Name Your Price: Compensation Negotiation at Whole Health This case study is about a student Monroe davies who is in his second year at Harvard Business school and Jim Hummer who is the CEO of a company named Whole Health Management. Jim has met Monroe before and knows that Monore is interested in entering the whole health management. Jim has asked Monroe to design a compensation package for himself as Director Business Operations because Jim wanted to assess how Monroe reacts when faced by unexpected challenges.
Jim has sent a template of the compensation Package and asked him to analyze and work on following areas of the package. * Salary * Performance Bonus * Stock Options * Relocation allowance * Benefits. In this case we are required to design the ideal compensation that is acceptable for both Monoroe Davies and the CEO Jim Hummer. Jim has provided Monore with a template of the compensation package and asked to fill amounts which he thinks are acceptable in following areas of the package. * Compensation * Stock options * Bonus * Relocation Allowance Continuing Education stipend We will discuss regarding how we allocated the cash in the areas mentioned above. Monroe DaviesCompensation Package| Director Business Operations| Compensation| 125000$ per year, paid semi monthly| Status| Full time| Stock options| Options to purchase 10000 stocks at $2. 70 per share| Bonus| 62500$| Relocation Allowance| 3600$ to relocate to Cleveland from HBS| Fringe Benefits| Paid Time off:| Vacation| 120 hrs/yr| Holidays| 80 hrs/yr| Sick Leave| 48 hrs/yr| Personal Time| 16 hrs/yr| Insurance:| | Health Insurance| Based on premiums|
Dental Insurance| Based on premiums| Vision| Based on premiums| Life Insurance| Paid term Life ($50000)| Long-Term Disability Insurance| Paid (60% of base pay)| Social secuirty| Paid| Worker’s Compensation| Paid| State and Federal Unemployment| Paid| Professional Liability| Paid| Section 125 cafeteria plan| Administration Fee Paid| 401(k) pension and profit plan| Company will match up to 50% on the first 6% of gross pay- after one year of participation | Continuing Education Stipend| 10750$ as approved| Dues and Licensures| XXX| EAP (Employee Assistance Program)| 5 sessions/yr|
Salary Monoroe davis has determined base salary for himself around $125000 per year. This is because according to the Exhibit 6 average base salary of 50% of HBS graduates in health sector is around 100000$ and the other 25% earns around $125000. Monroe opted to choose the highest salary in the offered in industry because the CEO has mentioned in one of his letters (reference to page no. 2 Para 2) that the higher the pay , the less room of error for him to commit. But more importantly Jim Hummer emphasized on taking risks in almost every letter.
In one of his letters Jim mentioned that “The great tragedy in life is not in setting our sights too high and missing, but in setting our goals too low succeeding” implying that Monroe needs to think and aim high. So to prove that Monroe is a risk taker, he opted for maximum rate Being a Harvard student Monroe has the skills to tackle the unprecedented challenges Also because the post of Director Business Operations is one of the top posts in the hierarchy of the organization therefore Monoroe has deiced to choose the best rate. Stock Options Monroe has chosen 10000 stocks as his stock option due to following reasons. . This is normal no. of stocks offered to incoming executives (reference page no. 2, Para no. 4). Monroe kept fairness in mind and he refrained from over evaluation and under evaluation. 2. Since issuing stock more than standard equity plan is somewhat difficult for the company to do so therefore Monore decided to purchase shares according to standard equity plan making it acceptable for both himself and the CEO to approve. 3. Monroe has refrained from purchasing the additional stocks because the issue of affordability as he has not even begins to work in the company. . As Monroe is young and in early stages of his career, his focus would be more on spending than saving or long term investment Therefore he would be less interested in purchasing stocks. Bonus(Based on Performance) Monroe has determined $62500 (half of his per year salary) as his performance bonus due to reasons as follows. 1. In most organizations a director’s performance bonus is based on half of the yearly salary. This statement is in reference to the structure of performance bonus in National Bank Of Pakistan which is a multinational bank. 2.
Monroe is confident that growing company like Whole Health Management would accept his proposal. Relocation Allowance The reasons behind Monroe of assigning 3600$ as his relocation allowance are: 1. The rent of an apartment in Cleave ranges from 800$ to 3000$(yahoo realestates). Monroe could have opted for a cheaper apartment but since he would be assuming the high post of Director Business Operation therefore he needs to maintain his status symbol. Therefore he has chosen the most expensive apartments in Cleveland and allocated $3000 to his relocation allowance. 2. The cost of a Business class air ticket (American Airways) is 600$.
Monore has chosen the Business class accommodations are because he wants to establish the high profile image of the company and himself (as director business operation). Continuing Education Stipend Monroe has allocated $10750 to continuing education stipend because of the following reason. * Harvard Business School offers executive programs every year. The executive programs of HBS are around 1000$. Being a Harvard student himself Monroe knows the importance of exposure he could get from the top business school in the world. So Monroe has decided to continue his learning experience from Harvard.