Compensation and Benefits Strategies Essay
Compensation and Benefits Strategies
A strategic plan for employee compensation determines how much you want to pay employees and what type of employees you want to attract. Your compensation plan entails a variety of aspects including pay scales, reward programs, benefits packages and company perks. A successful strategic compensation plan allows your business to compete in the market for the best employees in your industry (Lister, 2013). In order for this medium sized construction business to structure itself and be market competitive then research around benefits, compensation, merits, and the laws related to benefits and pay programs needs to be conducted. The success of the business will rely on the research put into it. Construction Market Evaluation
When looking at the relevant labor markets the task was difficult due to the slowing and sluggish construction economy from 2007 to 2012. Demand in this industry depends heavily on the health of the economy. A midsize company’s profitability and efficient operations require the skills of experienced employees you will be able to work efficiently with available resources because they will not have the advantage of larger commercial construction companies with multiple projects simultaneously in various types of construction. The company’s annual net revenue is $10,000,000 and will need to use their resources wisely to attract and retain talent in the present market and in future expanded markets.
When researching labor markets according to (Cascio, 2013), “This can often be a complex task because employers must pay attention not only to labor markets but also to product markets (e.g., level of demand and degree of competition). Pay practices must be designed not only to attract and retain employees but also to ensure that labor costs (as part of the overall costs of production) do not become excessive in relation to those of competing employers.” The job surveyed for this market evaluation was Corporate Construction Manager on a national level for companies with 800 to 3,000 employees. The present workforce in this midsized business is 650 employees and they are looking to add over an additional 20% to the current workforce or an additional 130 employees.
The company wants to be comparable to other commercial construction businesses as they expand in Arizona while being conscious of the compensation used currently in Detroit, Michigan. The median annual income for a Corporate Construction Manager in Detroit, Michigan is $104,626.00. The core compensation package is based on averages, not personal factors and will be different from those in Arizona. Here is the breakdown of the benefit package for a Corporate Construction Manager in Detroit; Core Compensation
Expanding into Arizona, the median annual income for a Corporate Construction Manager is above average at $120,601. Here is a breakdown of what makes up the compensation benefits in Arizona; Core Compensation
% of Total
Value of Benefits
The level of knowledge and skill requires 10-15 years of experience in the industry with a bachelor level degree. According to (Duchon, 2007), “ When construction is booming in a region, and strong able-bodied workers are in short supply, hourly wages can escalate to attract labor from other locations. To attract and retain individuals with appropriate skills/competencies, organizations must be willing to pay competitive rates based on targeted labor markets (local, regional, and national). It’s the law of supply and demand.” Construction and Manufacturing industries are rewarded and paid for prescribed output, project completion, and measured output. Any bonuses will range according to job level and specific weight based structure. When expanding into Arizona the company will need to consider the total company structure on a national level as they increase headcount and annual revenue. Compensation Structure
The use of market pricing to determine wages and salaries is known as market based pay and utilizing this system would be the best practice for a competitive market segment such as construction and contracting. Especially considering the expansion to another region. According to WageWatch, “committing to a market base pay compensation structure means that employees will be paid at a competitive wage when compared with rates offered to people in similar positions in peer organizations (WageWatch, 2012).” Supply and demand, which rules over the labor market, further drives this approach. A properly designed market based pay system will facilitate companies by controlling compensation costs, enhancing market competitiveness, improving recruitment results, increasing employee morale, and achieving greater internal equity.
However, in order establish and inevitably maintain an effective market-based pay system, one needs to know how to successfully match and integrate salary surveys with the company’s data, philosophies and practices. Internal equity is analyzed in a way similar to external market analysis in that the data determines worth relative to benchmarked job titles, but different in that the benchmarks are internally established. Internal benchmarks are particularly useful in evaluating both unique and hybrid job titles for which external benchmarks do not exist. Managing external and internal equity is a dynamic process that requires the organization to stay vigilant on changes in market conditions and business demands. The market based pay approach to compensation gives the influence of the external market on wages precedence over internal equity (WageWatch, 2012).
The success of Corporate Construction is contingent on attracting and retaining the best talent needed to efficiently execute the company’s business strategy. Having the right pay structure is at the helm of this. And in recent years organizations have noticed a significant shift with the types of structures that work best. A new study by World at Work and Deloitte, “2012 Survey of Salary Structure Policies and Practices,” found that market-based salary structures are the most prevalent type of pay structure in use (64 percent). While traditional and broadband structures are less common today (23 percent and 12 percent respectively). Companies of all sizes in varying industries are understanding the importance of market- competitiveness and are focusing on external equity to attract and retain top talent (Deloitte Consulting, 2012).
Total Compensation and Benefit Strategy
Performance Incentives and Merit Pay
Merit pay, although not covered by the Fair Labor Standards Act (FLSA) is still subject to other regulations and laws, up to and including city, state, regional and federal laws, mandates and regulations. Although not mandated by law, especially in Arizona, merit pay and performance incentives are an excellent way to motivate new and current employees to push for specific short and mid-term goals (Saari & Judge, 2004).
In a new work environment, the key to growth is hiring and motivating the right employees. In a construction business, these goals can be broken down between the construction crews, and the support and admin staff. Implementing goals for the construction foremen and/ or project managers, and authorizing them sub-goals and incentive pay for contractors, subcontractors, and crews can give the right incentives for completing on-time, on-target, and within budget construction projects. Merit pay for those who work longer hours up to and including authorized overtime, or who complete safe, timely portions of projects within budget constraints will also boost performance without sacrificing quality. (HRHELP, 2011)
Whatever benefits and pay program is chosen several laws must be considered. With the location, size of the organization, and projected revenue and personnel growth in the coming year, the following laws will apply. Remember that this is not an exhaustive or complete list, and there may be updates after the time of publication (Cascio W. F., 2013).
The Arizona Employment Protection Act (A.R.S. 23-1501), Arizona Legal Arizona Worker Act (ALAWA), and The Arizona Civil Rights Act (ACRA) are three of the main Arizona laws in particular that Clapton Commercial Construction must abide by. Any incentive, performance pay and compensation programs must be in concert with these laws. Federal laws, principally those to do with government funded construction projects include the McNamara-O’Hara Service Contract Act, Contract Work Hours and Safety Standards Act (CWHSSA), Copeland “Anti-Kickback” Act, and Walsh-Healey Public Contracts Act. These laws cover everything from properly instituting overtime pay to ensuring that employees receive the merit pay and other benefits afforded to them in a timely manner. (U.S. Department of Labor)
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