Compensation Practice
Pansy Hobbs
Strayer University

Compensation Practice
Introduction
Compensation Strategy is the plan set by the employer to reward the employee based on the position and the type of work among other determinant company specific factors. It spans from direct to indirect compensation. Direct compensation entails monetary reward for the work done while indirect is simply the benefits that accrue from the employment for instance health and insurance. However, it varies from company to company depending on its main activity, culture and philosophy. I set out to research about Apple Inc. This research focuses on the compensation strategies and practices, best practices applied, compensation related challenges, an analysis on how compensation is applied and the negative and positive impacts on shareholders, how labor laws, unions, and market factors impact on compensation practice and the traditional bases of pay at the company. Apple Inc is a technology company located in Cupertino, California, United U.S. The branches are spread all over the world. The founders were Steve Jobs, Steve Wozniak and Ronald Wayne. It had been incorporated in 1977. It deals with the design, manufacture and marketing of personal computers, digital music players, software’s, networking services and third party contents and applications. It's notable for its (i) radical technology. Some of its merchandise are; iPhones, iPads, iPods, Mac, Apple TV and iOS operating system. Apple sells its products to giant and medium size enterprises, directly to consumers, government agencies, through online stores, wholesalers and retailers. It offers digital content and applications through the Mac App Store for Mac applications, Appstore for iphone and ipads applications, iBookstore for electronic books and iTunes Store for music. Apple's Compensation Strategy The board of directors forms a committee known as the Compensation Committee. It is made up of at least three members of the board who are independent in compliance with applicable regulations which encompasses regulations of the NASDAQ Stock Market and rules of the Securities and Exchange Commission. The members are prohibited from participation with any member of the compensation committee of another company. The committee establishes and modifies compensation and incentive plans and programs, reviews and approves awards under compensation and incentive plans and acts as administering committee for equity compensation. It’s important to note that the majority of the employees at apple are the retailers. Apple does not declare its compensation strategies to the public, but reports and words by employees indicate their compensation strategies. Apple has deemed to underpay its retail employees compared the revenue they generate. Approximately an employee is given $25,000 annually, compared to an estimate of $473,000 generated by each retail employee (Segal 2012). Chamberlain (2011) observes that Apple employees in China work for long hours in a draconian workplace. This is attributed to the fact that apple has a command in the market and their brand is well known thus it attracts employees. Segal (2012) notes that Apple pays its employees above the minimum wage; also, offers good benefits to retailers, a chance to buy company stock, apple products at a discount and 401(k) contributions. It was the first company to be admitted to Fair Labor Association, a non-profit organization which seeks to improve conditions for workers in the world, as claimed by its employees. In a contradictory statement Chamberlain (2011) noted that employees are forced to work overtime, which may amount to 98 hours a week. Apple’s Best Practices
Its guiding principles are compliance with applicable regulations and laws, honesty in all their dealings, respect to employees, customers, suppliers and others and confidentiality in all their dealings. Another noteworthy principle is non-toleration of retaliation. Apple has both internal and external best practices. Some of the formers are not using one's position at the company for the benefit of oneself, family members or significant relation that may lead to conflict of interest. Employees are not allowed to take up responsibilities outside business or use inventions for the benefits of others. They should not use information obtained from the company to buy or sell stock and they should report in case of conflict of interest from person investment and the company. Discrimination based on gender, race or color is not tolerated neither is substance abuse. In case of money laundering any party may report to the manager or legal department of Apple. The external practices include; not giving or receiving gifts from outsiders that are not legal, to government official or to obtain a special favor. Any deal with the government must always involve the legal department of the company or government affairs. Corruption is not completely tolerated at Apple; they have gone an extent of having Apple’s Anti-Corruption Policy. All measures are taken to ensure employees environment, health and safety is safeguarded and this is stipulated in the Apple Workplace Violence Policy. Apple encourages employees to participate in charity through the Apple matching program to contribute to non-profit organization of their choice. Also, it complies with the laws and advises all employees to conduct themselves in a way that will benefit the community. In the same connection, the consumer is given the first priority when a product is being designed. The corporate governance; the Corporation policy states that the Board consist majority of independent directors who either meet or exceed the NASDAQ Stock Market (“NASDAQ”) independent requirements. A director who serves as the CEO of the corporation should not serve as a director of more than two other corporations since significant amount of time and attention is required in that position. Ethics should be upheld by all directors. Whether the role of the CEO and the chairman should be separate is constantly evaluated by the board, if it should then chairman of the board is selected from non-employee directors. The management ensures that there is constant flow of relevant information to all stakeholders. Directors have a right of access to talk to any employee to provide additional insight to subject in discussion.
The compensation committee and board, the board of directors evaluate performance of all executive officers, including the CEO whose performance in terms of leadership is weighed and succession planning reviewed.
Challenges
There are several compensation related challenges facing the company. As stated earlier the consumers are kings to Apple their taste for technology is fully satisfied. However, behind consumer satisfaction there are majority of employees who work under unfavorable conditions and their earnings do not correlate to their efforts and revenue they generate. This has resulted in a massive employee turnover. Denning (2012) observed that the CEO was paid the maximum Apple can part with while paying the employee the minimum it can part with. Employee compensation is totally low. Thus, employees leave but since many perceive that Apple is a cool place to work, then they seek positions at the Apple Inc. Ironically, the cost of replacing and training new workers, supplements the low pay to the employees, though it is yet to be seen if the strategy will thrive for long. Another challenge facing the technology giant is tainted reputation. Since the news concerning its compensation strategies got to the spotlight various investigations have been conducted, including by the Fair Labor Association. To Apples dismay the claims were verified to be true. Liedtke (2013) reported on a lawsuit against Apple for short-changing employees and underpaying them.
Positive or Negative Impact to the Company and Its Stakeholders Apple’s compensation strategies have had both positive and negative impacts on the company and the stakeholders. Apple pays the Mac genius, software engineers and other top executives and hefty amount and this has resulted to a higher retention rate. Since they are the drivers behind innovation, this has helped the company to come up with better products and made Apple a game changer. The consumers thus get gadgets and services that meet their wants. Notably, it employs individuals in the early twenties or mid-twenties and let’s goes of the middle age and old age. Apparently, these are young people; the majority has fewer family responsibilities and thus is willing to associate with the company at even low pay. Another factor, young people believe Apple’s name on the resume is a plus thus this keeps Apple getting young, energetic talent, thus it becomes profitable and the shareholders get their share of the dividends. Also, the company is listed and traded in the stock exchange. Recently, it logged a stronger fiscal year earnings than predicted. On the other hand, there are negative impacts of the compensation plans. Kan (2012) reported that Apple denied that an employee at Fixlink, an Apple supply in China that deals with iPhone 5 cable connectors, committed suicide because of leave denial. However, the families were to be only compensated fewer funds than they demanded and contrastingly, the employee used to work for about 15 hours and had been denied the leave because there was a high demand of iPhone 5. This is one among many lawsuits the company has faced related to compensation practices which are unfair. All the results to tainting of Apple's name, Egan (2014) reported that Apple earned $13 .07 billion profit compared to $13.07 billion in the first quarter. This a drop despite higher revenue generation compared to the previous year. Generally, Apple would be performing well if it took all stakeholders, especially employees, seriously and reward them effectively.
Effects of Labor Laws & Market factors Apple has been noted to violate labor laws, especially in mainland China. Vereen (2013) Employees were reported to work for more than the stipulated 49 hours in Foxconn. This led to response by Apple when the information got to the public. Most Apple employees have reportedly had an increase in wages. Thus the impact can be felt.
Gupta (2011) reported on Apple’s workers union that is unofficial. It was meant to advocate for better pay but it wasn’t vocal or made official. However, the founder Cory Moll, who left Apple tweeted that his union helped in advocating for better working conditions and better pay. Market factors have impacted less on Apple. Its success is still unprecedented. It has been quick to change and come up with revolutionary technological innovations thus keeps up with competition. However, factors such as the changes in the minimum wage, industry rates and consumer tastes and preferences are given consideration. In one way or compensation practice will conform to market factors. For instance, the minimum wage is $7.25 and there are prospects it will rise to $10 by July 2014. Giant industries have a tendency of setting their minimum wage slightly above the stipulated minimum and in such cases Apple has no option but to adopt the same.
Effectiveness of Traditional Bases for Pay The traditional basis of pay at Apple was structured in a way that compensation was the base pay while only the executives received bonuses. The fixed benefits system was based on long tenure and wide pay plan existed for all employees. However, Total Rewards Approach is now used whereby variable pay is used in addition to base pay, annual incentives are provided to executives, flexible benefits exist and knowledge and skills determine the pay and job grade. This shows an improvement in the compensation plan from the traditional pay system.
Conclusion
In conclusion, it's clearly evident Apple is a revolutionary company. It has changed the way we look at technology. All indicators point to a bright future. Its policies and principles are excellent. However, there is a problem with their compensation system and practices. They should invest more on manpower and retain employees for a fairly long period.

References
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