Compensation & Benefits Plan for a Mid-Size Manufacturer

Company Description and Executive Summary

Fishers is a mid-sized manufacturing company seeking to maintain market leadership through the development and implementation of a compensation plan that meets the needs of its owners, clients, and employees. Compensation programs are critical to organizational effectiveness, as they play a fundamental role in employee motivation, satisfaction, and productivity. The company seeks to achieve two crucial objectives through this compensation and benefits plan: (i) to reduce turnover, which has been a persistent problem over the last couple of years, and (ii) to attract new talent while retaining and developing existing employees.

The company is at a critical juncture. It can no longer offer the perks of a small entrepreneurial enterprise, having exceeded the employee threshold for that categorization. Employees have been complaining about what they believe is below-market compensation, and their morale appears to be diminishing noticeably. Sales have been on a consistent downward trend since the beginning of the year, and with the employee turnover rate hitting double digits for the first time since the company's inception, it is becoming evident that the benefit plan must be upgraded to the corporate scale. Through its mission statement, the company has committed itself to satisfying employee and consumer needs, and it understands that satisfied employees will be crucial to the actualization of this and other corporate goals.

One of the objectives of this compensation plan is to attract new employees while retaining existing ones. The company intends to achieve this by staying a step ahead of those firms it competes with for talent. Cappelli (2012) notes that companies are finding it increasingly difficult to fill skilled job positions due to a shortage of qualified applicants. To avoid such a scenario and remain competitive, the company requires a clear understanding of the compensation and benefit programs common to this industry. No changes are intended to the basic pay structures; the aforementioned objectives will be pursued by upgrading benefit packages to reflect the company's new scale. Some of the most significant employee benefits offered by comparable firms include the following.

Paid Time Off: There is an array of paid time off options from which employers can choose. Bereavement or funeral leave, paid personal days, and paid sick days are the more common forms. Such breaks are designed to allow employees to unwind and attend to non-work matters (Beam & McFadden, 2001).

Market-Based Pricing Strategy

Health Insurance: The employee assistance counseling service program (EAP), disability coverage, prescription drug plans, vision and dental insurance, and medical coverage are the most common options. Health insurance is widely considered the most important employee benefit (Beam & McFadden, 2001).

Retirement Plans: Pension, 403(b), and 401(k) retirement plans are offered as investment vehicles that allow employees to defer taxes and save a portion of their income for the future. Most employers match 25 cents to every dollar an employee sets aside for retirement (Beam & McFadden, 2001).

Finance-Safeguarding Insurance: Long-term care insurance, long-term disability insurance, and short-term disability insurance are common benefits that provide financial protection in the event of an emergency (Beam & McFadden, 2001).

Training: Employee training benefits both employers and employees. It improves employees' on-the-job skills, increasing their earning potential and job value. Employers, in turn, benefit from improved output quality, greater employee retention, and increased corporate performance (Beam & McFadden, 2001).

Lifestyle Benefits: These benefits are offered to relieve employee stress and ensure that employees remain happy and contented (Beam & McFadden, 2001).

In addition to core benefits such as disability and health coverage, employees require voluntary benefits (Cappelli, 2012). Employers can provide those benefits that are most meaningful to employees based on their life-stage needs (Cappelli, 2012). Employees from the Baby Boomer generation value benefits such as long-term care and critical illness coverage, and they tend to prefer dental and health benefits that are both more comprehensive and provide greater predictability and stability (Cappelli, 2012). However, this generation is retiring, and the Millennial generation — who consider benefits such as pet insurance, movie tickets, apparel discounts, computer discounts, mortgage refinancing assistance, and fitness offers more important than high-cost health plans — are quickly coming to dominate the workforce (Cappelli, 2012). Employers must recognize these generational differences and provide meaningful choices if they are to succeed in creating a satisfied and engaged workforce.

The company, recognizing that benefits that satisfy a Baby Boomer employee may not have the same effect on a Millennial employee, will offer a benefit and retirement plan that gives each employee the discretion to elect or forego a number of health and welfare components. Table 1 outlines the proposed total compensation structure, and Table 2 shows the breakdown of the health and welfare benefits.

Table 1: Proposed Total Compensation Components

The Benefit Gap: What the 21st Century Employee Needs

Benefit and Retirement Plans: Medical, dental, and vision coverage; business travel, life, accident, and disability insurance; social security and Medicare; savings and retirement plan. Total estimated annual cost to the company and combined salary figures are summarized in this table.

Table 2: Breakdown of the Health and Welfare Benefits Component

Healthcare (employee elects preferred choices): Medical, dental, vision.

Disability Benefits (employee chooses duration and percentage of coverage): Long-term disability, short-term disability.