definition
Gross Profit Margin Ratio Analysis
PEO Arrangement Compared to Outsourcing Payroll
Payroll Accounting
Purchase Option

Gross Up Definition

Defined as paying a full amount without any deductions, gross up is most often used in terms of salary for employees.

Gross Up Explanation

Gross up, explained as a method for human resources to gain the benefit of their wages as soon as possible, is more simple than it appears. When salary is grossed up it is paid fully without any deductions that are not required, like 401k payments. This allows the employee to begin using their entire income as soon as possible. Though gross up wages are paid in full, deductions required by the government still occur. An employee will not be able to avoid income tax when they gross up; taxes will still need to be paid before the final amount is then given to the worker.

Other payments can also receive the gross up calculation. For example, a payment for the purchase of a business can be grossed up. In this case, the receiving party will take their full amount of payment rather than having to wait some time for completion. This allows the previous owner more freedom than if some of the payment is withheld. Gross up operating expenses and other payments occur, as well.

Example

Stella works for a financial services company. Stella, an investment advisor, has a keen sense for prudent investments. Through her years of experience she has earned this skill as well as the art of negotiation. Both of these abilities have worked to her advantage.

Stella is interviewing for a new job. The employer knows that Stella is well suited for the work. Stella also knows this. The interview runs smoothly as Stella continues providing answers.

When it comes time to negotiate salary Stella prepares her words. She begins with the salary she deserves, which it appears her employer is ready to accept. Then Stella brings up the option of her receiving a gross up paycheck, calculator in hand, with some figures. She shows the interviewer how she can make more income while saving the company money. Her explanation is simple; she can invest her wages and receive greater gain in the long run if she is fully paid now. On the other hand, the company will only feel a slight decrease in cash holdings from this. Stella’s resume and years of experience give backing to her claims, that she can be trusted, and the validity of her gross up formula calculation.

Stella completes her argument and is granted a gross up salary. She is satisfied that she has created a good situation for her and her company. She leaves the office with a smile on her face.

gross up

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Golden Parachute

Golden Parachute

A golden parachute refers to a generous compensation package promised to a senior executive in the event that the executive leaves the company. It is a contractual agreement between the company and the employee. The contract stipulates the conditions under which the executive will receive it. Some of the conditions may include the following:

The compensation package may include the following

Advantages and Disadvantages

A golden parachute can make it easier for a company to attract and retain talented executives. A golden parachute can also discourage takeovers by increasing the cost of the takeover.

On the other hand, if they are dismissed due to poor performance, then companies still often provide excessive compensation for executives. Also, the cost of it may not discourage takeovers because it may be an insignificant cost compared to the overall cost of the takeover.


The golden parachute protects the company much like a CFO protects and guides the CEO. If you’re interested in becoming the trusted advisor your CEO needs, download your free How to be a Wingman guide here.

golden parachute

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golden parachute

See Also:
How to Compensate Sales Staff
How to Keep Your Corporate Veil Closed
Corporate Veil
Employee Stock Ownership Plan (ESOP)
Intrinsic Value- Stock Options
How to Hire New Employees

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Sales and Marketing Compensation

See Also:
How to Keep Your Corporate Veil Closed
Corporate Veil
Employee Stock Ownership Plan (ESOP)
Intrinsic Value- Stock Options
Golden Parachute
How to Hire New Employees

Sales and Marketing Compensation

Compensating sales and marketing employees is a critical, and complicated, issue for many companies. Sales incentives are very common today and many companies experience mixed success with these programs. Incentives work best when they are integrated into well-established performance management processes. These plans require careful design, excellent administration, and constant communication.

Some Important Best Practices For Sales Incentives

1. Understand Your Customer and Sales Model

It is important to develop incentives that support your sales models. Do you rely on deep, long-term relationships? Or does your company sell products to a mass or retail market? Each model requires different features and your incentive plan should reinforce the primary sales model.

2. Determine Program Objectives

What are the two or three things that you really want to accomplish with sales incentives? Are you trying to increase market-share? Revenues? Asset growth? These questions are critical, as they become the foundation and guideposts for the program.

3. Work Hard On The Underlying Analytics

Make sure that you really know how increasing sales will translate into profit. This new profit should fund the incentives that you will pay to your sales staff. You may be willing to pay a higher percentage of “new money” in the beginning, but make sure you are not paying for sales or revenues that you already generate!

4. Keep It Simple

It is important to keep your plan as simple and transparent as possible. Select a few critical sales criteria (new accounts, revenues, net deposits) and resist the urge to include everything good. Pick the high impact outcomes that can be measured consistently. Too many variables lead to confusion and administrative headaches.

5. Establish Goals and Targets With Each Employee

It is very important for managers to meet with employees and set relevant, measurable goals. There should not be any mystery about what is expected. You should have minimum, target, and stretch objectives—with different levels of rewards for each level of performance.

6. Pay Sooner Than Later

Incentive payments should be linked as close in time to performance as possible. If you have quarterly goals, then you need to pay bonuses within 30 days of quarter end to drive home the connection between performance and rewards. If you measure performance over a longer time such as one year, get the payments out on a predictable date each year.

7. Coach for Performance

Make sure that your managers provide continuous feedback during the process. They should track each employee’s progress toward their goals and talk to their employees on a regular basis. There should be no surprises (or excuses) when it is time to pay bonuses.

8. Deliver What You Promise

A common problem in sales and incentive programs is that management fails to follow through, either in administration, timing, or even size of payouts. These programs require a serious commitment and sufficient support to execute. Furthermore, you will lose credibility quickly if you do not follow through on your end.

A Few Tips About Sales Incentives

Make sure the new behaviors that you are encouraging are consistent with your company’s values. Consider using a consultant to help you develop a new incentive plan. Mistakes are costly and very common. Don’t confuse incentive plans with good management or training. Pay programs are not a remedy for performance problems.

External Resources

World At Work. Formerly the American Compensation Association with information on compensation products, services, and research. world at work

Download and access your free white paper, 5 Guiding Principles For Recruiting a Star-Quality Team to determine which candidates are the right fit for your company.

Sales and marketing compensation

Strategic CFO Lab Member Extra

Access your Recruiting Manual Execution Plan in SCFO Lab. The step-by-step plan recruit the best talent as well as avoid hiring duds.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Sales and marketing compensation

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