Category Archives: Business

Business management simulation exercise

Growing a business from a small company to a large corporation is not an easy task. It requires making many decisions from time to time. A business leader can be static and follow their plans through to the end. Alternatively, they could also be flexible and make decisions based on the situation. I would prefer the latter. The business environment is ever changing, and therefore business leaders should also have an open mind when making a decision. They should be dynamic in their decision. The world has become a global village courtesy of technology and globalization. This means that businesses are not only competing with their next door neighbors, but also with other businesses across the globe.

In our case study, the business was facing three challenges. These included;

  1. Competition from other companies from China and South America. As mentioned before competition has increased due to globalization. This means that businesses have to be good at what they do. Otherwise, they face being kicked out of the market.
  2. The business also lacked investment in technology. Each and every day there are new products being introduced into the market. These products can be used as leverage to your advantage or can kill your business. Every business needs always to find ways of improving their products and processes to remain competitive.
  • The business was also facing a challenge of poor quality in their deliverables. Their designs could not meet their unique customer requirements. Through research and development, this can be reduced.

To be able to remain competitive the business needed to make a decision on how to curb the three challenges. To do this, they needed to come up with a plan. Business planning is crucial as it sets a path of the next year’s goals and objectives. The company came up with three achievement goals. These include:

  1. Mine into the existing customer base for more repair jobs.
  2. Come up and deliver a CapEx plan for new equipment and tool requirements.
  • Reorganize the floor efficiencies so as to achieve economies of scale.

The business did not have well set out plans before. This could have contributed to the challenges it was facing. The junior management team had not had the privilege of planning before. This means that they are skeptical of changes, as everyone would be.

Any plan has to be communicated, and the information has to flow so that it can succeed. Hearing a plan from your supervisor makes you internalize it more. The way the message is passed could be a win or lose, all together. The more the channels that a message passes through, the more distorted it is. The charge hands are also skeptical of the new plans. First, as a division head, you need to ensure that they buy in, into the plan. They are key implementers of the plan and should not be left behind. As a hands-on leader, I would attend a meeting with each division to pass the plans. This would take a lot of time but, it would be worth it as it contributes highly to the success of the plan.

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Businesses do not operate in a vacuum. They also deal with other corporates. The king of relationship should be mutual to ensure that both parties are benefiting. Dealing with suppliers who are also your client can be tricky. In one hand you need them to deliver, and on the other hand, you don’t want to frustrate them as they will refuse to buy from you.  Big Dog Ltd needs to maintain Motorworks as their client and also as a supplier. This way the business will not lose business to competition. Motorworks should also supply on time. To solve this stalemate Big Dog needs to reach out to Motorworks and have a service guarantee agreement between the two companies. All legal implication to the contract needs to be looked into. This will enable us to get supplies in time and also to maintain one of our biggest customers.

To achieve efficiency and economies of scale, all equipment used by the business need to be operational and up to standard. The secondary blade housing from WatcherMo needs to be fixed or replaced. This could be the reason for the delays. Improving the housing is a good strategy; however, that is a long-term goal. In the short run, the secondary blade needs to be fixed.

Some industries e.g. manufacturing, require specific skills. Losing a staff to competition would mean that they leave with some of your secrets. They might not reveal to the new competition, but they will be working with knowledge on what you aim to achieve. Attracting top quality staff is critical to business.

Research and development is an important function in today`s business. Despite their crucial role, managing the department can be vague. On the one hand, you need to develop new products, on the other, you need to maintain and improve the current ones. As a division head, we would have two working structures for the R&D department. When the business is not straining with sales and suppliers, they will put 70% of their time in new technology and products and 30% improving the current ones. When the business is facing challenges e.g. now when there is a humidity challenge to our robots, they focus 70% on product improvement.

The bottom line of a business is to make sales. The sales and marketing department is charged with this responsibility. To improve sales, I would separate the sales and marketing division into three sections, the marketing division, sales deepening division and acquisition division. The marketing division would be charged with the authority to advertise, organize sales promotions, manage public relations and ensure the overall corporate image is maintained through branding. The sales deepening section would be primarily mining and managing portfolios of the current clients. This would add a personal touch to our clients and also have a contact person with us. The sales acquisition would be attracting new clients to the business. This model will ensure a seamless interaction with our clients. The sales team will also be compensated on a commission basis. The deepeners will be paid a commission of the additional business they generate from our current clients while acquirers will be paid a fraction of the revenue they bring onboard. This would create completion among the salespeople and also the energy and zeal to work. We would also provide them with a comprehensive medical cover and a transport allowance to go and meet their clients.

Technology is an important part to be added to business. This technology can either be inborn or bought from other businesses; speed is of the essence when making technology decisions. A bad decision or a missed opportunity could result in the closure of business. NewTech, a technology firm has just discovered a way to reduce humidity in mobots. No, any another business has come up with such an idea. Humidity is a challenge to mobots as it leads to breakdowns leading to repairs and maintenance regularly. I would buy the technology from NewTech before competitors did while we waited for two years for our R&D division to complete. This would mean that our mobots are competitive, require less maintenance hence fewer costs on repairs and maintenance. Our sales figures will eventually increase and gain more market share.

Mowco one of our biggest clients is requesting for a 10% price reduction on their sales. The business does not have a policy on sales cut. This would have to be thought of and implemented for the future. For the case of Mowco, a competitor analysis would be done. How much are our competitors charging and at how much would they charge Mowco in case approached. If there are chances of Mowco getting a better deal with competitors we would negotiate with the company for less reduction e.g. 6%, If we are competitive we would decline the request and maybe offer something else like an account manager to handle their issues.

The compensation structure for salesforce is very important to be discussed in a sober mood and to be structured in a strategic way. The compensation of salespeople acts as a motivator and also as a way of giving them a sense of belonging. No one in the organization would work without pay. They all have bills to pay.

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The best proven strategy for the compensation of salespeople is through  commission basis. If paid on commission the sales force drives itself and therefore needing less supervision and more sales. The more a salesperson sells the more money they make. The team also starts competing amongst themselves. Friendly competition amongst team members is good as it increases productivity.

The sales environment is very diverse and dynamic. It also comes with a lot of pressure to perform. Research has also shown that salespeople live for shorter spans as compared to other professionals. This is due to the risks they are exposed to doing their jobs. Taking all this into consideration it is important to have a robust, working medical scheme for salespeople.

With a management team in place, change the shop to increase production, agreement with our supplier I believe that the business will be back to profits mark. With the ongoing market analysis on pricing, change of compensation structure for salespeople and purchase of software from NewTech the business future looks bright.


This exercise has taught me many things. First of all, management is not easy. Every time you are at crossroads. Every team is pulling strings towards themselves. They want you to make a decision that is favorable to them. This could make them forget the importance and goals of the business.

Before the exercise, I did not have the clear picture of the magnitude of the decisions I will be required to make as a business leader. The exercise has opened up my mind on what to expect on the ground. Some decision will be easy to make as they are rational. Others will be hard as they will require hard lining.

Before the exercise, I thought that being a hard liner leader was good. However from the exercise I have learned that it is important to be flexible over time. This would mean making a decision based on circumstances but also focusing on the future.

A business leader should not only just focus on the current situation. They should also think about what the future holds and what they can do now to ensure their existence and profitability in future. The past should be used for analysis and based on that analysis business decisions can be made.

The weight of the decision you take as a leader is immense. A single decision can lead to the collapse of the business. An example is the NewTech decision. It is either you acquire the technology, incur the initial costs, or wait for your competitors to get hold of it and crash you. This exercise was really important and educative.

==> Read on the Top 5 of The Best Accounting and Finance Textbooks 


Clemen, R. T., & Reilly, T. (2013). Making Hard Decisions with DecisionTools. Cengage Learning.

Hammond, J., Keeney, R., & Raiffa, H. (2015). Smart choices: A practical guide to making better decisions. Harvard Business Review Press.

Mullins, J., Walker, O. C., & Boyd Jr, H. W. (2012). Marketing management: A strategic decision-making approach. McGraw-Hill Higher Education.








Benefits and detractors of credit risk


The objective of this research is to examine the control of credit risk threat in financial institutions. Credit risk control in financial institutions starts with the organization of sound lending principles and an efficient structure for handling threats (Jorion, 1997). Guidelines, industry-specific requirements and recommendations, together with risk focus boundaries are designed under the guidance of risk control committees and departments (Bluhm, Overbeck & Wagner, 2016).

Credit risk, also known as counterparty threat is the possibility of loss due to a debtor’s non-repayment of a loan or other history of credits (either the principal or interest (coupon) or even both). Also, credit risk threat is most simply defined as the potential that a financial loan client or counterparty won’t succeed to meet their responsibilities with respect to agreed terms.

In most financial institutions, financial loans are the biggest and most obvious source of credit rating threat. However, other sources of credit risk exist throughout other sections and products of a bank. They consist of actions in the financial and trading books, and those both on and off the balance sheet. Banks are progressively experiencing credit risk threat or counterparty threat in various financial instruments they offer other than financial loans. These consist of bankers’ acceptances, interbank dealings, trade financing, forex trading dealings, economical futures trading, trades, ties, stocks, options and the agreement of transactions.

Credit risk research (finance risk research, loan default rate analysis) and credit risk control are important to banks which provide economical loans to businesses and individuals. Credit risk can occur for various reasons: bank mortgages (or home loans), automobile purchase economical situation, credit card buys, installment purchases, and so on. Credit loans and trading facilities are situations that have the danger of leading to losses due to defaults. To know the danger level of credit users, credit providers normally collect large amount of information on debtors. Mathematical techniques can be used to analyze or determine threat stages involved in credits, economic situations, and economical loans, thus standard threat stages. While banks have faced prolems over the years for a multitude of factors, the major cause of serious banking problems continues to be proportional to lax credit standards for debtors and counterparties, poor portfolio threat control, lack of attention to changes in economic factors (interest prices, inflation prices, etc.)

In modern times, the flow of credit in global marketplaces has slowed from a glacial pace to a virtual standstill and credit marketplaces threaten to stay that way despite immense amounts of cash being pumped into various economies by their government authorities and central banks around the world. Credit risk is a problem faced by economical institutions all over the entire world and the question mostly asked is “what will it take for financial institutions to regain enough confidence in the economic climate to get credit score marketplaces moving again?”


Both policymakers and writers have placed significant fault for the Panic of 2008 – the international economic trouble that achieved full strength in that year – on over-the-counter (“OTC”) derivatives (Gerding, 2009). In turn, legal and policy reactions to the problems, such as the Dodd-Frank Act, have presented many new limitations on these particular economical equipments. Among other things, the Dodd-Frank Act prevents future government relief of certain organizations that trade in derivatives, requires the main cleaning of many derivatives, and allows government authorities to set new security specifications for types that are excused from those main cleaning specifications (Gerding, 2009).

Yet, a research of both the role of types in the economic problems and the new rules regulating derivatives, must avoid artwork with too wide concepts. Several misunderstandings endanger to mix up both the most serious threats resulting from derivatives and the regulating reaction. A certain varieties of derivatives – especially credit score types – cause particular concerns because of their ability to increase make use of throughout the economic system. Credit derivatives  are a form of mixture, whose value is based on the money risk of another firm or economical instrument (Omarova, 2009) . However, the full economic consequences of the higher make use of from credit score types are often themselves not fully fleshed out. Many commentators have focused on how improved make use of, whether arising from credit score types or otherwise, magnifies the frailty of banking organizations. To be sure, excessively utilized banking organizations represent an important concern.

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Moreover, by linking one standard bank to another, credit score derivatives can increase counterparty threat, or the threat of one party to economical transaction defaulting on its obligations. The web created by banking organizations entering into complex credit score derivatives with one another in series raises the specter of utilized organizations falling like dominoes (Huang & Huang, 2012). The potential incidents of failing banks and other economical firms represents one form of system threat. It was this scenario that apparently animated the extraordinary federal bailout of the insurance giant AIG, which had underwritten hundreds of billions of dollars in credit score derivatives that proved assures to other large banking organizations. The emerging failure of the firm left a myriad of other banking organizations with enormous exposure (Posner, 2009).

Yet this potential domino effect of counterparty risk is but one side of the coin of the consequences of credit score derivatives and their ability to lead to leverage. What the above research, however briefly summarized, fails to capture are the macroeconomic results of credit score derivatives. Writers need to aim to move beyond the research into the counterparty risk of derivatives to explore these macroeconomic results. By allowing banking organizations – those organizations that borrow to lend – to enhance make use of, credit score derivatives can operate to boost the overall amount of assets in markets. This increase in assets can be thought of as helping the overall supply of money in a market, which can have a number of significant economic effects (Posner, 2009). By improving leverage and assets, credit score derivatives can fuel rises in resource costs and even bubbles. Rising resource costs can then mask mistakes in pricing credit score derivatives and in assessing the risk of make use of in the economical state. Furthermore, the use of credit score derivatives by banking institutions can contribute to a cycle of leveraging and deleveraging in the economy.

Advantages of credit risk

Many types of credit rating threats exist, which sometimes are known as in specific terminology. Any improvement in costs associated with a client not paying as decided can be loosely classified as credit rating threat. For example, even if credit cards customer does end up not paying his bill, if the lender has to make selection calls or resort to a selection agency, this increment on price is a version of credit risk. More specifically, “default risk” is the danger that the celebration does not and cannot pay as decided (over and above a simple increment in selection cost) and is sometimes generally known as “counter-party threat.” When the client is a government, credit rating threat is often generally known as “sovereign threat.”

Companies, government authorities and all types of lenders take part in credit ranking research to determine to what level they face credit ranking risk associated with their investment strategies. In with a weight of the pros and cons for making a certain type of investment, firms utilize in-house applications to recommend on reducing and preventing threat (or shifting it elsewhere) or use third party help, like analyzing ranking agencies’ estimates of credit reliability from companies like Standard & Poor’s, Moody’s, Fitch Scores and others. After banks using their models and the advice of others to position customers according to the threat, they apply this knowledge to reduce credit ranking threat.

Creditors use a variety of means to lessen and control credit score threat. One way lenders decrease credit score threat is by using “risk-based pricing,” in which lenders charge higher rates to debtors with more perceived credit score threat. Another way is with “agreements,” whereby lenders apply stipulations to credit, such as debtors must periodically report on their finances, or such that debtors must repay the financing in full after certain events (like changes in the customer’s debt-to-equity ratio or other financial debt ratios). Another method is diversification, which can decrease credit score threat to lenders as well as a diversified client pool is less likely to standard simultaneously, leaving the creditor without hope of recovery. Besides these, many companies utilize credit score insurance or credit score derivatives, such as “credit standard swaps,” in an attempt to transfer threat to other companies.

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In this report we have been able to define credit risk that is faced by financial institutions. These are threats whereby the bank clients can either default in the financial obligations to the bank or the bank having to incur additional costs so as to recover from the client. Credit derivatives have also been looked at. Their effect on interest rates has also been expounded on. Credit risk has also its own advantages. Financial institutions that embrace it and put in place strict strategies to contain it will be prosperous.


Bluhm, C., Overbeck, L., & Wagner, C. (2016). Introduction to credit risk modeling. Crc Press.

Gerding, E. F. (2009). Deregulation pas de deux: Dual regulatory classes of financial institutions and the path to financial crisis in Sweden and the United States. NEXUS, 15, 135.


Huang, J. Z., & Huang, M. (2012). How much of the corporate-treasury yield spread is due to credit risk?. Review of Asset Pricing Studies, 2(2), 153-202.


Jorion, P. (1997). Value at risk (pp. 1-4). McGraw-Hill, New York


Omarova, S. T. (2009). The Quiet Metamorphosis: How Derivatives Changed the’Business of Banking’. University Miami Law Review, 63, 1041.

Posner, R. A. (2009). A failure of capitalism: The crisis of’08 and the descent into depression. Harvard University Press


Performance Management system

Growth and development analysis of a human being

It has been written previously that one is born with their traits. Writers have also indicated that traits are passed from one generation to another. I however believe this to be untrue. There are those traits that one is born with and those that one learns as they grow up.

We cannot take for granted the interactions one has with other human beings and nature. This has a way of changing us. The way we think and believe is highly contributed by the people we interact with and our backgrounds. In this paper we will discuss how I grew up to procrastinate and also a perfectionist. I believe I grew into this.

I push myself and others to do a perfect task and at the same time do the hard tasks the last minute.

Procrastination is evading the performance of a job which needs to be achieved. It is doing the more enjoyable tasks first, or doing those tasks that are less urgent as a substitute to more vital ones. This means that one puts off the difficult tasks first. Everyone has been accused of procrastinating at one point or another. However, more than 20 % of the population is said to procrastinate frequently. Procrastination can be defined as their way of life.

Performance management his highly done, in line with the goals and objectives of the organisation while at the same time ensuring that the strengths and weaknesses of employees have been established.  Meeting business goals and objectives is the essential reason for there being any organisation.

For this to be achieved there needs to be periodical measurements of the progress towards achieving these goals and objectives. The goals and objectives of the organisation need to have been communicated to all employees so that the company can soldier on as one team.  After this communication has been done, the achievement of these objectives needs to be measured appraised and relevant actions taken from time to time. The performance management process is part of the entire business since its inception till the day that it closes business.

Procrastination is said to reflect our struggle with self-discipline and control. It also shows our inability to predict our feelings for the next day. To critic this statement and belief I would say that procrastinators are good at making choices and prefer lesser demanding tasks as compared to the difficult tasks. Critics can also be quoted saying that procrastinators claim that they achieve better results when under pressure. More often than not that’s the way procrastinators qualify tasks and then work towards achieving them.

Personally, I have in many occasions preferred to avoid negative emotions so as to delay stressful tasks. So as to achieve more with limited I prefer doing the difficult tasks under pressure. This has enabled me to save time over the years.

Psychologists have cited such abehavior as a way of dealing with anxiety that is associated with finishing a task. Anxiety can get you to start working on a task either early or late (Steel, 2010). The focus should therefore be more of impulsiveness. Anxiety can only cause you to late on a task if it is impulsive.




==> Accounting Issues Raised After Financial Analysis


Steel, P. (2010). The procrastination equation: How to stop putting things off and start getting stuff done. Random House Canada.



Company evaluation

Mission and Vision Evaluation

Remember to search for a mission and vision statement then evaluate them (running the mission statement through the mission-statement components.  If you cannot find either or both, so note in this report section, and write one for the company.

This part Includes a:

  • Vision Statement
  • Mission Statement
  • List Mission Statement Evaluation Components that are satisfied
  • Rationale for the components included as well as excluded.

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Begin with a concise company profile followed by 5-10 company milestones.  Synthesize the company’s uniqueness and identity.  For example, a fun, employee-centered culture or low-cost, no-frills strategy uniquely identifies Southwest Airlines.

External Assessment

Insert your completed EFE Matrix.  Discuss the high score factors and interpret the overall score for your reader.

Your final paper will include:

·         An External Factor Evaluation (EFE) Matrix .


o    Why is this environmental factor key?

o    Why does the factor carry this much weight?

o    Why you rated the factor as you did?

·         How should management interpret the total weighted score?

How to do an External Assessment

After reading the case, first scan the environment. Use the following steps:

1.    List key external factors (opportunities and threats). These factors apply to all firms in the industry, not just this company. Any firm could potentially take advantage of an opportunity or be challenged by a threat because these factors are in the external environment. Include a total of 10-20 factors. Be as specific as possible.

2.    Assign a weight to each factor that ranges from 0.0 (not important) to 1.0 (very important). The weight indicates the relative importance of that factor to being successful in the industry. The sum the weights of all factors (for both opportunities and threats combined) must equal 1.0.

3.    This is the step at which the company (revlon) enters the picture. Assign a rating between 1 and 4 to each factor to indicate how effectively the firm’s current strategies respond to the factor, where 4=the response is superior, 3=the response is above average,2=the response is average, and 1=the response is poor. Ratings are based on effectiveness of the firm’s (revlon.) strategies. Ratings are company-based, whereas the weights in Step 2 are industry-based. Both threats and opportunities can receive a 1, 2, 3, or 4.

4.    Multiply each factor’s weight by its rating to determine a weighted score.

5.    Sum the weighted scores for each variable to determine the total weighted score for the organization(Revlon)

Internal Assessment

Insert your completed IFE Matrix.  Discuss the high score factors and interpret the overall score for your reader.  Use financial ratios for internal factors too, if applicable. (For example, if the company has a low inventory turnover ratio, this could be a weakness in the IFE Matrix.) See the link below under “Appendix” to help you preliminarily examine the financial ratios.

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SWOT Analysis

Summarize the key strengths, weaknesses, opportunities and threats.  Also, consider how well your company is managing both environments. This section serves as a conclusion to Case 1. Simply summarize the key strengths, weaknesses, opportunities, and threats that were prominent in your EFE and IFE matrices. This is not a SWOT Matrix, which is a matching technique. Matching techniques (e.g., the SWOT Matrix) are part of Case 2. 




Apple Inc. Verses Microsoft Inc Financial analysis – 2014 & 2015

  1. Will Apple be able to meet its obligations as they become due? How does Apples liquidity compare with that of Microsoft? 

Liquidity ratios are used to measure a company’s ability to pay off its short-term debt obligations. This is achieved by comparing a company’s most liquid assets (or, those that can be easily converted to cash), and its short-term liabilities.

2014 1.08 2.5   0.67:1 0.6777:1
2015 1.11 2.5   0.725:1 0.53:1


A current ratio below 1 suggests that the company is unable to pay off its obligations if they came due at that point. This situation does not necessarily mean that it will go bankrupt. On the other hand, a current ratio (over 3) does not necessarily indicate that a company is in a state of financial well-being either. This depends on how its assets are allocated. A high cash ratio could also indicate that company is not using its current assets efficiently, is not securing financing well or is not managing its working capital well. Using Current ration Apple will be able to meet its short term obligations.

The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. This ratio measures the dollar amount of liquid assets equivalent for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company’s liquidity position. As per this ratio both companies do not show strength however as discussed under current ratio this should not raise an alarm. Apples liquidity seems to be becoming stronger as compared to Microsoft which is diminishing.

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  1. What is the capital structure of Apple (i.e., what percentage of the total assets of the company are financed through liabilities and what percentage through stockholders’ equity)?

A capital structure is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
As at 2015 41% of Apples assets were financed by shareholders equity while 59% was funded through liabilities.

  1. 3. Is the capital structure of Microsoft significantly different from that of Apple?  Explain your answer.

As per the above, Applesuse of shareholders equity to total assets has been on a downward trend. That of Microsoft has also been on the same path but not drastic as that of Apple. To drive deeper into this lets see how their debt to income ratios look like.

DTI is a measure that compares an individual’s/business debt payment to its overall income. A low debt-to-income ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual/business has too much debt for the amount of income he or she has.

2014 1.08 0.92
2015 1.43 1.2

DTI ratio also paints the same picture as shown by the above percentages. Both companies seem to have borrowed a lot as they move to 2015. This has led to decrease in shareholders equity in both. Both companies have a similar capital structur


Accounting Issues Raised After Financial Analysis

Dear Sir/Madam,

RE: Accounting Issues –  Year Ending 30th June 2016.

This is in reply to your email sent on 18th April 2016 in regard to accounting issues we had previously discussed over the phone. Below is our feedback on all the issues that you had raised:

  1. In regards to the issue of the court decision to reward damages to your client held on 26th March 2016 we would advise that you set aside funds amounting to $1 million in your general reserves account for use upon the verdict expected on 30th September 2016. Below are the journal entries to record this transaction. The same also needs to reflect on the statement of financial position.
PROFIT and LOSS A/C 1,000,000

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  1. In the case of Ipad sales we would advise that you treat the sales as debtors less the discounted amount. This is to reflect in the financial reports. You also said that the total amount owed is $ 250,000. This is to treated as accounts receivables less the discounted amount. Below are the journal entries to be recorded in your books.
Account receivables            232,500.00
Discount allowed               17,500.00
Stock        250,000.00
TOTAL            250,000.00        250,000.00


Plant A/c
 Cash      76,000.00
 Accumulated depreciation      25,000.00
 Plant      85,000.00
 Gain on sale of plant      16,000.00
   101,000.00    101,000.00


Your adjusted statements are as below.


A statement of cash flow is prepared to show cash flow from operation and cash flow activities. This report shows changes in financial positions leading from operational activities, investing activities and financial activities. This information can then be used by an analyst to make a conclusion.

A statement of cash flow also assists in making cash forecasts. This is then used in internal management to determine management policies especially those touching in finances. The report is also credited for resulting in cash planning.

Through the preparation of cash flow statements, a business can compare the performance of projects. By comparing the actual cash flows against expected cash flow, a business can know how the project is fairing. An income statement measures a company`s performance financially eg by expenses, revenue, profits or losses over a specified period of time. This therefore means that both financial reports have their importance.



AASB, A. S. (2004). Financial Instruments: Disclosure and Presentation.Disclosure51, 52.


Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics32(1), 237-333.


Lev, B., & Zarowin, P. (1999). The Boundaries of Financial Reporting and How to Extend Them (Digest Summary). Journal of Accounting research,37(2), 353-385.


Yours Faithfully




Outsourcing and Migrating from GAAP to IFRS


Outsourcing is the practice of using other companies to reduce your costs and transfer portions or the whole job to another supplier rather than doing it yourself. When used properly, outsourcing can be a good cost-cutting strategy. It is sometimes cheaper and more affordable to purchase a product from a company than having to produce it yourself. This is because the company producing it has acquired the important economies of scale in production.

Outsourcing comes with both pros and cons. The major disadvantage of outsourcing especially when outsourcing payroll is data confidentiality. A small leak by an employee of the outsourcing company could lead to court battles, negative reputation to your business. Some key corporate secret, salary, will be shared with a third party. This if not well handled could result in a disaster.

Outsourcing payroll could be cheaper to handle it internally. Most corporates which offer these services could be expensive since they use very complicated software that is expensive to acquire. Another complication of outsourcing payroll is that you could be using the same company with your competitors. This would lead to a conflict of interest. You could have a competitor requiring the information of your staffs and get it because the company does not want to lose business to the competitor. Dealing with employee complaints on salary-related issues would also be a concern. A staff that has been under or over paid will have to go through their supervisor who then lodges a complaint with the personnel department, then to the outsourced company. This would take time, which is not good especially considering that we are dealing with salaries, which is a very emotional issue. Staff currently handling the payroll function might have to be let go. This portrays an image of a possibly a struggling company.


To fully outsource a several payroll issues need to be addressed. If not well dealt with the whole process could be flawed with complaints and other issues. One of the issues to be dealt with is the choice of company. Competitive bidding needs to be done. The best company not only in pricing but also in controls and efficiency is to be chosen for the job.

Data confidentiality needs to be well addressed. The company given the contracts needs to demonstrate without reasonable doubt that its able to keep the company`s information securely. Performance agreements need to be signed in consultation with the legal team. Information should not be stored in transferable discs, e.g. Flash disk, CDs, etc. Consequences of a proven leak need to be agreed on at the beginning.

The process flows of how the transfer will need to be laid out. A direct injection plan or a piloting plan needs to be agreed on. This will ensure an easy transition from the previous system to the new system.

 Migrating from GAAP to IFRS

            IFRS is a principle based system while GAAP is a rule-based system. A principle-based system is favorable to businesses as it is flexible when compared with a rule-based system that is rigid. IFRS also offers more disclosures due to its flexibility. More disclosures are important to readers of financial analysis reports. Getting International Standards approval requires you to implement IFRS. ISO certification is crucial for businesses as it increases their credibility.

IFRS recognizes loss immediately unlike what happens with GAAP. Loss being reported immediately is advantageous to not the investors but also lenders and other stakeholders like suppliers. The sooner they can get this information the better.  This reveals the transparency that is in IFRS and not in GAAP. Contracting between companies and their management becomes easy, this also ensures effective corporate governance.

The convergence of IFRS has also made it easy to compare financial statements in many parts of the world. In the EU for example many companies adopted IFRS the same year it was introduced. With this kind of adoption businesses need to all now ensure they are on IFRS. The key reason for the preparation of key financial reports is for comparison purposes. It doesn’t make any sense to prepare statements that only you can compare with yourself.

Do you know that debt has some advantages?

==> Learn more HERE on advantages of debt

Users of IFRS need to understand the methodology used to generate reports. Under GAAP emphasis is on literature provided. Documentation is the key issue. IFRS is more flexible and even where documentation does not tally facts pattern are analyzed, and a decision is made. To implement IFRS is short and precise. It takes a minimum of one year to be fully setup. To use IFRS we would use direct key as the implementation plan.



Du, N., Alford, R. M., & Smith, P. L. (2016). Do GAAP And IFRS Differ In Collectiblity Judgments Related To Revenue Recognition?. Journal of Applied Business Research (JABR), 32(6), 1675-1686.

Giloz-Ran, E., Gavious, I., & Lev, B. (2014). The Positive Externalities of IFRS: Enhanced R&D Disclosure.


Effectiveness of variable pay and insurance cover benefit in leveraging human capital.


This research delves into an assessment of the application of variable pay form of compensation and insurance cover as a benefit offered to employees within the firm. The research seeks to determine the various ways that an organization may fulfil its core aim of generating and building value through the employees who represent the human capital within the firm.

Organizations adopt various compensation and benefits approaches to reward and motivate their employees. The diverse options available for compensation and benefits may be adopted by different organizations based on the approach that maximizes value; both to the employees and to the firm. However, compensation and benefits mostly have a financial implication which again implies that the firm`s financial capacity is an essential consideration while deciding what compensation and benefits approaches to adopt.

Through analysis of the existing scholarly and theory work in existence, the effectiveness of variable pay and insurance cover benefit in leveraging human capital value as a contemporary issue in human resource management will be ascertained.

The existing limitations of variable pay and insurance cover benefit will also be analyzed in pursuit of determining the effectiveness of the options in leveraging the value of human capital within the firm. Recommendations will then be availed based on the findings and a conclusion will be drawn at the end of the research.


Organizations comprise of a valuable resource that helps all other non-human resources acquire relevance in functionality. This is the human capital resource. It therefore implies that the human capital resource within the firm is highly sensitive and the firm ought to accord it adequate attention to achieve operational value.

Compensation and benefits are part of the sensitive aspects of human capital engagement that determine the productivity derived. According to Merriman and Deckop (2007), organizations are only able to achieve the set objectives by ensuring that the human capital is not only adequately skilled but also consistently motivated to enhance productivity. There are various ways that the human capital productivity can be enhanced and a fair compensation and benefits package is one of them.

There are diverse compensation and benefits packages that a firm may adopt based on which one suits its specific values and financial capacity. The primary function of the organizational is to maximize value through optimal utilization of all the resources available to a firm; which include the human capital.

The organization considers the issue of human capital management among the top strategic management concerns. Kramar, Murthy and Guthrie (2011) point out that human capital is a measure of education, skills, capacity and work characteristics that affect the company`s production potential and earning capacity.

The human capital therefore should be considered highly sensitive to the firm`s performance. Being human implies that the organization engages in several actions and measures intended to ensure that there is high motivation to deliver, build even greater skills capacity and ability to perform.

The human capital resource in the firm also implies that the organization incurs a high cost in maintaining it. Therefore, the organization ought to ensure that maximum leverage is sought so as to reap the highest value possible. According to Madhani (2011), to leverage a resource implies to achieve an increase in resource productivity.

In other words, an organization gets the specific resource to generate maximum value during its use or application. Firms are consistently pursuant to find effective ways of leveraging the human capital in the firm. One of the modern ways sought by firms and which scholars have presented different opinions over is the use of variable pay and extending insurance cover on the employees.

Employee Compensation

Madhani (2014) indicates that employee compensation is a systematic method of delivering monetary reward to workers in exchange for the labor applied in the organization. Compensation can achieve different objectives regarding recruitment, professional services, and job satisfaction. Compensation is a tool employed by the administration for various purposes to support the existence of an organization.

Compensation can be accustomed according to the needs, objectives and available resources of the company. Additionally, compensation can be used to: attract and retain skilled employees, increase or uphold morale or fulfillment, reward and inspire maximum productivity, attain internal and external capital and encourage loyalty to business and the practice of trade unions.

For workers, there are two forms of compensation; direct and indirect. Direct forms of compensation have variant approaches: from salaries to bonuses. Indirect compensation is fundamentally the different types of long-term benefits and incentives.

One form of compensation is direct compensation for the services provided by the worker. The term used for this is the salary. It comprises four different payment groups from the employer to the employee. These are wages, hours, commissions and bonuses (Palos & Stancovici, 2016).

Rhodes and Pullen (2010) point out that salary is a type of wage, usually a fixed amount of payment during a specified period. The most traditional form is the dollar value for a year. The payment frequency is the other part of the compensation and is based on industry standards. Most companies make payment for services done twice a month.

The salary is the most common tool utilized to pay professional or licensed workers. The employer expects the employee to comply with the long-term obligations to ensure regular and continuous compensation through payment. Once the compensation is based on the volume or in specific forms of performance, it is called compensation based on commission.

Additional terms utilized consist of piecemeal or piecework. Various industries have used this kind of compensation to achieve a maximum level of production in exchange for compensation. Bonuses are used to improve employee productivity. It is a variable type of payment and most often meets with hired employees to motivate them to achieve a specific goals, be it in time or volume.

Compensation is considered fair if it is developed using a system of components that includes job descriptions, job reviews, assessments and compensation structures.

Ensuring the inclusion of these elements in the definition of compensation plans is essential for the maintenance of internal and external capital balance. If the pay of the company’s employees is fair, it can be a useful tool that will help to get and retain talent, improve worker’s morale and reward or inspire high productivity (Madhani, 2014). Employees expect fair compensation.

If the company does not offer compensation that current and potential employees or federal and state governments consider “fair,” the company may find itself in a difficult situation. It is in the company’s interest to ensure compliance with federal and local fair compensation standards. Thus, the company has to stay actively in the know and review the compensation data of the employees (Palos & Stancovici, 2016).

Luo and Donaldsen (2013) argue that companies base their compensation on some factors. Certain corporations pay more attention to these factors than others, but nearly all businesses use a type of analysis to determine the compensation scale. These factors are market studies on the cost of similar jobs in the market, where many companies conduct official wage surveys that can help them decide on the level of labor in the market.

Secondly, the contribution and achievements of employees, in which companies identify the difference as the employee contributes to the business, differentiating the salary with higher efficiency. Thirdly, the presence of employees with similar skills on the market is also considered.

Also, there is the employer’s desire to invite and retain a particular employee, where companies recognize the differences in the contribution of employees to the company through the differentiation of wages. The last determining factor is the profitability of companies or funds available in the public or non-profit sector and previous wages (Tushman, Lakhani, & Lifshitz-Assaf, 2012).

Employee Benefits

Employee benefits, at times called fridge benefits, are secondary forms of compensation offered to employees in the context of employment relationships. To contend with quality employees in the current market, employers have to do more than just “fair pay.”  Employees also need a good set of benefits. Indeed, employees are used to generous benefit programs and wait for them (Putnam, 2015).

Ncube, Bussin and De Swardt  (2013) claim that there are many benefits for employees, like paid Time-Off (PTO), many types of insurance ( for example, life, dental, medical and disability), involvement in a pension plan or access to a car from the company, among others. Particular benefits are mandatory, which are governed by the government while others are willingly offered to meet the needs of particular populations. Benefit plans are not provided in cash but constitute the basis of a worker’s income with a basic salary and bonus.

Nergaard et al. (2009) argue that in an organization, benefit plans for “qualified” employees must be available to all employees and non-qualified benefit plans may be available for the employees for the selected group, for example for managers or other high salaried employees.

While applying the benefit plan, human resources departments must guarantee agreement with federal and state regulations. Several states and countries introduce various minimum benefits, such as the minimum paid license, the employer’s contribution to the pension, the payment of sickness benefits and others.

Several factors determine the social benefits available to employees. The organization must see the benefits in the employee’s overall compensation. Although this is an indirect form of compensation, it is also an essential part of the negotiations and is analyzed as part of the salary for employee services. Benefits comprise health insurance, employee services, and pensions. Some benefits, such as compensation to employees, are mandatory, and others like bonuses are optional (Gillman & Kejak, 2014).

According to Arrowsmith et al. (2010), the company must understand the budget, the legal system and its competitors to make informed decisions about the benefits. The firm ought to establish which benefits the competitors are offering their workers and think about what they can do to compete.

Small businesses may not be able to provide a benefits package or as a large company, but they can provide a “welcoming” workplace instead of increasing job satisfaction. If possible, involve their employees in the decision to add benefits and let the employees know what the company is worth.


Variable pay and Insurance Cover Benefit

The variable pay is the compensation of the employees which varies according to the employees` input against a known scale during the year. Variable compensation is used to recognize and reward worker contributions for security, productivity, teamwork, quality or any other action that, in the opinion of senior management, plays an important role.

The employee who receives variable compensation goes beyond the job description to promote the success of the organization. Variable pay is provided in several ways, including the distribution of benefits, deferred compensation, bonus, holiday bonuses, cash and goods, and services, for example, business travel paid by the company.

Variable payment is an employee’s anticipated benefit if the company retains employees (Dolai, 2015). They want to be able to receive variable compensation to reinforce the basic salary. Besides, today’s employees are more dedicated to perform beyond their job descriptions once engaged within a motivating work environment.

A company, even a global company, is not enough to provide the same benefits common to all the employees it engages. Nowadays, employees expect multiple benefit packages tailored to their requirements and not just broad demographics. Nevertheless, personalization of benefits begins with employers who understand what their employees appreciate and need. In other words, the benefits are as valuable as all employees.

Therefore, the higher the variety and flexibility of benefit programs, the higher the likelihood that employees will feel valued and so will their productivity increase leading to greater value to the organization.

Variable pay has been termed as a reliable and effective compensation approach in organizations as beyond the basic salary, it causes the employees to get highly motivated to deliver extra ordinary results past their job description knowing very well that there is compensation due for that.

In essence, this generates value for the organization that is able to achieve higher level of productivity while still compensating the employee adequately and competitively. Variable pay has also been perceived as a strategic way of guaranteed performance-based compensation for the employees. The scale of compensation due to an employee is guided by how much output can be attributed to the employees` efforts.

It is also highly personalized as each employee`s productivity is weighed on the adopted scale. This makes variable pay highly economical to the organization yet value-inspired compensation approach.

Hearthfield S. (2017) availed an insight into how an organization can provide benefits that excite and retain employees. Variable pay in this case has been presented as a reward system that has been perceived by employees as motivational. The employees subjected to variable pay often assume the obligation of performing beyond their job description aware that all extra effort immersed at work would be rewarded accordingly.

As Hearthfield indicates, variable pay may take various forms such as profit sharing, cash or kind compensation, bonuses, holiday bonuses and other incentives based on the firm`s capacity. Variable pay is observed as a recent strategic move for firms seeking to achieve dynamism in the compensation and benefits area of human resource.

However, a firm does not only seek to raise the employeesmorale without an objective. The intention is to increase the employees productivity and retention which in turn generates value to the firm. However, to avoid conflicts and cases of misunderstanding, the firm needs to have the criteria of variable pay well explained to the workforce. The employees need to know upfront how they earn the variable pay and in what form; cash or kind.


Otaye L., et al (2016) presented a research on the approaches to developing and leveraging human capital resource in a firm. Compensation and benefits are presented as an effective approach in enhancing the productivity and motivation of the human capital resource within the firm. As a contemporary issue, Otaye considers benefits as motivational only when they have a perceived value on the employee.

The firm therefore ought to first find out what set of benefits are perceived as valuable by the employees. Insurance cover especially in life and health emerge as highly valued among most employees in firms. A firm that seeks to enhance the human capital productivity through insurance benefit should therefore seek to avail the health and life insurance covers.

It is the perceived value on the employeesend that determines how effective the applied benefit is in helping achieve the organizations objective in adopting it. It is further noted that the ability to avail adequate and relevant insurance cover to employees as part of the benefit reward requires that the firm`s financial position be vibrant and sustainable.

Regarding benefits, (Kramar, Murthy & Guthrie, 2011) have asserted that employee present a preference of packages that make significant impact on their lives. An organization that seeks to meet employeesneeds and expectations therefore has to adopt a benefit system that comprises of items of value to the employees. This essentially causes the employees to feel motivated to work and deliver value to the organization in return. Insurance cover which has a broad spectrum of considerations has become a core aspect of concern for employees on the benefits preference.

As the environment presents various risks and needs such as health, accidents, education needs among others, employees have a preference for organizations that offer insurance in these areas of their lives. It is actually regarded as a personalized service when an employee can actually access healthcare, education and other amenities under an insurance cover. (Otaye, 2016).

Notably, the various areas of life covered by the insurance covers are highly sensitive. An example is a health cover that offsets the employeesobligation to settle their hospital bills. In the presence of the long term ailments that may end up draining the employees finances; it remains a highly valued benefit when the organization caters for that through paid insurance cover.

Therefore, according to Heathfield (2017), past the adequate compensation through variable pay, insurance cover benefit happens to be a highly valued employment benefit.

Organizations seeking to leverage on the human capital resource cannot therefore overlook the impact of variable pay and insurance cover within the compensation and benefits component. It remains an effective motivation and employee retention strategy to provide compensation and benefit packages that appeal and deliver value to the employees.

The organization-human capital interaction is value-inspired. This implies that both parties have perceived obligations and expectations that are inclined towards value. The only way for the organization to leverage on human capital resource would be delivering value within their expectations.

Van Es Q. (2016) availed a review of contemporary issues in employee compensation and benefits in a firm. According to Van Es, there is increased differentiation in compensation approaches. Organizations are embracing the more dynamic compensation approaches that yield value both for the employees and to the organization.

Performance related pay, which is basically variable pay seems to be gaining popularity in application within firms as firms seek to enhance productivity of the human capital. Under the variable pay approach, there are organizations that have observed employees go beyond their job description in pursuit of earning the variable pay.

As thus, employees also have greater expectations from the organizations regarding their input and effort in work. It has also been found to be an effective talent attraction and retention strategy by organization as it also calls for employee skills development and upgrade to remain productive and relevant.

With high level of competitiveness among firms, rising operational costs and the need to maintain a consistent rise in the value of the firm, there is need to have a vibrant and value-generating benefits and compensation plan. The current market trends require that a firm adopts value-maximizing strategies in nearly all its functional areas.

The human resource function that is responsible for adopting and implementing the compensation and benefits plan has a role in the value maximization on the available human capital resource in the organization. Heathfield (2017). Additionally, the ability to adopt a compensation and benefits plan that enhances the productivity and motivation of the workforce has direct implication on the ultimate value of the firm.

Leveraging the human capital resource therefore implies that the organization is able to adopt strategies that enhance workforce productivity and retain them for long periods. Compensation and benefit aspect is highly sensitive to the productivity on employees. An effective compensation and benefits strategy would therefore be an effective tool in leveraging the human capital resource in an organization.

A similar principle applies to the employees who have to invest in generating value to the organization in order to enhance the continued value as derived. The balance and value maximization for both parties can only be enhanced by ensuring that the organization maintains a highly motivated human capital on all possible fronts. One core strategy to achieve this is through effective compensation and benefits plan such as variable pay and insurance cover. On the other hand, organizational value is enhanced when the employees are highly motivated to perform.

Limitations of Variable Pay and Insurance Cover Benefit

Although variable pay and insurance cover have been presented as effective leveraging tools that firms can adopt to maximize value of the available human capital, there are a few observed limitations over their application and adoption. However, as every strategy in an organization presents both pros and cons; the weight of either determines if it remains an applicable strategy for an organization.

Financial Constraint

Insurance covers are diverse in context and applying premiums. Essentially, a company that decides to adopt the diverse insurance cover to its employees as part of the benefits package ought to have an adequate financial base to cater for the expense.

Insurance premiums are paid annually and insurance cover benefit for the employees introduces a cost item to the existing budget. As Otaye (2016) points out, a firm that is not operating in high profit margins, the insurance cover benefit may greatly stress the financial status which may subsequently lead to greater financial struggles that affect overall performance. Again, if the firm does not have sustainable high profit margins that can absorb the extra cost of the insurance premiums, then the benefit would be unsustainable.

The impact of unsustainable benefits is that they create uncertainty in the employees which subsequently contributes to poor employee performance. With poorly motivated employees, an organization would not be strategically positioned to leverage on the human capital. The insurance cover benefit can only be availed by a firm that records high profitability and with adequate financial muscle to sustain the benefit in the long term.


Non-quantifiable work

The variable pay compensation approach though motivating to the employees receiving it poses a great challenge in quantifying the work done. Variable pay is subject the quantity of output or input that can be attributed to the employee or group of employees assigned to a given job. However, the diversity of functions and roles within the firm also dictates that the type of work done differs greatly which subsequently means that some jobs may not be quantifiable as to determine the variable pay due. In such cases, the human resource faces the challenge of determining the variable pay across the various roles without seemingly applying inconsistent scales across the different roles.

The human resource function has an ever existent pursuit of unifying the employee treatment in the organization so as to reduce the chance of such ills as discrimination. (Luo and Donaldsen, 2013). However, the adoption of variable pay compensation approach may raise such concerns as the fairness of the scale of determining how much work or effort can be attributed to an employee in order to deserve a given level of compensation in variable pay. For this reason, organizations have only adopted variable pay on certain roles and not to others; which in most cases still raises the concerns of differing work quantifying scales.

Diversity of Insurance Covers

As an employee benefit likely to harness a more productive human capital in the firm, insurance covers are highly diverse and the specific area of value varies from one employee to another. It has become essentially impossible for an organization to avail the liberty of choosing the insurance cover that serves their interest best. This would introduce a financial constrain to the firm, possibly greater than the value sought through maintaining a motivated and productive work force.

For this reason, the organizations usually determine the most relevant insurance cover for their diverse workforce and the employees therefore subscribe to the presented option. The fact that employees are not accorded the liberty to choose the most relevant insurance cover them is sometimes perceived as unfair to the employees. As Van Es (2016) asserts, the perception is that the organization undertakes to offer the benefit but with interests far from the employees`.

This may therefore cause the benefit to have impartial positive impact far from the intended impact. As such, the diversity of insurance covers and the associated limited ability of the organization to provide a wide array and options to the employees may deem the benefit limiting.

Generalization of the benefits

Insurance covers available in the market are largely homogeneous. This therefore implies that the various firms across the industry may just offer similar insurance cover benefit. This has a significant impact on the human capital in a firm in that, their loyalty to the firm as compared to the competitors in the industry is not anchored on any differences in the benefits. Uniqueness in the benefits package in the firm as compared to what the other firms in the industry offer is partly what delivers value to the organization.

When a firm can offer the human capital a benefit that is unique from all other available options across the industry; it implies that value is generated to the organization. The insurance cover benefit therefore comes off as a general benefit in the industry that an employee may not consider a factor while deliberating on change of organization. An organization offering insurance cover as a benefit to its workforce requires to make effort to add other benefits to make its offer unique and consequently derive value from a more motivated and productive human capital. (Heathfield, 2017).


Among the numerous essential elements in the complex experimentation of organizational efficiency is the ability to retain a highly motivated and adaptable human capital. To achieve the objectives of the mission, the organization should focus on the complexity, uncertainty, and dynamics of the external environment, overcoming and facing their rivals and competitors, even better, faster or more innovative.

There must be a specially qualified human capital with a zeal to perform and deliver value to the organization. This is achieved by developing a strategy to achieve the mission, organizational objectives and aligning the internal organization with management, administrative structure, and work processes and personnel management methods to support the organization strategy implementation. In this sense, the acquisition and maintenance of a highly motivated and productive human capital becomes an ongoing concern for the firm (Palos & Stancovici, 2016).

The human resource department is the function charged with ensuring that the firm derives value from the available human capital available. The roles of the function therefore involve a strategic function of ensuring ultimate value to the organization.

The human resource therefore, in the area of compensation and benefits determines and adopts the most effective approaches that enhance value delivery to the firm. Variable pay and insurance cover have in the recent past been subjected to analysis and assessment on their effectiveness in ensuring that the organization maintains a highly motivated and productive human capital.

From the various assessments done, the variable pay and the insurance cover benefit present numerous possibilities of value delivery to the firm owing to their ability to motivate employees and thus enhance their productivity. It is clearly essential for a firm considering to generate value through the human capital resource to consider adopting variable pay and insurance cover within the compensation and benefits package.

However, as both have their limitations in applicability, a firm should consider applying the two approaches together with other complimentary approaches so as to essentially generate sustainable value in the long run.


The compensation and benefits constituent of the human resource department in the firm presents a unique yet complex role. As the firm`s most important resource is the human capital; whose input and efforts is rewarded through compensation and benefits, it thus implies that the level of input or productivity of the human capital is directly proportional to the value of compensation and benefits package.

The firm is operates under an unwritten objective of value maximization from the resources available. This has the implication that the human capital should generate value for the firm in order to retain its essence. Compensation and benefits take diverse forms and each organization has the liberty to adopt whichever form that appeals or delivers value.

However, there are also legal and industry standards in the compensation and benefits that firms must meet. This presents the basic requisite which in essence may not generate any additional value for the firm. This leaves the human resource function with a greater and complex role of determining what compensation and benefits approached avail value maximization to the firm.

Apparently, variable pay and insurance cover emerge as compensation and benefit package with much accolade on their ability to cultivate a highly productive human capital and essentially generate substantial value for the firm. Additionally, variable pay and insurance have been adopted in firms and perceived by employees as fair considerations within the compensation and benefits package.

There exist various challenges in the adoption and application of variable pay and insurance cover within the compensation and benefits package. The diversity of insurance covers available and their general nature across the industries deem it as a minimal effort by the firm and hence may only generate limited value. Variable pay on the other hand presents a reliable compensation approach for both firms and the employees because it applies the compensation for work duly done approach.

However, in as much as it may generate value for the firm, it suffers various limitations especially where work may not be quantified or output per employee determined. It bring in the necessity of different work quantifying scales which may in turn result in conflicts. Conflicts are counter-productive and hence limit the firms` ability to leverage on the human capital. It is however possible for a firm to leverage on the value of the human capital by creatively applying the variable pay and insurance cover within the compensation and benefits package.



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