Abstract
This paper analyses the compensation strategies of ADP and examines the issue from multiple perspectives. The themes explored are to do with the impact of the compensation strategy on its stakeholders, the sticking points between ADP and the labor unions, the effectiveness of the traditional bases of pay on the stakeholders, and the impact that ADP’s tiered compensation structure has on its employees as well as contract labor. The overarching theme that emerges from the discussion is that ADP has managed to weather the ongoing economic crisis without layoffs or downsizing on a significant scale. The paper concludes with an assessment of ADP’s compensation strategy and how its peers can emulate it.
Introduction
Compensation is the most important reason why employees work for a company. Though there are other considerations as well, the fact that the employer employee agreement is a commercial one and hence, compensation determines the bottom line requirement of such an agreement (Lawler, 2011, 80). This paper analyses the compensation strategy at the company, ADP or Automatic Data Processing. It needs to be mentioned that ADP is one of the few companies that has knowledge workers as well as contractual laborers, which means that its workforce spans the entire spectrum of the categories of workers. Hence, its compensation strategy must be viewed in this context. This paper critically examines the compensation strategies of ADP from multiple perspectives as discussed in the succeeding sections.
ADP follows a gradated and tiered compensation strategy wherein the base pay is augmented with performance linked pay and annual incentives. The key aspect of ADP’s compensation strategy is that it is composed of monetary and non-monetary components with the monetary component being explicit and the non-monetary component being given out in the form of benefits and perquisites. For instance, the monetary component includes the base pay and the performance linked incentives whereas the non-monetary component includes free housing and transportation apart from other benefits for senior executives like reimbursement of fees for children and health care plans. It is pertinent to note that ADP is a market leader in this type of compensation strategy that is linked to the company’s growth as well as taking care of the base salary even in recessionary times when the bonuses and the incentives are not paid out in fully. The compensation related challenges that ADP is facing relate to the fact that in the context of the ongoing economic crisis, the rate of growth is not as much as it was in earlier years and hence, the incentives and the bonuses are lesser now than earlier. This has caused heartburn among its employees who feel that they are missing a vital component of their salary. Further, the fact that ADP is still yet to give stock options to all its employees and the current practice of limiting them to the senior managers is yet another concern and challenge for the company (Torrington, Hall, Taylor, 2012, 38) Of course, as mentioned earlier, the fact that ADP is a model for other companies and hence, it follows best practices in compensation strategy indicates a lot about the company.
Application of Compensation Practice at ADP
ADP applies compensation practices that have a positive impact on the company and its stakeholders. For instance, the gradated pay structure and the incentives linked to the performance of the company have inculcated a sense of work ethic and an organizational culture that rewards high performers. Further, the fact that ADP has contractual agreements with its employees for different durations means that no employee takes his or her job for granted and hence, performs according to expectation. Apart from this, the tiered compensation structure means that the employees have an incentive for growth and accomplishments and the awarding of stock options means that ADP rewards its star performers according to market based standards. Of course, the other stakeholders like the labor unions and contractors feel that they are getting a raw deal because of the overarching emphasis on growth, which again is measured in terms of a relative grading system, which means that not all employees can expect to be promoted to the next level. As we shall discuss later, the contractual agreements with temporary workers is proving to be a challenge as not all of them get incentives since they are what can be called as temporary workers or temporary hires. This has become a sticking point with the unions (Tyson, 2010, 93).
Impact of Laws, Labor Unions, and Market Factors
ADP ensures that it complies with the relevant laws on wages, working hours, and working conditions. For instance, it pays more than the Federal minimum wage to its employees at the lowest end of the scale and ensures that the gap between the lowest paid worker and the highest paid employee does not cross-specified limits according to the wishes of the shareholders. Given the fact that this has become a contentious issue in recent times with concerns being expressed about the excessive levels of CEO compensation, it can be said that ADP has taken into consideration these market factors and has planned its compensation structure accordingly (Sparrow & Cooper, 2012, 83).
Of course, as mentioned earlier, the labor unions have been at loggerheads with the management of ADP as far as the issue of contractual labor compensation is concerned. Though ADP pays more than the Federal minimum wage, the lack of incentives for contractual labor has meant that the unions have taken it as a priority item for them to bargain with the company. The key aspect here is that ADP does not have too many contractual workers and hence, it has not given much importance or thought to this issue. However, with the recession deepening there is every chance that more contract workers would be hired and hence, ADP has to address this issue eventually. It is in the interests of ADP that it sorts out this issue quickly (Lawler, 2011, 117).
Effectiveness of Traditional bases for Pay
As mentioned earlier, the tiered structure of compensation policy at ADP means that employees are guaranteed minimum pay even in the worst of the times because the base pay is always paid out irrespective of the economic conditions. For instance, the employees are paid the base salary even if the company is not doing well which means that a minimum salary is guaranteed. Hence, it can be said that ADP has effectively used the traditional bases of pay to ensure that its employees are happy and satisfied (Torrington, Hall, Taylor, 2012, 138).
The key aspect about the traditional bases of pay at ADP are that the base salary is set high even for the workers at the lower levels of the hierarchy and this has been done to ensure that the company pays out the minimum and more to its workers. Indeed, ADP has factored into its compensation strategy both the Federal minimum wage and the industry base pay, which form the basis of the traditional bases of pay. In other words, ADP has successfully leveraged the base component as an effective way to ensure that its employees are motivated and perform well. Before concluding this section, it must be pointed out that ADP is one of the few companies that have implemented the base pay at such a level and hence, it has become the preferred employer of choice for both the fresh graduates and the working professionals. This is indeed creditable for the company as it strives to add value to not only its customers but also all the stakeholders including the employees and other contract workers on its payrolls (Tyson, 2010, 79).
Conclusion
This paper has analyzed the compensation strategy at ADP from multiple perspectives. The overarching theme that has emerged is that ADP takes care of its employees well and though there are some sticking points between the company and the labor unions, the company has managed to retain its staff and has a lower attrition rate than the industry standard. Before concluding the paper, it needs to be mentioned that in the context of the ongoing economic recession, ADP has not downsized its staff like other companies and this is to the credit of the management. In conclusion, ADP’s compensation strategy is worth emulating by its peers and hence, it is a market leader as far as compensation strategies are concerned.
References
Lawler, E.E. (2011) Pay and Organizational Effectiveness. A Psychological View. New York: McGraw-Hill.
Sparrow, P. and Cooper, C. (2012) The Employment Relationship: Key Challenges for HR. London: Butterworth-Heinemann
Torrington, D.P., Hall, L.A. and Taylor, S. (2012) Human Resource Management (9th edition). Harlow: Pearson Education
Tyson, S. (2010) Human Resource Strategy: Towards a General Theory of Human Resource Management. London: Pitman
