Compensation and Benefits – Landslide Limousines
As a team of consultants at Atwood Allen and consulting, we have received a request to develop a compensation and benefits plan to support Bradley Stonefield as he opens up his limousine business in Austin, Texas. In Bradley’s initial request, he requested that his package be similar/comparable to other limousine company’s in the area. Mr. Stonefield still maintains that he will hire twenty-five employees, and projects a first year annual revenue of negative $50,000. Another important note is Mr. Stonefield projects a 5% increase in revenue each year over the next few years. In order to come up with an effective strategy, Team A will have to look at how Landslide Limousines can disrupt the marketplace, repair and maintain the vehicles, and find a cost competitive price for their service. Throughout this paper, Team A will recommend a compensation and benefits strategy for Landslide Limousines, in addition to exploring strategies to obtain top driving talent so Bradley can get off to a good start when Landslide Limousines opens for business.
Mr. Stonefield will face heavy competition from other limousine companies in the area looking to hire experienced and qualified drivers in the city of Austin, TX. A limousine company doesn’t offer the highest of wags, so high turnover could be an issue for Bradley as he starts up his company. According to the Bureau of Labor Statistics, the median income for a limousine driver in the state of Texas is $25,690.00 (Taxi Drivers and Chauffeurs). With that being said, it will be important for Bradley to find a way to match or beat the salaries offered by his competitors. In addition, Landslide Limousines must take into account the unemployment rate in the state of Texas. As of May 2015, the unemployment rate in Austin, TX specifically is 3.5% with a job growth of 2.2% (Economy of Austin, TX,).
In addition, future job growth over the next 10 years is expected to be over 42% (Economy of Austin, TX). These numbers portray an image of a competitive business market, but with a city like Austin, TX with nightlife being a plus and surrounding cities being popular with various sports teams, Mr. Stonefield should find himself a good opportunity to promote his business from the start. With help from our recommendations, Landslide Limousines will need to put together a competitive benefits package and a plan to hire at or above the average median salary for other local limousine drivers.
Compensation Structure for Landslide Limousines
Landslide Limousines must implement a compensation structure that is fair and similar so to speak to other limousine company competition in the surrounding area of Austin, TX. According to Cascio (2013), four things are needed when developing a compensation structure: Updated job descriptions, a job evaluation method (one that will rank jobs in terms of the overall worth to the organization, pay surveys, and a pay structure (Cascio, 2013). According to Cascio (2013), this is referred to as a Traditional job-based compensation model. By implementing these four steps, it will allow for increased pay over time, based on merit, inflation, or experience (Cascio, 2013).
Performance incentives will also be of big importance at Landslide Limousines. It plays a big role in being able to attract and keep good employees. All incentive systems depend on performance standards (Cascio, 2013). As Mr. Stonefield plans to hire twenty-five employees, it will be important to incorporate a performance plan that aligns with his company’s strategic goals and objectives, good targets to shoot for, and make it easier for management to assign work equitably (Cascio, 2013). As Landslide Limousines will be a new start-up company in the area, it would be wise to look at a merit pay increase after the first year depending on revenue and cash flow. Benchmarking should also play a big role in awarding performance incentives. Whether though external pay surveys or via research in similar work environments, it should be well noted how other employees for other employees are being compensated for their work.
A Total Compensation and Benefits Strategy
There are four key challenges that must be addressed in planning and administering a pay system. Mr. Stonefield must understand the economic and legal factors that determine pay levels. He must adhere to the pay his 25 employees the minimum wage as law requires for Austin, TX. It may be advantageous to offer an $8.00 an hour wage in order to beat out the competition’s wage offering and to avoid turnover with competitive pay. Next, there must be a tie in compensation to the general business strategy. Pay incentive cannot be so great that profit making is unattainable or dismal. Third, Mr. Stonefield must develop a systematic pay structure that meets said minimum wage requirements and awards those excelling at their jobs, all without forgoing too much of his overall profit. Lastly, he must address key policy issues. Because his staff is estimated at no more than 25 workers, competitive pay should be easier for him to manage, as well as competitive benefits.
While performance incentive may be something nice to offer, we suggest holding off on financial incentives until a steady profit is being made. Other nonfinancial rewards can include employee involvement in decision making, recognition, and fostering a supportive, nurturing company structure. This will give employees something to work for while increasing the overall performance of Landslide Limousines. All legally required benefits must be offered to employees, such as disability, social security, workers compensation, unemployment, and retirement compensations. It would also be attractive for Landslide Limousines to offer basic health and dental plans for employees after a 90 day probation period. This alleviates the loss of money on new and possibly unreliable employees.
It also makes employees eligible for the performance incentive programs in play. Since employees make almost 40 cents in benefits for every dollar they earn, it is important for this small business to band together with other companies and form a “purchasing coalition” in order to negotiate better rates with insurers. It may be cheaper to provide employees with online resources to healthcare providers as well as encourage the use and purchase of generic drugs versus the more expensive name brand counterpart.
Another cost lowering practice is to audit the eligibility of dependents on the health plans; paying for ineligible dependents can syphon profits quickly. Health wise, we feel the best option is a Point-of-service (POS) plan which has the benefit of gatekeeping doctors to monitor the health of employees, who may choose to receive care in or out of the network as approved by the doctor. Lastly, a consumer-driven health plan (CDHP), which has a lower premium and can be converted to a health savings account which benefits the employee in the long run.
The Use of Performance Incentives and Merit Pay
Landslide Limousines needs to keep employees happy to prevent employee turnover, which would cost the company money. Keeping quality employees involves a good benefit and reward plan to build employee business devotion. Rewards inspire employees to work hard in building a profession with the business and prevent employees from leaving to other companies. When you pay an employee well they will think twice before leaving to another company if they have to take a pay cut. Incentive performance plans should be simple for employees to comprehend and easy to achieve even at its lowest levels, reassuring employees that working together will help them reach goals. If the performance incentives are too difficult to achieve, employees will ignore it and not try to work harder to achieve it.
Another way of keeping employees happy is by providing Merit Pay. Merit Pay is a system that pays workers by their individual performance. The Merit Pay programs goals are to pay for performance that is reliable to the operation of the company. In order for the Merit Pay program to work, the rewards given to the personnel that excel must be better than what is given to normal or below-average workers. The idea of performance-based rewards is for employees to be compensated generously for performing better than their co-workers, and to the workers whose performance is below average the compensation should be lower.
Laws Related to Benefits and Pay Program
Employers must follow the laws that are required to provide benefits and pay programs. These laws also benefit the employer. These benefits and pay programs are important to all employees and their families. The assistance the employer can offer can determine if an employee will choose to work for your company. The Fair Labor Standards Act (FLSA) is the major law of the land for all of the United States. “It requires employers to pay covered employees who are not otherwise exempt at least the federal minimum wage and overtime pay of one-and-one-half-times the regular rate of pay” (Fair Labor Standards Act, 2013). The minimum wage in Texas is $7.25 per hour. You are not allowed to pay employees less than the minimum wage. The company must also pay overtime if the employee works more than 40 hours per week.
Another benefit that must be provided to all employees is Unemployment Compensation “The Federal Unemployment Compensation Act (FUCA) with state unemployment systems provides for payments of unemployment compensation to workers who have lost their jobs” (Texas Administrative Code, 2007).
Our team believes the use of this recommended compensation and benefits structure will guide Landslide Limousines in the right direction, and will help the company attract and retain the best talent possible. Mr. Stonefield has predicted 5% growth each year and should be able to do so in the work friendly environment of Austin, TX. At last, we have devised a plan to align Landlside Limousines goals and objectives to the overall compensation plan and should be reviewed at least annually to ensure the company is maintaining a feasible compensation structure.
Taxi Drivers and Chauffeurs. (n.d.). Retrieved from http://www.bls.gov/oes/current/oes533041.htm Economy in Austin, Texas. (n.d.). Retrieved from http://www.bestplaces.net/economy/city/texas/austin Cascio, W. F. (2013). Managing Human Resources (9th ed.). New York, NY: The McGraw- Hill Companies Cascio 9ed, 9th Edition. [VitalSource Bookshelf version]. Retrieved from http://online.vitalsource.com/books/9781121903814/page/451 Cascio 9ed, 9th Edition. [VitalSource Bookshelf version]. Retrieved from http://online.vitalsource.com/books/9781121903814/page/494 Fair Labors Standards Act (2013) In Encyclopedia Britannica Retrieved from http://www.britannica.com Texas Administrative Code (2007) Retrieved from http://info.sos.state.tx.us/pls/pub/readtac.