CASE 6

Managing Compensation

Total compensation; base compensation which means the fixed pay that can be either a regular pay check or an hourly wage, pay incentives which are program’s to reward employees for good performance, bonuses or profit sharing, indirect compensation or benefits which include vacations, health insurance and unemployment compensation.

Designing a compensation system, first to design a system that enables the firm to achieve its strategic objectives and secondly is molded to the firm´s unique characteristics and environment.

Internal vs external equity

Internal equity means fairness of the pay structure within a firm. External equity means the fairness of pay relative to what other employers are paying for the same kind of job. 

The distributive justice model of pay equity means that employees exchange their contributions or input to the firm; skills, effort, time etc. This perspective aims that employees are constantly comparing what they bring into the firm and what they get in return and as well compare this input/outcome with what other employees in the firm have. 

The labor market model of pay equity means that the wage rate for any given occupation is set at the point where supply of labor equals the demand for labor in the marketplace. In general, the less employers are willing to pay and the lower the pay workers are willing to accept the lower the wage rate for that job. The main point of this model is that external equity is achieved when a firm pays its employees the ongoing rate.

Fixed vs variable pay

Fixed pay reduces the risk to employees and it is easier to administer. Variable pay is more common in some selected employee groups such as sales for example.

Performance vs membership

A company that chooses rather membership-contingent compensation provide a similar wage to every employee at given job.  Performance-contingent compensation is used when a substantial portion of its employees pay is tied to individual or group contributions and the mount of wage can vary big time bet ween person or group to another. Usually companies using performance tend to have fewer levels of management, rapid growth and internal competition among people and groups, strong competitive pressures.

Elitism vs egalitarianism. Egalitarian pay system in which most employees are part of the same compensation system. Elitist pay system in which different compensations systems are established for employees or groups at different organizational levels

Below-market vs above-market compensation, Monetary vs nonmonetary rewards, Open vs secret pay.

Centralization vs decentralization of pay decisions; in decentralized system pay decisions are delegated deep down into the firm normally to managers of each unit whereas in centralized system pay decisions are tightly controlled in a central location.

Rewarding performance

Pay-for-performance system also called incentive system reward employee on how individual employees and work teams differ in how much they contribute to the firm, how the firm´s overall performance depends to a large degree on the performance of individuals and groups within the firm, and how to attract, retain and motivate high performers and to be fair to all employees (a company need to reward employees on the basis of their relative performance).

9 challenges in organizations wanting to adopt in incentive system.

The “do only what you get paid for” syndrome, unethical behaviors which means the pressure to produce and to keep score, negative effects on the spirit of cooperation, lack of control, difficulties in measuring performance, psychological contracts, the credibility gap, job dissatisfaction and stress, potential reduction of intrinsic drives.

How to meet these challenges

Develop a complementary relationship between extrinsic and intrinsic rewards, link pay and performance appropriately, use pay for performance as part of a broader HRM system, build employee trust, promote the belief that performance makes a difference, use multiple layers of rewards, increase employee involvement, stress the importance of acting ethically, use motivation and nonfinancial incentives

Types of pry-for-performance plans

There are four different types of incentive programs. At the individual employee level there are merit pay, bonuses and awards. Team based plans reward the performance of groups of employees, these are rewarded with bonuses and noncash awards. At business unit level gainsharing is the most common way. This rewards workers based on cost savings. The corporation level is used profit sharing and employee stock option plans (ESPOs)

Executives get usually payed tens of times more than the regular employees. That’s why their pays are usually paid also in stock shares for example. Perquisites “perks” which are noncash incentives given to firm’s executives such as VIP clubs, chauffer service etc. These are used to motivate the executives to make decisions that support the long-term goals.

Sales employees salary varies from normal as well because their salary should reinforce productive behavior. Most firms use a combination of straight salary and straight commission. Also, many firs use incentive programs to reward customer service

Case 6A What is employment engagement talks about relevant stuff to the employer. The employee must feel respected at their workplace and feel that If they go the extra mile for their employer that the employer would do the same if for example the employees personal situation demanded so. I think that the values and goals of an employer must be same as the employees to be able to succeed in employee satisfaction.

Case 6B Companies need to be more adaptable in the future and react easily to new needs and adjustments so that they keep up with the changing business world. An easy approach from different perspectives of changing areas is to keep track of the matters that are recently issued and to keep on with the trends and to be open minded with them. The article talks a lot about embracing and establishing trust and I think that is important in any fields of work.

Case 6C Building trust between the employer and employee is important part of engaging everyone. The enthusiasm for work is better to start from the employer and also the employee needs to feel trusted and valuable to engage to the company. With non-monetary profits such as sport benefits or cultural ones you can encourage employees to engage in on company. But most important is the trust, understanding and believing in people. No one wants to work in a place that doesn’t feel appreciated or valuable.

Sources:

Managing Human Resources, Global Edition 2016 Gomez-Meja, Balkin, Cardy. P.314-387

What is employee engagement. Kruse, Kevin. 22.6.2012. https://www.forbes.com/sites/kevinkruse/2012/06/22/employee-engagement-what-and-why/#186f52777f37  accessed 2.4.2018

The new rules of employee engagement. Hay group. 2014 http://f.datasrvr.com/fr1/414/25154/Hay_Group_New_Rules_of_Engagement_Report.pdf

Accessed 2.4.2018

Engaging for success: enhancing performance through employee engagement, chapter 4 Enablers of engagement – What has to happen to make engagement work. David MacLeod, Nita Clarke. P.74-116 http://engageforsuccess.org/wp-content/uploads/2015/08/file52215.pdf  accessed 2.4.2018