Compensation is the payment offered by an employer to an employee in exchange of the services received from him. Mostly compensation is monetary but it may include certain non monetary facilities such as housing, conveyance, insurance etc. Compensation is further divided into two general types: Direct and Indirect compensation. Direct compensation includes base wage, incentives, bonus, leave encashment etc. while indirect compensation is designed to provide additional benefits such as social security, health insurance etc and does not vary with performance. Designing a compensation plan that is satisfactory to all is a major challenge for the Human Resource Management as it plays an important role in employee retention.
Role of Human Resource Management
Developing a good compensation plan is one of the chief functions of the HR department for ensuring reduced employee turnover as well as enhanced patient satisfaction and employee engagement in an healthcare organization. Researchers have claimed that a good compensation package motivates an employee to perform better and thus helps in achieving the above. Martocchio, (1998) has discussed the strategic role of HR managers in compensation planning by relating it to its other functions such as recruitment, performance appraisal, training and development, labor relations and legislative requirements. The HR manager must also consider the external and internal equity while determining the pay scales. With the increased competition, retaining competent employees is a major challenge and employers expect the HR Managers to work out strategies to get a dedicated work force by incorporating attractive components into an exclusive compensation package. Also their evaluation of responsibilities and performance must be just to get acceptance from all and be attractive to new recruits. Thus it is very important that benchmarks may be developed after careful study of all relevant factors.
The five key elements that form an essential part of the compensation plan and are considered while developing the plan for a healthcare organization are: the basic salary or guaranteed salary which is the fixed amount payable to an employee inclusive of cost of living adjustments and merit (Martocchio,), incentives, commissions and bonuses based on performance of the employee as well as the organization as a whole, benefits constitute facilities such as health insurance plans, retirement benefits, Housing schemes, medical reimbursement etc, Internal and External pay equity which means equal pay for equal work within and outside the organization and perks, comprising of travelling allowances, company cell phones, accommodation etc. Training and development, work life balance and flexible hours are part of compensation too for managerial level employees (Jiang, & Xiao, 2009).
Developing the Compensation plan
In order to draw an effective compensation plan for a health care organization, the above elements have to be considered. Two different types of compensation plans may be used for the employees depending on whether they are regular or temporary. Regular or permanent employees are paid job based compensations while visiting or temporary employees are paid skill based compensations depending on the nature of their job (Heneman, Ledford Jr, & Gresham, 2002). For determining the job based compensation, the Human Resource Management function of the organization undertakes a step by step development of the plan as described below
Job Analysis
This exercise is attempted to define the components of a job such as responsibility, accountability, significance, qualifications and skills to ascertain the competency required to fulfill the requirements of the job and its level in the organizational hierarchy. This is an important step to fix a basic salary for all levels in the organization. In a healthcare unit, the various job descriptions may be identified as Specialists, Doctors, Nurses, Assistants, Workers and the administrative staff. The administrative staff is further divided into Managerial, supervisory and clerical levels. After identifying the different levels, grades are assigned within the levels on the basis of seniority.
Equity Administration
The next step is implementing pay equity in the basic salary both internally and externally by fixing a standard scale to different grades. External equity can be established by undertaking a survey of the compensation plans in the industry.
Setting Benchmarks
The human resource Managers are confronted with the challenge of fixing the standards for each grade. The benchmark must be such that equity is maintained at all levels and the amount fixed is satisfactory to the recipients without compromising the strategic goals and budgets.
Benchmark for direct compensation. After establishing pay equity, a minimum basic pay must be fixed for all grades which should be at par with the industry standards and which should include cost of living adjustments. The benchmark for incentives and commission is determined in consultation with respective departments and decided after regular performance appraisals by HR managers. The bonus rates have to be determined with approval from the Board of Directors and will be paid annually. The types of incentives are also fixed depending on the grades; monetary incentives are preferred for lower ranks while stock options and profit sharing are offered to upper ranks.
Visiting specialists, surgeons and anesthetists are paid on the basis of the number of cases treated by them and come under variable or skill based compensation. However the element of equity must be practiced for variable pay also. Usually they are not considered for indirect compensation but they may be offered complimentary benefits like health insurance etc.
Benchmark for indirect compensation. All employees are beneficiaries of indirect compensation such as social security, health insurance, paid leave, retirement plans etc. but managerial level employees may be offered lifetime membership of privileged groups, clubs or other facilities as indirect compensation. Also complimentary cell phones, accommodation and conveyance are included in indirect compensation to employees from executive onwards ranks irrespective of performance and differentials may be introduced to differentiate seniority.
Administration of Compensation Plan
Once a complete plan is developed and approved by management, the HR department may proceed with its implementation by documenting and notifying all employees about the revised plan and the timeline by which it will be operational. Payment methods options such as paycheck, cash, online etc may be introduced.
References
Heneman, R. L., Ledford Jr, G. E., & Gresham, M. T. (2002). The changing nature of work and its effects on compensation design and delivery.Strategic reward management: Design, implementation, and evaluation, 35-73.
Jiang, Z., Xiao, Q., Qi, H., & Xiao, L. (2009). Total reward strategy: A human resources management strategy going with the trend of the times.International Journal of Business and Management, 4(11), 177.
Martocchio, J. J. (1998). Strategic compensation: A human resource management approach.Pearson Education India
