Compensation and Benefit Strategies for Organizations

Introduction to Compensation and Benefit Strategy

According to the Entrepreneur website, 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 determines whether an employee chooses to work for an organization and whether they remain on board. It is also essential that employers benchmark against other companies to assess whether they are paying equitable compensation and benefits in an effort to attract and retain employees (Martocchio, 2009). Accordingly, a compensation philosophy is developed by the organization to establish a pay structure and evaluation process that ensures fairness.

Compensation philosophy is the method used by an organization to attract, motivate, and retain talented employees. The philosophy aims to develop a consistent compensation approach that takes into consideration the organization's competitiveness in attracting and retaining employees, internal and external equity, and whether performance is tied to pay increases. It is also crucial to determine what direct and indirect compensation approaches the organization will adopt when developing an effective compensation philosophy (Entrepreneur, 2011). The company must consider every factor that potential employees weigh. For example, providing competitive pay, a comprehensive benefits package, and opportunities for employee development are all critical considerations.

Compensation Philosophy and Core Components

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

Compensation of employees in an organization should coincide with the growth experienced within it. With an increase in profit margins, most employees will feel that they deserve to be compensated, since it is through their hard work that the company has realized such profits. A well-structured compensation philosophy acknowledges this relationship and ensures that employees share in organizational success.

Case Study: Employee Dissatisfaction at the Beauty Academy

The organization under review changed its name as part of a rebranding strategy, transitioning from a beauty salon to a beauty school. The academy began with a small number of employees who, over the years, participated in its growth. Though additional employees were recruited to manage the increased influx of students and clients, dissatisfaction persisted — some long-serving staff retained their original job descriptions and compensation packages despite the organization's significant expansion.

Employees consistently worked hard to provide quality service and build the school's image, guided by the ethic that "a customer is always first and right." Despite this dedication, employees grew increasingly dissatisfied because their compensation packages did not reflect the school's growth and there was no proper employee review system in place. This dissatisfaction is identified as a primary cause of the high employee turnover within the academy.

In the present business environment, employees expect a compensation package that matches their contribution to the organization. Many businesses have been compelled to review their employees' job descriptions in relation to their compensation entitlements. The academy can only retain its customers when those customers are satisfied with the service they receive, and that satisfaction depends in large part on the welfare and motivation of employees.

The academy should therefore work toward reducing employee turnover by establishing a board to review salaries and ensure they are competitive with industry standards. It should also improve compensation by adopting updated compensation systems that boost worker morale — examples include pay for performance, gainsharing, pay for knowledge, and incentive plans such as employee stock option plans. The organization should further provide enhanced benefits to employees, which may include housing assistance, better healthcare insurance, and educational support for employees' children.

Proper salary review and employee appraisal should be a top priority. For instance, employees who began as receptionists remained in those roles even after the organization grew considerably, and those who started as instructors were still instructors after years of service. New employees were recruited around them without any promotions, allowances, or bonuses being awarded to the original staff — despite the fact that their hard work had contributed directly to the academy's growth.

Conclusion

Reward and appraisal are important tools used to ensure that employees are motivated and dedicated to their work, thereby retaining them and improving the company's productivity. Every organization should therefore have a dedicated team responsible for managing its compensation and benefit plans. Crucially, management must ensure that employees understand and support the compensation system in use — if they do not, the plan will have little direct impact on organizational performance. A transparent, equitable, and regularly reviewed compensation strategy is ultimately the foundation of a productive and committed workforce.

References

About.com (2011). How to do a break-even analysis. Retrieved from

Entrepreneur (2011). Compensation. Retrieved from

Gainsharing (2012). Q&A. Retrieved from http://www.gainsharing.com

Gabris, G. T., & Ihrke, D. M. (2000). Improving employee acceptance toward performance appraisal and merit pay systems: The role of leadership credibility. Review of Public Personnel Administration, 41–53.

HR Guide to the Internet. (2012). Compensation: Incentive plans: Gainsharing. Retrieved from http://www.hr-guide.com

Hopkins, B. L., & Mawhinney, T. C. (1992). Pay for performance: History, controversy, and evidence. Haworth Press.

Martocchio, J. (2009). Strategic compensation (5th ed.). Pearson Education, Inc.

Pressman, P. K. (1985). An assessment of teacher attitude toward incentive pay.

Pynes, J. E. (2008). Human resources management for public and nonprofit organizations: A strategic approach. John Wiley & Sons.