Question

Explain the meaning of the following terms as they are applied in discussions of executive remuneration:
(i) High end employee;
(ii) Say on pay;

(iii) Ratchet effect

Answer 1

1. High end employees are those executive level employees who possess the qualities, skills, experience and qualifications to discharge their job role and responsibilities to take and make decisions. They are often in huge demand in the external market and hence are paid hefty compensations to retain them within the organisation.
2. Often the top executives of a company decide and bag in huge compensations resulting in overpay of remuneration to themselves and thus diminshing the profits available to be paid to shareholders or retained in the business. To prevent this over-use of authority by top management, the shareholders will be given the right to vote on the remuneration. Such role of compensation scheme is called 'Say on Pay'.
3. Ratchet effect is a situation wherein the workers restrict themselves from producing more than a fixed limit of output. They do so with an anticipation that the organisation they work on will tend to rise the expected output levels or decreasing the pay.