Chapter 10: Managing Compensation
What is Compensation?
A total compensation is made of three main components: base, pay incentives, and indirect compensation or benefits. Base compensation is the set amount paid to the employee on a consistent basis. Base pay being mainly paid by salary or hourly wages. Pay incentives is the form of compensation rewarded to an employee for exemplary work. The last being a form of benefits given to employees with a type of special status or commonly upper lever managers.
These three components work in order to complete the definition of compensation to an employee. It is the single most important cost to most organizations. The reason for its importance because how the financial resources of a company are allocated to their compensations could bring the organization a competitive edge. It makes it a crucial strategic plan to delegate how much and who gets an amount of compensation. (Gomez-Mejia, Balkin and Cardy 2016, 315 -316.)
Unsurprisingly to myself, research has shown that the individual employee severely undervalues the contributions of an organization’s compensations. I am unsurprised by this fact because I have seen it in my own work experiences with a multitude of occurrences. During my time in the military it became such an occurrence it developed into a nuisance in my overall military experience. I had personally felt that the provided medical, dental, food allowance, and rent payment more provided a means to sustain a comfortable lifestyle.
This made me resent the average soldier and look forward to my current situation as a learning academic. It is interesting to me that the research shows that it applies as well to the relationship between manager and employee in the civilian workplace.
Designing a Compensation System
Compensation has significant effects on the individual employee. It can affect the economically, sociologically, and psychologically. Therefore, if compensation is mishandled than issues are likely to have a major impact on the employee. So the policy of a company must be of chief importance. (Gomez-Mejia, Balkin and Cardy 2016, 316.)
Two major goals in the design of a compensation are commonplace for businesses . The first goal being to enable the firm to achieve its strategical goals it has set for itself. The second is molded by the unique characteristic and environment of the individual organization.
These are the nine criteria’s that are required for the development of such a plan:
1. Internal Versus External Equity
2. Fixed Versus Variable Pay
3. Performance Versus Membership
4. Job Versus Individual Pay
5. Egalitarianism Versus Elitism |
6. Below-Markey Versus Above-Markey Compensation
7. Monetary Versus Nonmonetary Awards
8. Open Versus Secret Pay
9. Centralization Versus Decentralization of Pay Decision.
(Gomez-Mejia, Balkin and Cardy 2016, 317.)
Compensation Tools
There are two relatively broad categories of compensation tools. Job-based approaches and skill-based approaches.
Job-based approaches have most traditional and common type of compensation programs. This particular plan assumed that work gets done by people chosen to do a specifically defined job. For example, a journalist, or administrative assistant. This particular approach has three internal components in its plan. To achieve its internal equity, external equity, and individual equity.
Skill-based approaches are much less common in business strategy. It assumes that employees should be paid not because of their particular job, but instead by how elastic or their ability to perform a multitude of tasks. With this type of plan, the bigger number of job-related skills workers have results in their amount of total pay.With this approach all employees start at the same pay rate and develop one pay level with each new skill they learn.
The Legal Environment and Pay System Governance
The legal foundation influences a large influence on the design and administration of compensation systems.Compensation criteria and procedures are governed by a key federal law called the Fair Labor Standards Act, the Equal Pay Act, and Internal Revenue Code. In addition to these laws each state in has the ability to have its own set of regulations that contribute to the federal laws.
The Fair Labor Standard Act is the act that affects most pay foundations withing the United States. In order to stay within compliance of this act accurate records are required of earnings earned by all employees.
The Equal Pay Act was passed so that regardless of gender, if holding the same occupation, the pay would be equal. However, there are four exceptions to this act:
1. More seniority
2. Better job performance
3. Greater quantity or quality of a product
4. Extra compensations
The Internal Revenue Code affects how much of an employee’s earning an employee can keep. Additionally, it affects how benefits are treated for taxation reason. This act enforces the requirement of the business to withhold portions of each employee’s income to meet federal and state tax requirement.
Chapter 11: Rewarding Performance
Pay-for Pay Performance Challenges
These programs can ultimately improve productivity. However, managers need to consider several challenges in their implementations. Unfortunately, the common trend I that employees only are tempted to restrict their work ethic only doing what they are obligated to complete. Collaboration, cooperation and teamwork may be damaged if there is individual merit pay being has any kind of emphasis (Gomez-Mejia, Balkin and Cardy 2016, 381.)
Meeting the Challenges of Pay for Performance Systems
To avoid issues in the pay for pay performance a manager should link pay and performance in an appropriately, use pay for performance as a part of a boarder HRM system, built employee trust, promote performance making a difference (Gomez-Mejia, Balkin and Cardy 2016, 381.)
Types of Pay-for-Performance Plans
There are four types of pay for performance plans. For the individual, merit pay, bonuses, and awards decided by supervisors. Team based plan rewards the performance of a team or group working together on collaborated tasks. The third being gainsharing rewards given based on cost savings, usually given as a lump sum. The last being profit sharing and employee stock option plans (ESOPs) are used to connect the organizations performance with the individual employees(Gomez-Mejia, Balkin and Cardy 2016, 381.)
Designing Pay for Performance Plans for executives and Sales People
The two employee groups that are top executives and sales personnel are normally treated differently than most others in pay-for-performance plans. Short -term annual bonuses, long term incentives, and perks are possible used to motivate managers to make the decisions that lead to long term strategic destinations. Sales employees being the revenue obtainers, their compensation is normally aimed to reinforce productivity8 motivations. Most organizations use a combination of the two (Gomez-Mejia, Balkin and Cardy 2016, 381.)
Designing Pay-for-Performance Plans in Small Organizations
As a result of the size smaller organizations face some particular challenges when designing these systems because they are less likely to have professional support to develop these plans. These plans are much more likely to be a success if there is active participation in the development of the plan from the employee. Most small organizations find it a benefit to offer profit sharing and equity-based pay for their employees(Gomez-Mejia, Balkin and Cardy 2016, 381.)
Case Study: Forbes – What I Employee Engagement?
Employee engagement to me is how an employee is invested to contributing and caring about the organization in which they have been hired.
Personally, I have seen probably the strongest form of employee engagement during my time in the military. There is no dedication to a particular job more significant than the willingness for young men and women to sacrifice their lives for their cause.
I apply this experience to the civilian business aspect by measuring the motivation the individual has to an organization. As a manager it should be a part of their jobs to realize they need motivated employees. They need engaged employees in order to obtain the level of commitment that won’t only benefit the individual but also the organization as a whole.
Case Study: Forbes – How to Establish a Culture of Employee Engagement
Employee engagement is important to the overall moral, productivity, and development of both the individual and the organization. The article discusses 5 ways to more effectively engage employees.
My favorite out of the five is the acknowledgement of the employees. My own experiences in the military have led me to believe that generally supervisors in the fail to acknowledge or show any kind appreciation for their subordinates. Being a middle rank prior to my departure from the occupation I was able to see both the junior and senior mindsets how acknowledgement is perceived by an employee.
By acknowledging the individual you not only let them know that they are appreciated but also that their strong work ethics are valued.
Two Chosen Articles
1. Culture and Engagement
The article places a huge emphasis on the importance of employee engagement and culture within the workplace. Without a positive culture and the staff engaging also with the employees it might mean the difference between an unsuccessful or a successful business.
In today’s organizations transparency has become the trend. With that any changes are made immediately apparent to staff. This means that with a spotlight placed on the company’s culture, it might mean a competitive edge with organizations that show a positive cultural and engaging environment 2. How to Recognize and Reward your Employees
Managers must understand that the recognition of their employees is one of the most important assets of their company. However, because of the human emotional aspect they must acknowledge that the workplace moral also falls within their responsibilities.
I have seen a the results if a lack of emphasis is placed on this concept. The individual workers seemed less willing or overall unhappy to be a part of that particular working environment. This resulted in less productively and an overall unpleasant working experience. A manager must maintain a compassionate aspect to their professionalism that makes their individuals feel they have a environment in which they feel appreciated and motivated.
References
Belyh, A., 2020. Cleverism. How to Recognize and Reward Your Employees. URL: https://www.cleverism.com/how-to-recognize-reward-your-employees/ Accessed: 4 October 2020
Chhang, S., Parker K., 2020. Culture and Engagement. Deloite Insights URL: https://www2.deloitte.com/us/en/insights/focus/human-capital-trends/2015/employee-engagement-culture-human-capital-trends-2015.html Accessed: 4 October 2020
Gomez-Mejia, L.R. Balkin, D.B. & Cardy, R.L. 2016. Managing Human Resources. Global 8th ed. Pearson. London.
Kruse, K. 2012. What Is Employee Engagement. Forbes. URL: https://www.forbes.com/sites/kevinkruse/2012/06/22/employee-engagement-what-and-why/#55ce52007f37. Accessed: 3 October 2020.
Kappel, M. 2018. How to Establish a Culture of Employee Engagement. URL: https://www.forbes.com/sites/mikekappel/2018/01/04/how-to-establish-a-culture-of-employee-engagement/#6a0142718dc4 Accessed: 3 October 2020
Trigger 1 