Rewards and compensation strategies in organizational management

Rewards and Compensation

In a recent Mercer poll the top four concerns of human resource managers are pension and benefit cost containment, attraction and retention, succession planning and the impact of changing demographics. Each issue is salient to the success of an organization but for the purposes of this essay we will address the singular issue of rewards and compensation.

Compensation is defined as a 'systemic approach to providing monetary value to employees in exchange for work performed'. Organizations around the globe perennially grapple with the subject of appropriate rewards and compensation and today's volatile economy further complicates the process.

The latest compensation model is the 'total rewards program' and much has been written about it. In an article by Mercer (2004) he shared the following:

In terms of a return on investment, 'total rewards' is an effective way to manage the employment relationship -- it ensures focus on programs that promote employee engagement and behavior consistent with business strategy. It creates overall rewards programs that are compelling in the marketplace (both for current and prospective employees), maximizes the perceived value in the eyes of employees helping to attract and retain the right talent, and incorporates less easily quantified rewards such as career development, identified as key drivers of employee commitment.

He added that this system of compensation is mutually beneficial to the employer and employee because it allows each to have access to a comprehensive view of the value of the employment agreement and it is highly cost effective as well.

The total rewards model, last updated at the beginning of this decade until a more recent adaptation in 2006, has resulted in a powerful prototype for organizations everywhere. Succinctly, this latest exemplar "combines five elements into tailored packages designed to achieve optimum business results" (Christofferson & King, 2007).

The amended program integrates compensation, benefits, work-life, performance and recognition, and development and career opportunities, in the total rewards package making it more relevant and flexible for today's employers and employees. Financial remuneration and benefits are expected components of a compensation package. The last 3 mentioned bear further scrutiny.

The more progressive organizations have been incorporating programs that are designed to help their employees do their job more effectively. These businesses have come to realize that when they support their workers -- their workers support them. Examples of work-life programs include on-site daycare and flexible scheduling. Technology and a global economy have forced companies and employees to change their expectations of each other -- and for the most part this has improved opportunities for both.

Studies have shown that employees demonstrate greater satisfaction in their jobs when there is a recognition component to a compensation package. According to Christofferson (2006) "recognition is necessary in order to reinforce the value of performance improvement and foster positive communication and feedback. It can be programmatic or simply cultural in execution."