Compensation strategy of an organization is essential in ensuring a competitive advantage over rivals. In the contemporary business world, companies face increasing pressure to offer high-quality products and services. Compensation strategy is important to employees and employers. Workers often depend on salaries, wages, as well as benefits for income provision. Compensation practices differ in various companies. Managing compensation is a primary mechanism for decisions in the job market. Proper compensation management is crucial in improving organizational performance. Most companies adopt compensation strategies that enable employees to produce high-quality work. Companies such as Baker Hughes have a strategy aligned with labor market regulations, union laws, and other guidelines. This paper examines the compensation policy of Baker Hughes Company. Additionally, it assesses various negative and positive effects of the company's compensation practices. It also evaluates the effects of unions, market factors, and laws on Baker Hughes compensation package.
Baker Hughes operates as an industrial service company (ISC) in America. It is the largest company that offers oil field consultations and services globally. The company operates in approximately ninety countries. Baker Hughes provides the industry with services such as formation evaluation, oil drilling, production, completion, and reservoir consultation. Baker Hughes’ headquarter is located in Neartown, Houston (Baker Hughes, 2017). It was established in the nineteen nineties by Howard Hughes Snr and Walter Sharp. The company has assimilated several oil companies to form a single organization. Any union action involving Baker Hughes often has a significant effect. For instance, the two thousand and twelve strike in Norway affected several oil installations.
Compensation Strategy
Baker Hughes has approximately thirty-four thousand employees. They work in nearly ninety countries assisting clients in finding, evaluating, transporting, producing, as well as processing of oil. Baker Hughes is a multinational company that develops compensation strategies favoring all workers including the expatriates. It is pegged on the company’s strategic agenda and business philosophy. The company utilizes the balance sheet approach in designing compensation structure for expatriates. This is the commonly employed approach by most American countries. The strategy ensures that expatriates do not experience financial losses compared to local employees (Stahl, Björkman, & Morris, 2012). It offers a mechanism that allows for mobility of company staff. Its foundation lies on home-base salary. This includes other factors affecting money transfer and receipt.
The compensation package provided balances purchasing powers of host and home country. However, this approach breeds inequities among employees. Additionally, different expatriates may have varying salaries. This is due to variations in their host countries purchasing powers. Employees working overseas are paid an amount that is approximately equal to United States consumption levels. When the host country's level of consumption is higher, then Baker Hughes pays excess compensation. In cases of hardships due to a formal assignment, the company adds some hardship allowances. Developing proper expatriate compensation strategies is essential. This is because the packages are often expensive to companies.
The local employees also have a different compensation strategy. They have a base salary, bonuses, as well as allowances. These are determined by a compensation committee. Setting a basic salary involves job evaluation and salary range establishment. Evaluation is used to grade various positions regarding their importance. This is utilized in all branches globally regardless of company location. Most packages including allowances and incentives often depend on salary grades. On the other hand, salary ranges are determined by market conditions in various countries. Therefore, different countries have varying salary ranges. The utilization of same pay range has a potential to create inequities and distortions in job evaluation processes.
Baker Hughes Best Practices
The company has certain best practices that have allowed fair compensation to employees. It aims at offering a compensation strategy that is appropriate and based on employee performance. The incentive plans are designed to develop a balance between collective and individual accountability. It ensures that employees make more money when an organization performs. Additionally, it eliminates entitlements that reward highly paid employees. This provides fair remuneration to all employees. Besides, Baker Hughes management ensures all staffs are informed of compensation changes.
Employees are entitled to performance reviews, regular feedbacks, as well as constructive advice. The company stresses on accountability, achievement of results, fair, and accurate reporting. This builds up trust between the employees and management. In most cases, performance reviews are often initiated by employees (Stahl, Björkman, & Morris, 2012). This is done through filling a self-assessment form. The review is then accompanied by dialogues between various managers and employees. It assists in clarifying expectations, discussion of issues, and future goals establishment. These strategies ensure communication between staff and managers is effective.
Compensation Challenges
Baker Hughes experiences various problems in developing international compensation strategy. Since it is a multinational company (MNC), developing a plan for different countries is difficult. The company's strategy leads to differing pay structures between expatriates and local employees. When expatriates earn more money in comparison to locals due to particular adjustments, a sense of unfairness may be felt. Developing a fair compensation that ensures locals and expatriates are satisfied offers challenges to management.
The adjustment of benefit plans for individuals transferred to hardship areas is also complicated. Expatriates transferred from their areas of work to other hardship regions experience problems with compensation plans. Additionally, adjustments due to drop in economic indicators present problems to management and employees. It may take several days to develop salary ranges for the affected regions. Besides, employees often experience difficulties in these circumstances because of rising living costs. Consistency in compensation plans is essential in organizations (Bagley, 2012). Maintaining such consistency has been a challenge to several organizations. Baker Hughes has laid down strategies to curb any inconsistent practices.
Application of Compensation Plan
Baker Hughes Company applies a compensation plan based on legislations, attitudes, as well as the behaviour of employees. Additionally, external competitiveness is utilized in gauging impacts on stakeholders. The company assesses various effects of complying with existing laws and regulations. These acts may lead a company to lose certain resources. Most companies adhere to these rules because of existing penalties. Application of compensation plans based on attitudes and practices may affect employee morale. However, Baker Hughes applies this strategy to determine positive and negative impacts. Workers with better morale and attitudes often receive higher pays.
The compensation committee composed of board members assist in implementing plans. Their primary function is to oversee compensation programs (Bagley, 2012). Additionally, it ensures the packages can attract, retain, as well as motivate employees. The committee also reviews individuals’ salaries based on market information. Through the Committee, Baker Hughes developed plans for cash bonuses. Every bonus plan adopted by management often have performance objectives and targets. These goals are released annually. Besides, adjustment on the plans is conducted when necessary.
Influence of Laws, Unions, and Market Factors on Compensation Practices
Baker Hughes' salary structure is affected by several factors such as laws, unions, as well as market factors (Bennett & Kaufman, 2011). Compensation is influenced by legal environment based on state, as well as federal regulations. Government agencies often impose the rules. The hour and wage law commonly referred to as the Fair Labor Standards Act (FLSA) is essential in compensation determination. Political factors have a potential of influencing a company's compensation structure. The labor laws stipulate minimum payment for every salary grade. The Employment Act (EA) protects employees from exploitation ensuring fair remuneration. It specifies the functions of employers, employees, and unions. The laws dictate minimum wages; hence, influences compensation structures.
Labour unions have a significant effect on compensation plans. They assist their members and non-unionized employees. Their primary role is to secure legislated labor rights, as well as protections. These include overtime, health, medical, and family leave. Most of their members often benefit from various programs including social insurance. The recent strike by Baker Hughes employees in Norway was initiated by their union (Exarheas, 2016). The strike affected various oil drilling operations. Norway government had to meet the union’s demands. All companies must usually align their working conditions and compensation strategies to union demands. This is because they have enormous powers over their members. The unions’ impact on compensation has led to their popularity in labor markets.
In competitive markets, several factors can influence a company's compensation structure. Several organizations in the market compete with Baker Hughes for available human resources. Therefore, this competition can affect the company’s compensation strategy. Such companies include Schlumberger Limited, Halliburton, and National Oilwell Varco (NOV). Baker Hughes should maintain a competitive structure of salaries, bonuses, and allowances. This can enable the company to have a competitive advantage over its rivals. Additionally, Baker Hughes health policy has been crucial in attracting, retaining, and motivating employees. Health insurance offered to employees has the potential of offering a competitive package.
The supply and demand for labor affect compensation. Most companies often offer low wages when labor supply is high (Bennett & Kaufman, 2011). This is due to easier ways of replacing employees. Additionally, when labor supply is high, workers often accept minimum wages. This affects the compensation rates in a given market. On the other hand, increased demand for labor has a potential to push compensation rates to the higher end. Workers may be reluctant to take lower wage rates. Since the going rate also affects compensation, companies are often forced to adopt it.
Evaluation of Traditional Basis for Compensation
Baker Hughes traditional system of pay was mainly based on longevity and seniority. These attributes were highly regarded as compared to individual performance. Employees received a salary based on their tenure at the company. Despite a glaring bias towards seniority, this pay system also considered performance. The most senior and excellent employees could get pay rises, as well as bonuses. The main basis of pay increase was seniority and longevity. On the other hand, the new system uses performance as a base for compensation. Apart from tenure and seniority, the company also adopted a flexible approach. This allowed the management to shift between payment methods.
The use of flexible compensation approach allowed Baker Hughes to attract employees from various regions globally. The approach had a strong foundation regarding a solid organizational structure. Most lucrative compensation practices were directed towards employees. This led to the evolution of a structure that attracted, motivated, as well as retained individual employees. Additionally, it expanded the companies’ concept of reward and bonuses. This offered a flexible compensation package including vacation and comprehensive health insurance. It also enabled them to provide paid leave to the employees.
The traditional bases offered managers powers to determine individual salaries and bonuses. This could lead to biases in awarding bonuses and allowance. Managers became stronger than the board, which leads to fear of takeovers. Baker Hughes flexible approach enabled it to control powers of managers. Besides, the approach laid a solid basis for implementing their current performance-based approach. This method has been essential in Baker Hughes success in the oil sector.
Conclusion
Baker Hughes has a compensation strategy that enables it to have a competitive advantage over the rivals. This has been the company's secret weapon. Besides, contemporary managers should adopt strategies that are flexible. This is due to the market's dynamism. The human resource is vital to a company's success. Therefore, it should be treated with great care. Competitive compensation packages allow organizations to attract, retain, as well as motivate this valuable resource. However, compensation practices should be in line with existing laws and regulations. Other factors that affect compensation packages include unions and market conditions. Unions fight for the rights of workers. They ensure employees are treated fairly and appropriately. Unions also aim at improving working conditions. Therefore, compensation management requires proper consultation with all stakeholders.
References
Bagley, C. E. (2012). Managers and the Legal Environment: Strategies for the 21st Century. Boston: Cengage Learning.
Baker Hughes. (2017). Ground-breaking inventions that revolutionized the petroleum industry. Retrieved from Baker Hughes: https://www.bakerhughes.com/company/about/history.
Bennett, J., & Kaufman, B. (2011). What Do Unions Do?: A Twenty-Year Perspective. Piscataway, NJ: Transaction Publishers.
Exarheas, A. (2016, September 21). Norway Services Strike Affects Schlumberger, Baker Hughes, Halliburton. Retrieved from Rigzone News: http://www.rigzone.com/news/oil_gas/a/146710/norway_services_strike_affects_schlumberger_baker_hughes_halliburton.
Stahl, G., Björkman, I., & Morris, S. (2012). Handbook of Research in International Human Resource Management. Northampton, MA: Edward Elgar Publishing.
