Term Paper on "Compensation and Benefit Strategy of an Organization"

Term Paper 5 pages (1774 words) Sources: 10

[EXCERPT] . . . .

Compensation and Benefit Strategy of an Organization

Compensation and benefit strategies

According to Entrepreneur website, the definition of compensation "in financial terms, are the salary and wages you pay to your employees for the work they do. Other nonfinancial forms of compensation can also be offered to attract and retain staff" (Entrepreneur, 2011). Compensation is an extremely important factor that ultimately may determine whether an employee comes to work for an organization and keeps them on board. It is also essential that employers consider other companies and compare whether they are paying equitable compensation and benefits in an effort to attract and retain employees (Martocchio, 2009). Hence a compensation philosophy is developed by the organization which will recognize a pay structure and evaluation process to ensure fairness.

Compensation philosophy is the method used by the organization to attract, motivate, and retain talented employees. The philosophy is to develop a consistent compensation approach, taking into consideration the competitiveness of the organization in attracting and retaining employees, internal and external equity, and whether performance is tied to increases. It is also crucial to recognize what direct, and indirect compensation approach an organization will take when developing an effective compensation philosophy (Entrepreneur, 2011). The company must take into consideration every factor that is considered by potential employees. For example, by providing competitive pay, a benefits package, and developing employees.

The critical components that must be considered when developing a compensation strategy are job descriptions, job analysis, job evaluation, salary surveys, and establishing policies and reviews (About.com, 2011).

Compensation of employees in an organization is supposed to concide with the growth experienced/realized within it. With an increase in profit margins, most of the employees will feel that they should be compensated since it is from their hard work that the company has realized such enormous profits. B.C. Beauty Academy as it is now called changed its name from Le Mode Beauty Academy as its rebranding strategy, at this time it was changing from a beauty salon to a beauty school. This beauty school only started with a handful of employees who over the years took part in its growth, though more employees were recruited to help with the high influx of students and clientele, they still felt unsatisfied since some of them were still retaining their previous job description with the same compensation package.

The employees always worked harder to provide quality service and build the school's image since one of their work ethics was "A customer is always first and right." In their effort to uphold the school's name, the employees have over the years developed dissatisfaction in their work because their compensation package is not in line with the school's growth also there is no proper employee review system. Hence, the reason why there is high employee turnover within the Academy.

In the present business world, employees are entitled to a compensation package that matches their input into the business. Many business enterprises have been forced to review their employee's job description in relation to the compensation package they are entitled to.

B.C. Beauty Academy can only retain their customer when they are satisfied with their work and this satisfaction can be achieved if the employees' welfare is catered for. The Academy should, therefore, work towards improving their employees turnover by, setting up board to review the salaries of the employees to meet their competitors, they should also increase their compensation through adopting a change in the compensation system which will boost the morale of the workers, an example of this compensation system include pay for performance, gain sharing, pay for knowledge and incentive plans like the employee stock options plans. They should also provide benefits to their employees, which may include housing, better healthcare insurance and even assisting their children through the education system.

Proper salary awarding and employees' review should be their topmost agenda in their effort to retain their employees. For instance in B.C. Beauty Academy, the employees were not given a promotion for their many years of service because those who started as reception were still reception and those who were instructors were still instructors even after new employees were recruited, they were also not given allowance and bonuses for their hard work which had led to massive growth in the beauty academy.

As a player in the service industry, B.C. Beauty Academy can also improve its compensation package by initiating a pay for performance scheme. This is where; employees are rewarded based on how much growth/contribution he/she will have brought to the business. This scheme has successfully been initiated by several organizations and government run programs such as the Public education system where they initiated a financial incentive to be used to move the teachers towards meeting certain targets/standards or quality. The objective of this program is to improve the quality and effectiveness of the services offered in schools. It has two main aims, first is to make the teacher to focus on the strategic priority at stake, the second part is motivation of the teacher by rewarding him/her for the excellent performance Gabris & Ihrke, 2000()

Merit pay compensation scheme instituted by companies and which can be used by B.C. Beauty Academy can be individual or group-based to make them work together for a common good. For this reward scheme to succeed, there are some condition which must be met by the employee. They are as follows; he or she must have control over their performance, there should be a distinct difference in performance between the high performance to be rewarded and the low performance not to be rewarded and lastly, the performance must be measured reliably and regularly (Hopkins, 1992).

Unlike, the one for teachers, where pay for performance meant that those teachers will be assessed based on five key criteria. Such as; the professional effectiveness, the students' progress, their style of teaching and the various assessments, understanding and knowledge and finally the professional characteristics Patricia k. Pressman, 1985.

The B.C. Beauty Academy employees can be assessed based on their professional effectiveness, experience, and their value to the organization in terms of revenue generation.

Some of the limitation to this scheme is that there could be favoritism in terms of awarding and identification of those employees to receive benefits. Without proper and independent assessment team put in place, the system might be faced by discrepancies in awarding of benefits. In addition, pay for performance is likely to cause division among the employees because all of them will be working individually so as to earn the bonus, this can be avoided by rewarding the employees as a team. Lastly, this reward scheme may be appropriate for other job description which does not contribute directly to the firm's increase in profits.

Also, gain sharing as a compensation strategy can be successfully used to solve the challenges faced by B.C. Beauty Academy. It is where the employees' bonuses are shared among them according to a predetermined formula. Payments may be as a result of the employee's efforts to reduce cost or increase revenue (Gainsharing, 2012). The main purpose of this scheme is to involve the employees in improving the company's performance and while doing so, motivating them to work more (HR-Guide.com, 2004). This scheme was introduced in Chelsea Sugar Company, and since then, its operation has significantly improved because the company is able to reduce its wastage and expenditures hence realizing profits. In comparison, B.C. Beauty Academy can use this payment scheme as a way raise the employees' motivation, which will translate to the provision of quality services and longer years of service.

Pay for knowledge, on the other hand, if well-developed can be used to enhance an Academy's compensation scheme. This scheme enables employees to invest more in learning about their career and, therefore, their reward comes in when they are able to perform a new skill in the firm. This scheme is beneficial especially to a firm experiencing a high employee turnover, because through it, the employees will be maintained and retained in the firm and this will in turn contribute towards the company's quality achievements (Pynes, 2008).

Incentive plans like the employee stock options plans are another example of a compensation plan which may enable a company to cope with the challenges such as that concerning high rate of employee turnover. This is where the employees are paid in the form of shares for the company; hence, they have to work harder for their shares to gain financially. This scheme will make the employees become self-motivated. But the self-motivation is only dependent on whether the firm is doing great in the stock market (Pynes, 2008). With this plan, public companies are more flexibility when choosing a stock plan to use than the private companies. One limitation with this scheme is that it is faced with quantification issues, where it becomes difficult to quantify the amount of stock to be rewarded to the employee's especially when the stocks are fetching a high market price or when… READ MORE

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