Employee Comp the Future That Is Fast

Employee Comp

The future that is fast heading our way is often thought to be associated with creative technologies and businesses that do online services. But this is definitely not the full picture. Many traditional businesses are also being impacted in regard to what will be expected about some of their core operations, including in regard to how they treat and motivate their employees. Basic manufacturing is no different. In order for companies like ours to be ready for the future, we have to look seriously at the ways in which we recruit employees and keep them here once they sign on. With 120 employees whose skills encompass a broad range of talents -- some basic skills others tied to quite sophisticated technological abilities -- we have the chance to position ourselves to be ahead of the curve as the entire field of payment, rewards and recognitions is examined yet again. Past approaches favored merit and incentive pays and benefits; today the field is open for innovative ideas that are yet to be developed.

In the sections that follow, we have provided an overview of the important elements of employee compensation and reward considerations, including a look back on why the various models that currently exist predominate, and why they may be outdated. We then offer a look at some of the issues that our company is facing today to determine which models might be most appropriate as well look toward making a new package that reaches across all our employee levels.

Older pay strategies have tended for a number of years to be either merit- or incentive-based (Wang, 2004). For the most part our company has mirrored these trends. Newer models are exploring many other avenues of indirect compensation, learning, skills and interest developments and ways in which younger people with technology talents can maintain their interest in our business model once we have gotten them onboard (Tropman, 2001:25). While some of these emerging options are still rather straightforward, others are significantly different from in the past (Westman, n.d.). After presenting an overview, we offer suggestions that management might consider in determining which path to follow as we set about redirecting our human resource methods for the future.

INTRODUCTION

The manufacturing sector is undergoing a rather remarkable transformation on many fronts. To a good degree it is changing because of pressures brought about by the economic downturn (CompuData Systems, 2009). Manufacturing itself remains a critical part of the global economy, but many factors are forcing it to adjust toward becoming a leaner and often more adaptable sector. It is widely known that many companies moved their manufacturing to other countries to lower personnel costs. But those actions did not negate the fact that the sector had to look inside as well if it was going to fix its issues about positive returns (Tropman, 2001:31).

Our company efforts seek to find a new way by looking at the topic of employee compensation to entice new types of workers and to keep the ones we have aligned with our needs as they change over time. Traditional manufacturing situations have often been seen as being similar to the way construction or even professional engineering businesses operate: on the basis of specific projects or production patterns (Wang, 2004). This involved having a workforce with many different types of employees with all levels of skills and commitment (Tropman, 2001:31). For the most part, employee compensation packages were fairly standardized except for high-end management. Now serious consideration is being given to how these resources might be better targeted to reach across the full complement of employees we have or need and how to make sure they want to stay with us (Westman, n.d.).

In light of this exploration, we are offering an overview of the history of employee compensation packages with an eye as to how personalized models came about starting in the 1970s. We then look at three variations that have affected our company and that may guide us forward. The first, which mostly reflects the majority of our current style, is merit based. The second uses incentives instead. And the third is essentially a continuation of menu-drive option that allows for uniquely personalized components. The information provided here is offered to generate a discussion about where our company is now and how we can develop our own hybrid model that could serve as a guide for the entire manufacturing sector (Vivekaanand, A., n.d.).

HISTORY OF COMPENSATION PACKAGES

The old pay model, which has basically been accepted across history, assumes that there are some five main elements worth noting. Tropman offers a summary of these factors in an online chapter posting called "From Old Pay to Total Compensation" (2001:8). Base pay, regular merit increases, benefits, a few perks (often unique to a particular company), and other occasional gratuities are these elements. In combination, these were thought to be most successful in attracting the right people, keeping those who performed best, motivating all employees and, at least to some extent, making the company appear competitive (Wang, 2004:15). Theories from as far back as the late 1950s viewed these combinations of employment conditions as being either "dissatisfiers" or satisfiers -- elements that at least kept people satisfied sufficiently that something unique had to catch their attention, often even more than just more money. Generating more of the latter (satisfiers) and fewer of the former (dissatisfiers) would basically make the environment more attractive and presumably more efficient in what was being produced (Wang, 2004:19).

By about 1971, future-looking commentators started to see the situation as being different; something more unique to the specifics of particular work places. Expecting to grow performance based on the production characteristics alone seemed unrealistic, especially with the growing awareness of the ways that humans learned and interacted with their environments. A person's interactions helped them mature and advance uniquely, and so it was important for human resource management to be aware of this and react accordingly. As Tropman reiterates of the writings of others from this time, there is much danger in assuming cookie-cutter answers to personnel expectations (2001:4). Menu driven preferences for compensation packages was one way to allow businesses to let their people choose what they thought was best for their personal growth:

This roiling of the waters of need creates a pressure for choice. Choice is everywhere today, in the workplace no less than in the supermarket. Employees are increasingly looking at their paycheck the way they look at their market basket -- they want some say in what goes into it. They want the chance to configure, within reasonable limits, their own rewards systems (Tropman, 2001:6).

From the viewpoint of today's business, however, the situation has evolved much further. As the world shrinks to the point where we can see more about how companies actually function, compensation considerations are being reviewed and shown to be much broader than generally accepted. And manufacturing businesses are no different (Vivekananda, n.d.). The challenge comes in achieving two goals: rewarding these various skills across the entire company and doing so in a way that gives employees a voice and sense of involvement in the company's success. As Scott and McMullan put it: "In response to the economic crisis, employers are concerned about keeping employees engaged after they have suffered through wage freezes, lost bonuses, increased work demands and downsizing. Motivating employees under these circumstances while recognizing that once the economy improves top talent may leave for other opportunities has created a new corporate battle cry: employee engagement" (2010:1).

Companies make hiring decisions for many reasons. Why people stay or leave is becoming more difficult to judge. Companies like our need to go step-by-step through our different levels to sort through what is known and determine how to do what was done in the past for top executives but with an eye toward other employees. The many layers of skill are even more important today (Tropman, 2001:31).

In our business, the era of creative compensation has not only arisen but has begun to settle in (Wilikie, 2003). We often know now that we need young people who have core math, science and technology skills but who still want to (or need to) begin at the bottom and work their way up -- even if more quickly than over the course of a full career. As our impact becomes more global, we may actually find ourselves involved in issues such as critical investor and financing considerations, many of which require different types of top fiscal managers -- who bring their own viewpoints on compensation and incentives (Barton and Laux, 2010). It is important for struggling companies to stay focused on the full scope of their employee needs, not just on top management compensation. Skilled people have to be rewarded appropriately with creative interests if they are going to stay from the time they start low and grow their way up.

MERIT PAY

Merit pay-based strategies usually correlate compensation with job performance after the fact. The assumption is that if one works more efficiently or effectively, better, different, more valuable rewards and recognitions will follow (Wang, 2004:15). Part of the reason that we have typically used this approach is because the items we produce are basically project-specific. Accordingly, we design, bid and manufacture the items based upon our best estimates of what the ingredient elements costs, the steps involved and the needed manufacturing elements. The price (within allowable parameters) is then negotiated. As a business, we constantly look back on what was promised and seek to ensure compliance while saving money. If we happen to do better than expected, the end savings can be used to augment the core compensation elements either in special recognitions or perhaps through bonuses or other perks. Merit pay is very much a backward looking approach (Wang, 2004). Success breeds bonuses as well as other types of personal motivators (For the most part, this is how we operate and most of our personnel are compensated according to the outcomes that reduce our projected costs.

INCENTIVE PAY

Incentive pay (though still reward and recognition oriented) looks in the opposite direction. It is forward monitoring and seeks to convert opportunity, expected or unexpected, into savings. Employees look at ways that they can improve the end result before they get there (Wang, 2004). Projects are still developed and bid, often laying down rather direct parameters for keeping control of costs. Only in this case we are starting to write into our business planning feedback loops and streamline efficiencies that can encourage everyone along the process to find better ways to get a quality end result. We have found that this approach works better than merit assessments for those employees who seem to have the largest overview of the process. Individual workers on every level have made suggestions and been rewarded for their suggestions. But overall the line of production continues in a similar way with too little emphasis on what particular line staff is doing. Sales and marketing personnel may have incentives to be creative, but this doesn't always translate to what production people can do. Traditional incentives just don't go far enough for today's changing workforce.

What remains for us as a company is to look more broadly at other potential cafeteria styles of innovation. Tropman affirms some of the core problems that old-style payment systems have had in the past (2001:10). Our company has tended to think about compensation in a disjointed way. Wages or hours have been cut out of necessity as work slowed and new sales practices had to be used to keep contracts for work coming in. But this has happened without careful regard to costs or with little review of the new skills that younger employees bring with them (Vivekananda, n.d.). We have found that good salaries, reliable health benefits, retirement and other holiday packages are essential -- for those who look toward long-term careers within our company (Wilkie, 2003). For those who may see working with us as one step toward a future where technology and global partnerships are likely to fundamentally change our business approaches, these attractions are less solid. New assessments of what might work have to be uncovered.

INNOVATION PAY

David Westman makes an interesting point in his look at the economic times. He sees, like others do, that there is growing pressure on companies to do two things: reach out to uniquely qualified top management and yet not find themselves being set up for unwise, top-management biases in regard to compensation opportunities. Regular employees need to be seen as having skills that the company does not want to lose either (Westman, n.d.). The financial and banking sector has generated much attention recently in regard to the extravagant bonuses and payouts to executives that have brought about fiscal ruin to many corporations (Scott and McMullan, 2010). At the same time, the evidence is becoming clear that job satisfaction, the degree to which employees feel involved in the operations of the company, and the overall willingness of a company to ask employees for their opinions have been proven to be better indicators of whether they see the company as favoring their contributions (Carpenter, 2007). These findings must be balanced against that fact that there is a shortage of qualified professional, technical and even administrative talents even as those with the skills are adaptable and in search of change and growth. Our desire to find more innovative pay patterns must reflect this trend. Westman's words are instructional: