Managing Compensation Systems
In our current business environment, there are several types of compensation programs for employers to choose from, and numerous combinations of these programs. Each plan is valid and valuable, but different companies, departments, and positions require different compensation plans. No matter what compensation program a company chooses, the program should balance internal equity and marketplace competitiveness. Before choosing a compensation program, a company should evaluate its culture and needs and perform a SWOT analysis before designing a roll out program. After implementing a program, a company should ensure that it remains competitive and consistent.
Types of Compensation Programs
Compensation programs can either be job-based or person-focused. Person-focused pay is driven by potential, while job-based pay is driven by results. Within these two categories, many different types of compensation plans exist, each of which has both positive and negative aspects.
Job Based
Job-based pay systems award raises and bonuses based on how well employees perform their jobs. This includes merit, or pay-for-performance raises, and incentive pay.
The most common compensation method used in the United States is merit pay (Martocchio, 2013). It rewards individual employees for their proficiencies and accomplishments by providing monetary incentive for excelling at their job. Base pay and raises are based on the value of the job and how well employees perform it, and can be successful when performance standards are clearly communicated and employees are given a fair chance to succeed (Greene, 2010).
One of its main disadvantages of merit pay is the fact that raise decisions are based upon performance ap...
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...s only need to reward employees for obtaining credentials relevant to the job or company; companies do not need to pay premium wages for unrelated certifications.
Person-focused pay is based on what a person is capable of doing, but paying higher salaries does not guarantee success. Employees may have knowledge or skills, but lack the wisdom that comes with experience. Companies that use person-focused pay must create compensation programs that reward knowledge, skills, abilities, and experience that align with the company's competitive advantage.
Works Cited
Greene, R. J. (2010, January 21). Effectively Managing Base Pay: Strategies for Success . SHRM. Retrieved from http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CMS_005592.aspx
Martocchio, J. J. (2013). Strategic compensation: a human resource management approach (7th ed.). Boston: Pearson.
Compensation is made of a base salary (paid by the hour, work or the year; excluding overtime or bonuses), variable pay (bonuses, profit sharing/stock options which work hand and hand with the performance of the company), and benefits (to include health insurance/savings plans – 401(k), or tuition reimbursement). The traditional way of determining base pay for jobs was to compare jobs in the same industry. Now industry and market, no long work by themselves, the current thinking is more person-based that considers knowledge, skills, and competencies of the work. This, however, is best suited for high-performing environments that remain flexible in their deployment of human capital.
The above examples of pay show that the more skills, experience employees are with the organization the more they are compensated. Organizations would benefit by utilizing the same practice’s Disney extends to their workforces. For those businesses whose primary purpose of their plan is to only meet compliance requirements could greatly benefit by developing a comprehensive benefit plan. This could help increase their return on investment. The value I believe a business may gain from Disney’s compensation plan is to appeal to competent workers, to maintain those workers, and to motivate workers to direct their energies towards achieving the goals of the organization. Companies can set up policies to conduct a market study on a regular basis to implement a real performance appraisal system and then work on retaining good employees and elimination of poor performing workers. By following Disney’s lead of in obtaining those who best fit their company’s culture and supporting the company’s Mission. To guarantee that the pay structure is externally competitive, a pay survey should be shown. The results of a survey to be valid, the market pay data must be from the relevant labor market for each benchmark job. I would advise that a survey of regional and global pay data should be collected from the company, because for example, most of the office support, HR and operations jobs will be filled by local applicants. A job analysis is the procedure of reviewing jobs in an alike business. The result of this process is a job description “that includes the job title, a summary of the job tasks, a list of the essential tasks and responsibilities, and a description of the work context “(Burke, 2008). A job description consists of the knowledge, skills and aptitudes necessary to do the job. A job evaluation is the process of adjudicating the comparative value of job within a company
After reviewing Holland’s organizational strategy and exit interviews from the last seven years it is certain that through the new and effective compensation and benefits program created for Holland Enterprises, it will decrease the turnover rate, increase employee satisfaction and engagement and benefit the organization’s overall profits. Through careful consideration of pay structures, incentive awards, internal and external equities and the organizations benefits package Holland Enterprises new compensation benefits package will provide an effective and competitive compensation program. Henderson (2010) writes, “To survive and be successful in a global economy, an organization must be competitive. A major factor underlying organizational competitiveness is labor costs. Not only must an organization pay its workforce a competitive wage within its geographic region, but it also must vary the kinds and amounts of rewards offered, recognizing differences in individual contributions.” (p. 13)
In April 2010, KK BB, the CEO of Marshall & Gordon, a leading public relations firm met with the firm’s leadership committee off-site in Miami. This off-site brought together Marshall & Gordon’s executive committee, practice and regional heads, and senior HR officers to discuss on redesigning the firm’s compensation system. A global advisory taskforce, under the direction of an external consulting firm, had spent three months collecting and analyzing data. Marshall & Gordon hired external specialists to design the new performance management program. The specialists proposed that the senior managers and human resource form a global advisory unit together with Marshall & Gordon partner to represent the firm’s five regions of the firm and lead the design process. The advisory unit surveyed all consultants in February in order to understand their way of thinking about the fairness, worth, and effect of the current performance management system. Majority of the interviewees responded to the corporate surveys implying that the subject was topic was especially exciting to them. Interviews gave insights on present and prospective business plans and direction. The survey also showed that specific focus across certain employee populations should be given. Six current hires from key competitors were also interviewed to comprehend competitor pay practices and compensation program structures. Further focus groups discussions and key information interviews enabled the taskforce’s to understand the needs of certain groups within Marshall & Gordon’s worker population. The survey culminated with the taskforce conducting interviews of 20 partners and principals togeth...
The company Steel Co, which has been established for around 30 years, has been in a steady decline during the current recession and although a Divisional Director has been employed by the owner the fortunes of the company have not improved. The staff is unhappy, unproductive and unimpressed by the Human Resource system that currently exists in the company. The pay structure that currently exists within the organisation has been much debated among employees who feel it is unsatisfactory. The Business Adviser will research Performance and Reward management tools in order to help the company develop a more suitable Performance and Reward system to use. A variety of sources will be used in order to evaluate the system and tools against other organisational frameworks. The pay structure within the company will also be looked at in order to identify any possible changes that could be made.
Tomax Corporation has 400 employees and wishes to develop a compensation policy to correspond to its dynamic business strategy. The company wishes to employ a high-quality workforce capable of responding to a competitive business environment. Suggest different compensation objectives to match Tomax’s business goals.
Performance related pay is a financial reward given to employees whose work is considered to have reached a required standard or is above average. “PRP criteria can relate to the individual employee, to work groups or to the organization as a whole” (Armstrong, 2002). It is fair to provide people with financial rewards as a means of paying them according to their contribution (Armstrong 1993:86). The primary purpose of performance related pay in any organization is to recruit, retain and motivate the workforce. It also helps in focusing employees’ minds on particular goals (Protsik, 1966); communicate to employees an organization’s core values, and change the culture of that organization (Kessler and Purcell, 1991).
Corporations are looking for new ways to improve employee performance as well as remain competitive. Pay for performance is one method some businesses are utilizing to improve employee performance. Performance-based compensation exists when compensation is tied directly to that portion of an individual’s performance that can be effectively measured. There are a number of ways in which this may be accomplished and a number of examples as well how it is applied. One of the oldest examples is taken from the ancient Egyptians, where slaves working in the pyramids were given bread for superior performance. Payment of commission for sales production is one of the methods used today.
Reward Management (RM) has been defined as the distribution of monetary and non-monetary rewards to employees in an effort to align the interests of the employees, the organisation, and its shareholders (O’Neil, 1998). In addition O’Neil (1998) also suggests that a RM system can serve the purpose of attracting prospective job applicants, retaining valuable employees, motivating employees, ensuring legal requirements relating to direct and indirect rewards are not violated, assisting the company in achieving human resource and business objectives, and ultimately assisting the organisation in obtaining a competitive advantage.
Some of the advantages of using merit pay include motivation, employee retention, self-determination and differentiation. “To motivate employees effectively, the size of the merit increase must be significant enough to make a noticeable difference to employees” (Baker). By using merit pay to motivate employees any merit increases the performance of the workers. Merit pay also determines the awards that the employees get. “Ultimately, to be successful, the merit pay program must ensure that awards provided to the best performers will be substantially greater than increases awarded to average, or below-average
In any organization, sometimes, monetary schemes doesnot get people involve to pursue work in a certain way, rather it demoralize and threatens the self-esteem of employees. According to Meyer (1975), “the basis for most of the problems with merit pay plans is that most people think their own performance is above average”. The amount may ...
When reviewing a position for a Hyndman trucking as a longhaul truck driver the pay scale was listed as "paid per mile, per mile driven, bi-weekly via direct deposit." Drive Hyndman, http://www.drivehyndman.ca/solo/." Another interesting compensation scale is known as piece work. Workers at the St. Thomas Timkin assembly plant are paid on an hourly wage with bonus compensation per pieces during their shift. Finally, one of the most heard of compensation is a commission based pay wage. When reviewing an add for a sales associated at MGM ford there is no base wage listed, but that wage is determined by number of cars sold. A great benefit to these compensation scales is that the opportunity for larger income is determined by the amount of time put in. There is also the benefit of being able to create ones own schedule. A disadvantage to this compensation scale is that your income is never guaranteed and in many of these positions opportunity for growth is almost
The total pay package has a direct impact on the successful recruitment, selection and the retention of staff within any organization. This pay package is critical for any business to remain competitive in today’s business world. Competitive compensation packages are vital to both large and small organizations as they encourage the retention of talented staff.
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