Compensation And Benefit System Essays Examples

Introduction

In modern business approach, different kinds of resources are used to achieve the organization goals and objectives, and to compete in the market. It is important for the organization managers to manage their resources in the most efficient manner. Different types of resources include physical resources, financial resources, and human resources. Among these, the most difficult resources to manage are human resources. It is because; humans are of diverse nature and so they are difficult to control. They have different demands and needs, and for this reason, they require compensation and benefits. It makes it hard to maintain and control stable workforce as employees always go for better opportunities and facilities. To retain and satisfy the employees, organizations need to compensate and reward their employees as according to the market trends, their needs, and demands. This paper will discuss different concepts of compensation and benefits system. Later on, it will talk over the compensation system of one of the largest employer, Holland enterprises. The paper will focus on developing the new compensation and benefit system for the organization due to high turnover rate of employees since last years. Series of steps will be performed to develop a compensation and benefits strategy for the organization.

Compensation and Types

Compensation is defined as the rewards offered to the employees in return of their work. There are three main types of compensation systems used to reward the employees that includes, direct financial compensation, indirect financial compensation, and non-financial compensation. Direct financial compensation consists of pay offered to the employee in terms of salary, wage, commissions, and bonuses at consistent and regular intervals. Indirect financial compensation includes the financial rewards offered to the employee that are not part of direct compensation, but included in the social contract between the employer and the employee. These include leaves, benefits, retirement plans, employee services, and education. The third type of compensation that is non-financial compensation refers to the benefits that includes career development opportunities, work conditions and environment, and recognition opportunities.

Effect of Compensation and Benefit System on the Employee and Organization Performance

The compensation and benefit system of the organization greatly affects the attitude of the employees. The higher the compensation and rewards, the more positive attitude is received from the employees. If employees are satisfied with the compensation and rewards, they put up more efforts to perform well and achieve organization goals. They gets loyal to the organization and serve it as its own property. Due to increased loyalty and improved employee performance, the organizational performance is also improved. It is because; the overall organizational performance is dependent on the employees’ performance; therefore, the compensation and benefit system of the organization is of critical importance.

How to Formulate Compensation Strategy

It is highly important to design an effective compensation system as it affects the organization productivity and employees’ satisfaction. These factors help the organization in achieving its goals and objectives. The organizations develop compensation and benefit systems as according to the abilities, experience, and type of the job of an employee. In addition, there are number of other criteria considered while designing the compensation and benefit system of the organization. In general, the manager considers the uniqueness of employees by analyzing their needs and demands. Furthermore, their job is compared with the market trends and offered rewards in a similar or better fashion, so that skilled, loyal, and experienced human resources of the organization can be retained.
An efficient compensation and benefits system strategy makes a balance between external competitiveness and internal equity. Fairness is one of the key component of an effective compensation and benefit system. It is also called as the equity, which can be defined in three ways. Internal equity or fairness exists when the employees perceive that they are compensated fairly as according to the relative value of their job in the organization. External equity or fairness occurs when employees perceive that they are compensated fairly as according to the relative value of their job in other organizations. The overall workplace equity occurs when all employees in an organization perceive that they are being treated fairly. If the employees are not satisfied with organization’s compensation, benefit systems, and perceive it as unfair, whether internal or external then it may affect in the loss of organizational effectiveness and low morale of the employees. For example, if the employees feel that they are compensated unfairly then they may leave the organization or restrict their efforts towards the organization goals and objectives; thus damaging the overall performance of the organization. Several other components are addressed while designing the compensation strategy of the organization to ensure that it is aligned with the organization objectives and strategy. First, the compensation strategy should be planned as according to the work culture that is required at the organization. Since, the internal and external equity directly affects the culture of the organization .

Components of Compensation and Benefit System

Being the human resource consultant, I have been assigned the task to review, analyze, and revise the compensation and benefit system of the Holland Enterprises organization. The organization employs about 3,500 employees; however, since 2007, about 25% of the staff members have left the job. It was observed through the exit interviews that most of the employees resigning from their job at Holland Enterprises perceived the compensation and benefit system as unfair and uncompetitive as compared to the marketplace. Now, I am responsible to revise the compensation, benefit system of the Holland Enterprises, and make changes that are most suited with the needs and demands of the employees and aligned with organization goals and strategies.
Since, there is a flaw in the compensation and benefit system of the organization therefore, it is important to redesign the entire or specific components of the compensation system of the organization. For this purpose, first there is a need to determine the value of the job positions in the organization. There are different methods and components that can be used to determine the jobs value in the organization. These include salary structures, job descriptions, and written procedures. Job descriptions would be developed that will redefine the requirements, responsibilities, duties, functions, environment, location, and conditions of each job. Similarly, other components, including job analysis, and job evaluation will be carried out to determine the appropriate compensation level compared with the same jobs in the market. Two main methods of job evaluation that are whole job evaluation and the other one is based on the components. Salary surveys will be conducted through collection of market data regarding average salaries, inflation indicators, cost of living indicators, and salary budget averages. Pay Structures will be used to standardize compensation practices. It will include several grades starting from the minimum salary and reaching up to maximum .

Compensation and Benefit Philosophy

Compensation philosophy is developed as to guide the complexity and design of the organization compensation programs. For this purpose; first, goals and objectives of the organization are identified; second, the competitiveness to attract and retain the employees is measured; third, the internal and external equities in the organization are emphasized. It is also important to keep a balance between the direct and indirect financial compensation. A consistent compensation philosophy makes a strong foundation for the employee and the organization. Once, compensation philosophy is developed as according to the organizational culture and strategic plan, the differences between the pay structures are determined based on management, front-line staff, and professionals.

There are different types of compensation that includes,

Base Pay
Overtime Pay
Commissions
Bonuses, Merit Pay, and Profit Sharing
Stock Options
Benefits including insurance, dental, medical, leaves, vacations, and so on.
Travelling and Housing Allowance
In order to develop a new compensation plan for the organization job positions, the following process will be carried out;
First, develop an outline of the program by setting an objective, establish targets, and determine a budget.
Designate a separate position who would oversee the compensation program and decide whether it would be permanent or temporary.
Develop compensation philosophy by forming compensation committee. Differentiate between the pay structure of professional employees, executives, sales employees, and others. Decide the benefits and salaries above the market rates.
Conduct job analysis for all the job positions in the organization. For this, interviews and surveys will be carried out and decide on job classifications and job descriptions.

Conduct job evaluation by comparison of jobs within the organization and with that in the market.

Determine job grades like senior, intermediate and beginner and then assign pay grades to each job level.
Determine appropriate salary structure by making a different between each salary step. Make a review of job descriptions by conducting a meeting with compensation committee, make adjustments, and get it approved.

Develop salary administration policy by considering the company and other specific policies.

Get the salary program approved by the top executives
Communicate final salary program to managers and employees
Continue monitoring the salary program.
In case of Holland Enterprises, it is important to focus more on the equity policies in the organization. Until, there is fair compensation and benefit system implemented in the organization, the loyalty and commitment among the employees cannot be triggered. Moreover, it the equity that makes up the culture of the organization. If fairness is not practiced in, then if affects the entire culture of the organization. Therefore, to ensure employees, they are fairly compensated for their work; the compensation system should be made transparent. Employees should have clear idea about how they are evaluated, and what pay they would receive at specific level. Since, Holland Enterprises is one of the top employers; therefore, it must maintain its standard in the market and compensate its employees as according to the market trends. Such kind of compensation system builds up the morale and commitment in the employees; thus, improving the overall organization performance .

References

Dave. (2013, Jan 21). The Different Forms of Compensation. Retrieved from Business Economics: http://businessecon.org/2013/01/the-different-forms-of-compensation/
Greene, R. J. (n.d.). Effectively Managing Direct Compensation.
HR Council. (n.d.). Compensation & Benefits. Retrieved from HR Council: http://hrcouncil.ca/hr-toolkit/compensation-systems.cfm
Rose, J. (2014). Components of Compensation Systems in Successful Firms.