Implementation of Compensation and Benefit System
Compensation relates to paying someone an amount or in kind in return for work done for you. In an organization, it refers to the sum an employer provides to its employee for doing the work. The compensation is rendered as a result of industry's trends, job description, competition from close substitutes, etc. A compensation package comprises of not only monetary payments but in-kinds also to have a claim on goods and services offered by the firm (Buhl, 1989). These benefits, as well as other non-compensation systems, are used to motivate employees and generate benefits from leveraging their capabilities in return. A compensation plan for an employee is determined by different factors such as nature of the work, efforts done for doing the work, quality of the work, the policy of the organization, experience of the employee, etc.
It is the task of the employer to make sure that the employees would be provided with necessary tools to perform their tasks. The goal and vision must be clearly established while the expectations must be realistic rather than unattainable. The employers possess the ability to shape the behaviors of their employees through motivation. The efficient way to achieve it would be by acknowledging the work of employees.
In the case of good performance, benefits and compensation would encourage employees to do works efficiently and motivate other employees to achieve the goals on time. It is valuable to maintain the motivation among employees due to the interrelationship of different members in an organization to its overall performance. Each unit is correlated with one another. Thus, motivated employees also tend to stay in the organization for a longer period of time rather than enhancing the rate of absenteeism and turnover in the firm.
Additionally, as stated by Schermerhorn, Hunt, Osborn, &Uhl-Bein, 2010, power in an organization refers to the capability to get some people to do something that you want to be done or the ability to make things happen. So, in order to gain power in an organization, the people working in it must be motivated. Although motivation is merely not limited to the paycheck employees receive, it must be supported by continuous leadership and recognition for the work done. To maintain an effective compensation strategy, the employer must be able to link clearly the expectation for the work being performed and the work actually performed by the employee (Fujiwara & Kimura, 2012). The expectations are usually mentioned in a job description while the actual performance is analyzed through performance evaluation. The organization must promote an ambiance which focuses on job satisfaction and motivation (Czarniawska-Joerges, 2006).
While focusing on the compensation strategy of Holland Enterprises, the strategy has not impacted the company in a beneficial manner rather it has enhanced the rate of attrition of employees. The analysis suggests that the company needs to revise its strategies in order to have higher retention of the employees in the long run. A revised policy might be a favorable move in the short run to maintain their motivation level and keep them satisfied. The longer retention of employees in the organization directly relates to maintaining a good image in the industry and generating higher profits. The motivation of the employees directly relates to the productivity and success of the organization.
The compensation strategy directly impacts motivation, business strategies, retention, performance evaluation, satisfaction, etc. The key reason for an employee staying within an organization is for the paycheck he or she receives (Chingos, 2002). People need money for meeting their basic amenities. It is a key driving factor for being associated with an organization. However, there are people who work beyond the monetary satisfaction such as social workers. But, most of the people work in order to earn and sustain their livelihood and fulfill their desires.
Moreover, the business strategies of an organization are represented by the way it works within an organization. Similarly, the compensation plan showcases the ethics and culture of the organization. It shows the value that organization or the top management puts on its employees. Employees also judge the organization from such policies which render a sense of belongingness when it is in favor of the employees.
As discussed above, employees are likely to stay longer in an organization when they are taken care of in the organization. A motivate employee will stay in the same organization and become more productive and dedicated. This will not only enhance the overall operation but the company's reputation as well. The compensation plan might be expensive but will be beneficial to both employees as well as the organization. This will attract similar employees to seek for work in the organization due to its reputation and good policies.
The overall performance evaluation is escalated due to the motivation and dedication of the people. The compensation plan generates higher productivity and performance. It compares the performance to match with the compensation being provided at present.
Thus, the several benefits associated with the compensation plan will have higher employee satisfaction. Employee satisfaction is also crucial to maintain loyalty towards work. This will also support ethical work environment.
As there are positive impacts in the organization, it is quintessential to determine the ways of developing an effective compensation and benefits system of an organization. The essential component of the system is compensation and benefits philosophy (Graham, Roth, & Dugan, 2008). This refers to the statement which states the culture of the company to believe a work as reward worthy, types of rewards given, types of benefits achieved after meeting a milestone, etc.
It becomes crucial to enforce equity while giving compensations. Benefits refer to a part of compensation which is non-monetary in nature. It could comprise of health benefits, educational support, family benefits, bonuses, retirement policies, and other social facilities (Milkovich, Newman, & Milkovich, 2005). The philosophy of the compensation and benefits system centers on supplying employees with the returns for the work they do in an organization.
The compensation and benefits system will differ based on the type of organization and their respective policy. The normal philosophy for any organization is to be paid for the work done, but the other benefits and compensations will be specifically based on the organization. The employees are circulated with the policies of the organization when they commence on the job (Myers, 1989). The employees must understand it thoroughly, and any changes in it will be made aware to the employees. The changes in the procedures can be made anytime, but the information needs to be circulated.
The compensations will only be bestowed after judging the performance through criteria such as performing the duty, impacting the behavior, resolving ability, etc. The evaluation will result in a feedback of performance as well as an appraisal to the individual (Yanadori & Marler, 2006).
It cannot be easily determined what compensation and benefits system should be adopted by the company. The company must conduct the external survey from similar firms and the industry to determine a margin of pay that the company can finance. The pay scale must not only be within the capacity of the organization but should also fit the goal of the company. The data collected from the survey can be used to determine the upper and lower limits of the pay. The comparison with similar jobs in the same field will help to set a pay structure. This will add to the competitive advantage and reputation of the company. The similarity in the industry will help in employee retention that would otherwise leave for better opportunities. Moreover, the employees will also develop employees into better team players who will bring organizational effectiveness.
One of the components of the compensation system is pay structure i.e. pay grades, pay ranges and pay width. There are different components such as basic pay, house rent, traveling allowance, etc. The actual payment depends on the pay grades, pay ranges and pays width. These factors are dependent on the job description, age, policy, etc. The job description explains the expectations from the employee and duties required to be fulfilled.
The pay grade of an employee is also determined by the duration of work done by the employee in the organization. The pay grades are categories of jobs based on the similar level of difficulty and complexity. For example, an organization can create one grade for manual workers, one for managerial and administrative and one for executives. Then, the company must determine pay range for each level. Thus, in the entry level positions, there are more steps within a single range and small differences between the points or pay scale. This will enable to assign duties and responsibilities accordingly. In the higher positions, there are fewer steps but greater differences in the pay scale.
The pay range describes the upper and lower limit of the pay structure. It shows the level up to which the pay scale will increase. The pay structure of the company is the initial step in attracting the employees.
The payments are determined not only by the external survey of the industry but also from internal capability and analysis of the organization. The internal analysis will judge the capacity of the organization regarding the number of worker, financial ability, future goals, policies, etc. It will help to separate the finances for salaries for an appropriate number of employees. Similarly, an external survey supports in understanding the industry scenario and the standard for the employees. It maintains satisfaction and retention in the workplace by meeting the market trend.
The compensation plan is also determined by the ratio of base pay to incentive pay. The incentive amount is planned according to the level of work done and the given salary. The incentive lies in proportion to the salary provided.
The compensation provided by the company depends on its equity level. Equity of the company is the value of the company which denotes the total asset. The compensations and benefits provided by the company rely on the equity of the company.
The benefits usually given in an organization might be monetary or non-monetary in nature. It will be provided along with the salary. The benefits include leave policy, education support, health benefits, retirement plans, etc.
For Holland Enterprises, the serious issue of poor retention of employees must be shown to the top management. The information must be explained via presentation as well as supported by statistics. The detail will also include the changes in the benefit plan that will resolve the current issue. It can be beneficial to support the changes to current industry practices. It will indicate the managers to work towards the company's struggling situation as compared to other similar companies.
In order to be competitive in the 21st century, it is important to have a workforce that is fast, flexible, focused, friendly and smart. In the case of Holland Enterprises, it needs to increase its pay grade to be competitive in the industry. Employees must receive higher money than they were receiving for the work they perform. They should also upgrade their minimum and maximum salaries along with their benefit plan.
The company should increase benefits such as health coverage, dental coverage, life insurance, 401 (k) retirement plan, etc. The new innovation such as flexible timing and work sharing must also be included in the policy.
The changes in the policy must be brought according to the industry's standard, competition, job description, the performance of the employee, the risk involved, responsibilities, and capacity of the company.
Thus, with the help of compensation and benefits plan, the organization will be able to create an ambiance comprising of rewards, motivation, satisfaction, growth, fulfillment of emotional and intellectual demand, etc. There are higher returns generated from acknowledging employees. The care and effort rendered by the organization will lead to the happiness and well-being of the employees.
References
Buhl, W. E. (1989). Compensation Management In Practice: Keeping Incentives Simple For Nonexempt Employees. Compensation & Benefits Review, 21(2), 14-19.
Chingos, P. (2002). Paying for Performance: A Guide to Compensation Management. New York: Wiley.
Czarniawska-Joerges, B. (2006). Organization Theory. Cheltenham: Edward Elgar.
Fujiwara, H., & Kimura, H. (2012). How Managers’ Compensation, Strategy, and Institutional Environment Motivate Entrepreneurial Financing Choices: Some Evidence from Venture Capital Firms. The Journal of Private Equity, 15(3), 45-61.
Graham, M., Roth, T., & Dugan, D. (2008). Effective Executive Compensation: Creating a Total Rewards Strategy for Executives. New York: AMACOM/American Management Assn.
Milkovich, G., Newman, J., & Milkovich, C. (2005). Compensation. New York: McGraw-Hill/Irwin.
Myers, D. (1989). Compensation Management. Chicago: Commerce Clearing House.
Yanadori, Y., & Marler, J. H. (2006). Compensation strategy: does business strategy influence compensation in high-technology firms? Strat. Mgmt. J, 27(6), 559-570.
