Compensation in agribusiness: the case of the retail fertilizer industry

Identifying the determinants of compensation is important from employee and firm financial perspectives. This analysis examines the compensation of three different skill level categories - managerial, specialized, and general. The types of compensation examined include salaries, bonuses, benefits, and total compensation. Neoclassical theory is represented in the models by net return, managerialist theory by annual sales volume and form of ownership, and human capital theory by both education after high school and agribusiness work experience. Also controlled for in the models are the potential effect of salary on bonuses and benefits.

Major findings include that annual sales volume, education after high school, and agribusiness work experience are the important determinants of salaries and total compensation. Bonuses for managers tend to increase with annual sales volume, and bonuses for employees in specialized and general skill level categories tend to be lower for those employed by cooperatives. Benefits tend to increase with salary.

From the employee’s perspective, these findings indicate that, in order to maximize salary and total compensation, employees should seek employment in larger firms, attend college, and gain work experience. To decrease the variability of compensation associated with a high reliance on bonuses, specialized and general skill level employees may want to seek employment in a cooperative. Employees should realize that increases in benefits are linked to increases in salaries.

From the firm’s perspective, smaller firms need to recognize that larger firms provide higher compensation. Hence, smaller firms may have to offer other amenities to attract, retain, and motivate employees. To attain more educated and experienced employees, firms will have to provide higher compensation. Cooperatives desiring performance oriented employees may have to alter their compensation packages to include higher bonuses.