Within this business report, I have analyzed three different employee compensation strategies that I feel could be well executed within our organization. Employee compensation is key to recognizing and rewarding our employees for their performance and contributions to the overall company’s success. Because it is a signficiant factor, we need to carefully evaluate the three options in my report. Compensating our employees using the base salary approach is a well accepted strategy. This approach provides for a set salary that employees will earn based on their job coding. Factors such as merit or tenure will have no impact on someone’s base salary.
This is a stable compensation strategy leveraged within similar organizations and an approach most employees feel comfortable with as it’s very cut and dry. The downside of using this approach is that there is little room for growth and salary increases and which can be de-motivating. Performance-based compensation is quite a popular and also another well accepted strategy. In this strategy, employees have direct control over how much they are paid. Having control really helps to motivate employees to work harder and achieve new financial goals and maximize their own income. Having an organization that is a high performing organization helps to make an organization more competitive.
The downside of this approach is that you create a more competitive environment that may impact employee-to-employee relations. Lastly, I reviewed a longevity-based salary strategy. In this strategy, compensation is strictly based on an employee’s length of service, seniority or tenure. There are different ways this pay can be administered. Employees can get an annual bonuses based on their employment anniversary date or monthly bonus amounts added to their take-home pay that would reflect their length of service. This type of strategy encourages employees to remain loyal employees in an organization. The immediate downside to this approach is that employees aren’t motivated to achieve more or produce increased quality work since it’s more about time put in vs. quality.
After reviewing the three strategies outlined above, I am recommending that we move forward and implement a performance-based compensation strategy for our employees. This strategy will create a workforce of highly motivated, performers that are excited and engaged to succeed. Employees will be excited to ramp up their income and their excitement and achievements will help support the company’s goal of increased profit. If our company has highly driven employees focused on producing quality work, the company will benefit in the short term and long term.
Introduction The Human Resources department was asked to research possible compensation strategies for our manufacturing organization. I’ve created a report that shares my research and findings for three different compensation strategies: Performance-Based Compensation, Salary Compensation and Longevity Compensation. In my report, I have compared these strategies, pointing out where they are different including the pros and cons to each strategy in order to determine the best approach for the 120 total employees on our payroll.
Compensation is a key factor that impacts employee satisfaction while also having a direct influence on how successful the overall organization can be. I’ve conducted thorough research on this topic so that the management team can have a more robust understanding of these three strategies and to decide on a strategy to implement.
My research below will start with salary compensation which can easily be defined as a set monetary amount that an employee receives for the work that they do based on their specific job classification/coding only. I’ll follow that with performance-based compensation which pays and rewards employees based on their individual performance which allows for individual growth. Lastly I’ll provide research on longevity pay which focuses on additional pay or wage adjustments based solely on an employee’s length of service.
It is crucial to understand each of these strategies and how they will impact our organization if they were to be implemented. Research Findings I’ve completed extensive research on various compensation strategies within similar types of organizations and have arrived at three specific strategies that our organization should consider adopting: ·Salary Compensation
·Performance-Based Compensation ·Longevity-Based Compensation
General salary compensation refers to an amount of money that you pay an employee for the work they do without consideration for quantity or quality of the work performed (Entrepreneur Media, Inc., 2013). By law, employers must compensate employees for work that is completed. If an employee is compensated by a salary, employees are compensated differently from those that may have an hourly compensation rate. Employees that are hourly employees get paid based on a rate multiplied by the number of hours that they work. When they work over and above the amount of hours for the day/week, they receive extra, additional compensation (Grace, 2012).
In contrast, a salary compensated employee gets paid the same salary, a fixed amount of money and is not impacted by the amount of hours an employee works. Salaried employees are not required to keep track of the hours they are working because they do not quality for nor are they paid for any overtime. They are expected to complete their work regardless of the amount of time it takes them. Employees who are paid a salary are given the expectations that they need to complete the entire job in order to earn their compensation. This compensation differs from both hourly paid employees or performance-based paid employees. Employees are able to really count on this compensation and a consistent pay strategy is important to retaining good employees (Ojimba, 2004).
Analysis – Employees that are compensated through a salaried compensation strategy have a very stable compensation to rely on. There are no real surprises or swings in the amount of money an employee receives. Compensation is not impacted by the quality of the work produced or the quantity produced. Employees would have the opportunity to budget themselves or at least have a decent time predicting what type of income they can expect since it will always be the same without much changing from year to year. This strategy may allow for employees to develop the impression and mindset that they don’t have to do more or produce increased quality work. They could take away that what they are doing today is enough and not strive to help the company with increase sales or various other goals.
A performance-based strategy is become a trend in today’s organizations and leveraged as a way to incent employees to strive to increase their production or improve the quality of their work. Why would an employee want to do that? Because they are financially incented to do so! All companies need to remain competitive and control internal costs and budgets. Performance-based compensation really partners with an organization to do just that. This type of strategy is really attractive because they are friendlier to corporate budgets than other methods of compensation. Pay increase are only given out at designated times during the year so budgeting in advance is easier, etc. If production and quality goals aren’t met, money goes back into the budget for the next possible review period (Fox Lawson & Associates, n.d.).
Additionally, strategy helps to provide a win-win situation for both the company and the employees when properly administered and rolled out and the structure really can help to motivate employees to work harder and that benefits them and the company both. When developing this type of strategy, reasonable goals and performance incentives would need to be developed. In today’s environment it would be wise to tie pay to performance as a way to accelerate employee output. This approach is a very common way for organizations to increase productivity and influence potentially a more competitive environment with employees always striving to do more and therefore earn more. Performance-based compensation programs also help retain top performers, better align labor costs with productivity and reinforce the company’s objectives (Richter, 2002).
You attract a different level of employee with this approach. For employees to be successful and feel happy in this type of structure though they need to have a desire for more pay, have confidence they will receive more pay if they improve or increase their individual performance and trust that the organization will administer the policy and compensation plan fairly across the board. Studies have consistently shown the recognition for a job well done is the top motivator of employee performance (Dorf, 2011).
Analysis – Though research it is clear that this type of approach includes many benefits both to the employee and to the organization. Creating a more motivated workforce that is focused on a goal to provide quality production benefits everyone. If our employees can see that their performance directly impacts their personal bottom line they will become more focused, work harder and constantly push their peers to meet them at that level. Job security has to be considered here too – a company with this type of approach is more streamlined and efficient creating a more competitive organization and helping to protect and preserve the company and its reputation.
Longevity-based compensation is a compensation strategy that more mirrors a type of contract where the employer will pay the employee a compensation based on their length of service or seniority. In researching this approach, many companies offer many different types of strategy around this. Each organization up front provides a document or “contract” to the employee that outlines this system specific to their organization. These types of documents include things like the dollar amount to be paid or the percentage of increase based on years of service. Information is also included on the schedule of payment so that employees really know what to expect. Employees see this type of strategy as a way of paying for their loyalty as an employee – a way of giving them their due for sticking with them (wiseGEEK, n.d.).
Typically with this approach the adjustment made is often in the form of a percentage of the employee’s annual salary or rate of pay. Based on why the amount is given it becomes clear that an employer is recognizing their time and loyalty to the overall organization. The real problem with this specific approach is that you essentially are awarding someone just for being on staff or holding down their position for yet another year (Agency Management Roundtable, 2012).
Analysis – I think this type of compensation program may have made sense for employees that may be “Baby Boomers” as loyalty was crucial and something employees really set out to demonstrate, but not something that is realistic in today’s environment. While rewarding employees for their “ time served” there is no real focus on the quality of their work during that time nor is there any reward for their contributions or added value.