Total Compensation Methods Term Paper

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Total Compensation Methods

Impact of various compensation methods and benefit programs on employees and organizations.

The compensation term is used for the combination of salaries, benefits and wages for the employee. It also includes hourly or annual salary, bonuses, benefits and incentives like short-term disability insurance, retirement plan and health coverage. Thus, a comprehensive package includes a combination of different components. The collection of all components is relevant to "Employee Compensation Plan" along with the way of payment and the reasons individuals collect salary increases, incentives and bonuses (Milkovich and Newman, 2005).

Hourly Wage

Employees who are not exempted, receives hourly wages with an addition of overtime payment for working more than 40 hours in a week. The rate of overtime to hourly wages is one and half. Employees having a bargaining and collective contract with the management have already set wages according to the contract for certain period and this known as "Labour union Contract." For instance, the employers may have to pay $17.75 to licenced plumbers, $19.75 to master and 15.75 to apprentice plumbers on hourly bases as a combined bargaining contract (Hadley et al., 2006).

Annual Salary

There are different salaried person who have been categorized as unspecified and thus allowed for overtime yet term salary usually relate to annual salaried employees or we can say that it is compensation without overtime. This means that a worker who is a salaried employee is the one who is not entitled to have overtime. Salary scales that take into consideration the respective years of education and professional experience, credentials, qualifications such as work competency and the functional expertise required, is sufficient to determine a compensation plan for employees. Annual salaries and all increments on the basis of grade promotions for employees in the federal government are annually published by the U.S. Office of Personnel Management. These are paid in accordance to the General Services and the Senior Executive Service wage scales (Hadley et al., 2006).

Retirement Savings

Employees can avail the opportunity of participating in an employer sponsored 401k scheme. Tax deductible contributions that are to be subtracted from every month's pay check are separately designated. Companies equate 50% to the contribution of the employee. Thus, for instance, an employee designating 10% of his gross salary would be assisted by the company which would, in this scenario, sponsor 5% of the employee's gross income. The time duration, before the joint contribution is completely available to that employee, is called vesting which could vary around 1 to 5 years. A vesting scheme of 4 years would imply that after the first year from the initial deposit of the company to the 401k scheme, 25% of the contribution would belong to the particular employee. Subsequently, 50% at the end of two years, 75% at the end of the third, and eventually 100% at the end of the final. However, an employee would be forfeiting the non-vested contribution of the employer if he/she resigns from the job before the vesting period expires (Hadley et al., 2006).

Raises, Bonuses and Incentives

Salary increments of a compensation plan are driven by the employer's performance management systems, which consider the performance rankings and respective ratings of all the employees. For instance, an exceptional performance appraisal might result in certain percentage increase in salary. Usually, bonuses and the incentives are in cash forms and are awarded to employees as per a certain percentage of their gross pay or a distinct share of any optional fund raised by the organisation for the purpose of employees' benefit as they were mainly responsible for the overall profit earned by the firm. In addition to this, incentives and bonuses of executives are also linked with increasing share value of the public limited company (Conrad et al., 2004).

Group Health Benefits

Health care benefits are also included in the total compensation of an employee. Most of the monthly premium is usually paid by the organisations on employee's behalf and a small amount is deducted from a worker's salary. Many organisations sponsor the health care program in which the premium is taken from the gross income. Dental and optics care are also provided in the firms which grant the group health coverage. In some companies, employer pay total premium if the disability insurance is minor one and give coverage if the disability insurance is of long-term as a portion of worker's total income (Conrad et al., 2004).

An organization where salary and benefit administration strategies relate to organizational culture and performance

A world-wide famous chain of the hamburger and fast food restaurants known as McDonald's Corporation (NYSE: MCD) serves around 58 million customers on daily basis. McDonald's Corporation also run some famous small chains of restaurants also like Pret A Manger, which was being run by it till 2008. This corporation was one of the investors in Chipotle Mexican Grill until the year 2006. Boston Market was owned by MacDonald's until the year 2007 (Kukreja, 2011).

McDonald's Corporation has a very tremendous record in maintaining corporate culture as well as organisational commitment. In the corporation, employees are told not leave or resign from the company during the starting three months of their job. Because, it is observed that if the employee stays there for a longer period of time, employee's productivity and the investment made by company by training that employee, renders profitable results. Managers also enjoy and earn more with fewer staff members. Employees are the real assets of an organization. Keeping in view their retention as a tool of cost saving, managers frequently interact with them to get an idea about their motivational factors at workplace. It is to offer them better workplace (Kukreja, 2011) so that they remain loyal and organisation can save around $10,000 annually. A professionally groomed manager along with his crew can ensure the revenue of $100,000 on annual basis.

McDonald's is fully aware of its corporate social responsibility and making necessary initiatives for it. According to its 2011 report, it has showed concern for environmental progress, well-being, nutrition, and community relations. There is an important area which is discussed in this report. It is about sustainable supply chain. McDonald's is concerned about quality of poultry and beef and wants to make sure that animals were not raised in deforested areas of Amazonian sector (Kukreja, 2011). Furthermore, it is working on the plan of certified sustainability of palm oil till 2015.

McDonald's has linked its corporate social responsibility with its core values. Particularly the environmental concerns are the most important aspect of its operating plan guided under ethical values (Kukreja, 2011).

Certain human resource management factors are also included in the report. The major ones are diversity, training, development, learning, and retention. No doubt these factors are really important in the modern corporate world of 21st century but an interesting analysis is that McDonald's has not linked these factors with sustainability (Kukreja, 2011).

There are varying notions about sustainability strategy of McDonald's. When viewed from the perspective of employees, the organisation is committed to satisfy its employees and promote friendly culture at workplace (Kukreja, 2011). On the other hand, certain aspects of sustainability strategy feel totally out of reach.

Employee retention is a big issue for McDonald's. As market is wide and unlimited opportunities are available, trained staff members find it easy to switch their jobs. As mentioned earlier, McDonald's is concerned about retention of its employees; hence it keenly focuses on various initiatives which can pave way for employee satisfaction and loyalty. The initiatives range from training opportunities to emotional attachment with the company (Kukreja, 2011).

In order to acknowledge the talent of employees, McDonald's arranged a Voice of McDonald's Contest in 2009-2010 in which invited more than 10,500 employees from international branch network of McDonald. Chenee Capuyan, a candidate from Philippines, won the grand…

Sources Used in Document:


Conrad DA, Christianson JB. Penetrating the 'Black Box': Financial Incentives for Enhancing the Quality of Physician Services. Medical Care Research and Review. 2004;61(3, Suppl):37S -- 68S

Hadley J, Reschovsky J. Medicare Fees and Physician's Medicare Service Volume: Beneficiaries Treated and Services per Beneficiary. International Journal of Health Care Finance and Economics. 2006.

Kukreja, P. (2011). Employee Retention of McDonald's. Taken from:

Milkovich, G.T. & Newman, J.M. (2005). Compensation. 8TH Edition. Chicago: Irwin.

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