Only available in Spanish.

Only available in Spanish.

Analyze in depth the simultaneous existence of the different compensation formulas mentioned in the article extracted below. Analyze both the actually adopted schemes and the ones in discussion (salary increase for the members of the Supreme Court, salary increase for all judges, salary increase based on the speed of issuing sentences).

“The Ministry of Justice will support an increase in the judges’ salaries. Although it doesn’t agree with the figure proposed by the judges—an increase of 25 per cent—, today it will propose increases based on performance, which can come in force next year. The Ministry wants to propose an increase, the size is still to be defined, based on objectives. The final formula is not agreed yet, but the General Council of Justice has already come up with a compensation scheme proposal based on individual judge’s productivity. According to the proposal, the salary will be composed of a fixed salary plus a bonus, which will be paid as a function of the speed of sentence issuing…The salary level of Spanish judges, in contrast with the practice in some neighbor countries, has not been revised since 1989. The result is clear. The purchasing power of an average Spanish judge is obviously inferior than the purchasing power of judges in the leading EU countries [see the table below]…This fact together with the salary increase for the Supreme Court judges, approved by the government last year, are the main arguments in the judges’ claims for higher salaries. The salary increase, reaching almost 60%, separated definitively the Supreme Court judges from the rest of the judicial body, and guaranteed them an annual compensation close to 16 million Pta.” (Cuesta, 1999).

Comparison of judges’ salaries in Europe (euros)

	Spain	Germany	UK	France	Italy
[1]  Average gross annual salary for judges	29,518	56,783	125,301	53,253	48,795
[2]  Gross Domestic Product per capita (purchasing power of average citizen in 1998)	16,090	21,700	19,780	20,610	20,040
[3]  Average salary of judges divided by GDP per capita ([1] / [2])	1,83	2,62	6,33	2,58	2,43

Source: Cuesta (1999).

The North American investment banks have changed their method of paying their ‘star’ operators in spite of the drop in revenue resulting from the crisis in the emerging markets. The Merrill Lynch investment bank informed its staff in a memorandum that is published today in The New York Post that it will no longer be paying its stock exchange brokers and financial analysts an annual bonus.

“From now on, a complex mechanism will be used linking the company’s earnings with those of each of its executives. Citigroup too has announced a change in its payment structure whereby the traditional annual bonus will be replaced by a system that retains worker earnings for a longer period and that is more in line with the total earnings of the company”.


Explain what might be the tradeoffs involved in this change in the old system and what consequences might the new payment system bring.

Some years ago, the director of the Covadonga hospital decided to distribute funds to improve performance. The fund was for the whole hospital but was shared out among the three divisions—doctors (28 per cent), nurses, and administration and general services. The 28 per cent for doctors were divided among all of them, giving a standard bonus per doctor of 140,000 ptas. per year ( this was the bonus amount before taxes) . Each department or unit was given a total amount equal to the standard payment multiplied by the number of doctors attached to it.

Evaluation of each department. The bonuses could have been reduced up to 35 per cent by the Medical Manager after evaluating each department performance comparing four quality and quantity criteria with each department objectives set in advance. In fact, these discounts were applied only to 15 per cent of the departments.

Evaluation of doctors and heads of department. The funds were paid out in the form of two half-yearly bonuses. Doctors were divided in three levels, A, B and C (C being the highest), and the compensation difference between each two levels was about 20 per cent. The heads of departments were graded according to 15 criteria and they in turn classified the other doctors. Most of the heads of departments put all their doctors at level C and the supervisors—at level B. In order to evaluate the doctors, the ABC scale was used giving them 1, 1.2 or 1.4 points, depending on whether their performance was considered normal, good or very good. This grade was multiplied by a factor for responsibility, giving them 1, 1.11 or 1.28 points depending on whether the doctor in question was an assistant, a head of section or a head of department, respectively.

Table. Calculation of annual individual bonuses

Category	[1] points	[2] Evaluation	[3] point	[4] [1]X[3]	[5] [4]x(98,800 ptas.)
Head of department	1.28	C	1.40	1.792	177,050
Head of section	1.11	A	1.00	1.110	109,668
Assistant	1.00	C	1.40	1.400	138,320
Assistant	1.00	C	1.40	1.400	138,320
Assistant	1.00	C	1.40	1.400	138,320
Assistant	1.00	C	1.40	1.400	138,320
Total				8.502	840,000

The Table shows by way of illustration how the bonuses were calculated for the six doctors in a department for whom there was no deduction. The total fund for the department (840,000 ptas., that is, 140,000 ptas. for 6 doctors) was divided by 8.502 (the result of multiplying the points in column [1] for each category by the individual evaluations in column [3] to give the basic bonus—in this case 98,800 ptas.) In column [5] the individual bonuses are calculated, multiplying the basic bonus by the total points obtained by each doctor. In other words, the 840,000 ptas. are shared out in proportion to the points obtained by each doctor. The sums of the individual bonuses and the total for each department were announced publicly to all the staff. When the system was applied, compensation for these professionals ranged between four and six million pesetas.

a) Analyze the system, paying special attention to factors such as the quantitative and qualitative importance of these bonuses and the possible reactions of middle-level staff.

b) Propose a plan of action to improve the system.

Only available in Spanish.

Only available in Spanish.

Only available in Spanish.