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Compensation and Benefits Argumentative

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This paper explores compensation strategies within organizations including an analysis of the impact of various compensation methods, strategies related to organizational performance and benefit programs for employees. Employee compensation, which covers all forms of pay or rewards has become more complex in recent years and since compensation comprises the largest expense for most organizations it is important for managers to understand how to effectively manage compensation-related activities. Compensation and benefit strategies are ways that organizations can use pay and benefits to recognize and reward employees’ contributions to company’s success. There is a wide variety of pay practices in use by employers today. Some of the most common practices include the use of benefits, compensation philosophies, and tying performance to compensation rewards. Organizations continue to find the best solutions to motivate their workforces and get the greatest return on their investments. The findings below highlight consistencies in some of the most common compensation programs and practices and how they vary from one another.

Human resources managers strive to adopt strategies to enable them to manage work forces effectively as the economy and technology faces rapid changes. These managers, similar to their counterparts in marketing, finance, and production, develop human resources that require defining the workforce performance goals needed to support the organization’s business strategy. Implications of these goals including diagnosing the organization’s internal and external environment, pinpointing human resources strengths and weaknesses relative to these goals, designing the mix of human resources policies and programs that exploit strengths and downplays or corrects weaknesses and aim to shape a workforce focused on strategic performance goals capable of achieving them (Milkovich & Broderick, 1989). Compensation and benefit strategies are tools that organizations use to pay and provide benefits in recognition and reward employees for their contributions toward the organization’s success (Noe, Hollenbeck, Gerhart, & Wright, 2004).

Some examples include vacation leave administration, profit sharing, stock plans, incentive pay, wage and salary administration, insurance and retirement plans. To gain a better understanding of these programs and how they affect organizations, it is necessary to take a closer look at compensation methods and benefit programs. There are two basic components to any compensation and benefits package. The first is how much a person will get paid for services rendered and the second is what type of remunerations are given to the employee from the organization. Wages is how much money an employee will make either weekly or bi weekly. The amount that is given to an employee is normally based on the skills required to perform the job as well as any degrees held or specialized training required. Benefits are incentives organizations provide to employees that normally include health and wellness packages, savings programs and work balance.

Compensation includes:
* Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals * Indirect financial compensation including all financial rewards that are not included in direct compensation and understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services * Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions

Companies regularly use multiple types of pay-for-performance plans to motivate and sustain high performance levels. Although research generally confirms that pay-for-performance plans can influence greater outcomes, it is unclear how effective different pay plans are relative to each other (Park, 2012). Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration. Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well engineered and successfully executed process. Actually if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short (Vision Link Advisory Group, 2013). 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). A company has many options concerning compensation methods. Compensation plans make it hard to earn a good income without having to constantly recruit new talent. Even after achieving a level of success with these plans most will find it difficult to earn a passive income. Likewise, human resource management within the company needs to establish a plan that will help solidify employee loyalty to their company by offering a more competitive compensation and benefits package. Compensation, representing both intrinsic and extrinsic rewards, represents a particular challenge because packages must be extremely competitive and should provide adequate incentives to motivate employees to do their best.

Top management and human resources have to decide what are the goals of the compensation schemes in an organization. These goals should be aligned with the corporate culture and the general long-term expectations of the employees. Each organization pays salaries, but the role of the compensation has to be balanced with the other aspects of the overall motivation scheme applied in the organization. The organization must choose to either pay higher salaries and offer less development and career opportunities or offer lower salaries and better career opportunities to keep the motivation system balanced. When the organization defines its basic compensation goals, it can continue with structuring the main compensation decisions formulated in the compensation strategy.

The compensation strategy has to set the main compensation goals of the organization and they have to be kept as the main target for human resources to be achieved. The compensation goals have to be set in accordance with the business strategy and visible in the HR Strategy. A compensation strategy that is aligned with an organization strategy helps ensure that managers can attract and retain staff that is highly qualified. Designing such a strategy is itself a complex process with numerous decision points and multiple variables to consider. An excellent compensation plan must have a well-designed package that motivates employees, control compensation costs and ensures equity. Along with their compensation plan, a benefits program should also be part of an employer’s compensation strategy. When establishing a compensation plan, a few things should be the norm: Easy to Read: A good compensation plan should be easy to read and understand. As a general rule, the more complicated a compensation plan is, the harder it is to explain. “If prospects can see that the compensation plan is easy to understand and explain, they will feel more confident in their ability to join the organization”. (Rocavert, 2008)

Proven Track Record: Having a good track record usually identifies a company that has a good business model and has a fair chance of being in good financial position. Evenly Weighted: The best compensation plan should not be overly weighted towards signing new associates. In some cases these types of pay plans border on pyramid schemes and tend to be quite expensive. Compensation philosophy is developed to guide the design and complexity of compensation programs. This is done by identifying goals and objectives, considering competitiveness in attracting and retaining employees, emphasizing on internal or external equity, and measuring whether performance is tied to pay increases. Understanding the necessary balance to achieve between direct and indirect financial compensation is critical in developing the overall total compensation approach (HR Council, 2013). Developing a compensation philosophy that is responsive to the company’s unique business strategy and talent needs heightens the likelihood that the executive compensation program will send the right messages about company priorities, aid in retaining the right talent and contribute to a strong pay or performance relationship.

In practice, a company’s compensation philosophy allows management and the board to make decisions within a mutually agreed-upon framework, rather than face each pay decision as if for the first time. The principles provide a yardstick for retrospective evaluation and a framework to guide the future direction of program design and administration (Sibson, 2013). Employee benefits typically refer to retirement plans, health life insurance, life insurance, disability insurance, vacation and employee stock ownership plans. Benefits are increasingly expensive for businesses to provide to employees; therefore the range and options of benefits are changing rapidly to include flexible benefit plans (Free Management Library, 2013).

Benefits are forms of value other than payment, that are provided to the employee in return for their contribution to the organization for doing their job. Some benefits, such as unemployment and worker’s compensation, are federally required. Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and worker’s compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement (pension pay), profit sharing, stock options, and bonuses. Benefits are usually divided into two categories: tangible or intangible. The benefits listed previously are tangible benefits. Intangible benefits are less direct. In example, appreciation from a boss, likelihood for promotion or nice office. People sometimes talk of fringe benefits, usually referring to tangible benefits, but sometimes meaning both kinds of benefits. While the company usually pays for most types of benefits, some benefits, such as medical insurance are often paid in part by employees because of the high costs of medical insurance. DISCUSSION

In my experience, skill based pay may pose risks when an employer pays higher compensation that is not offset by the organizations productivity. Employees may also become bored and lose interest unless there is opportunity to maintain acquired skills. More importantly, when employees hit the top of the pay structure, they may become frustrated and leave the company simply because there is no opportunity for advancement and a salary increase becomes unlikely. As a working professional, I am aware that employee benefits, though a part of total compensation, embraces non monetary form of compensation ranging from health care plans, pension or retirement plans, social security, insurance, family and medical leave (Bernadin, 2007), severance pay, payments for time not worked (vacations, sabbatical, holidays), workers compensation when injuries occur on the job (Cascio, 2003), foreign service premiums, child care and even tuition reimbursement. A practicing manager must be aware of and understand the various constituents that are considered to be vital to job satisfaction.

It usually includes: pay, promotion, benefits, supervisor, co-workers, work conditions, communication, safety, productivity, and the work itself. Despite the previous elements, job satisfaction is frequently measured by organizations through the use of rating scales where employees report their reactions to their jobs (Judge, T. A., Thoresen, C. J., Bono, J. E., & Patton, G. K.2001). Moreover, most managers could use the information covered in this paper to gain an overall understanding that a job design aims to enhance job satisfaction and performance. Both of which could be achieved via job rotation, job enlargement and job enrichment. Other influences on job satisfaction include the management style, culture and employee involvement. Understanding such concepts may prove beneficial to management staff in that each factor discussed figures into an individual’s job satisfaction. Though, one might think that pay is considered to be the most important component in job satisfaction, this has not been found to be true. Employees are more concerned with working in an environment they enjoy. This is a pointer to the fact that compensation and benefit issues are not to be taken for granted by employers because not only pay but also fringe benefits influences the kind of employees who are attracted. CONCLUSION

In conclusion, compensation is the area of human resources management which involves making decisions about pay that are fair, equitable and competitive with current market rates. It provides employees with incentives to improve performance; ensure that benefits packages are cost effective and serve to motivate employees, and make certain that all compensation-related policies and programs comply with government requirements. Compensation encompasses all forms of financial returns, tangible services and benefits received by employees as part of their employment. Without a compensation philosophy, leaders often find themselves unsure of what to offer as a starting salary for a new employee. Meaning, it may lead to offering too high a total compensation package for a new employee in relation to existing employees, or being unable to successfully hire because the total compensation offer is too low to be competitive. Whether developing a compensation package for new or existing position, it is important for human resources managers to consider their organization’s size and complexity, its fiscal capacity and the market rates for jobs requiring similar skills.


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Milkovich, G. T., & Broderick, R. F. (1989). Developing a compensation strategy (CAHRS Working Paper #89-19). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies. Retrieved from http://digitalcommons.ilr.cornell.edu/cahrswp/417 Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2004). Human resource management. Boston: McGraw-Hill/Irwin. Parker, S. “Refocusing Performance Management for High Performance.” Refocusing Performance Management for High Performance. Sage Journals, n.d. Web. 08 Feb. 2013. Rocavert, Troy (2008, June 14). The Easy Home Based Business Myth. Retrieved on

February 08, 2013, from http://www.isnare.com/?aid=205171&ca=Business Sibson: “Developing a Compensation Philosophy That Goes Beyond Mom and Apple Pie.” Sibson Consulting, 01 Aug. 2005. Web. 08 Feb. 2013.

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