HR590: Compensation Decisions - Essay Example

?HR590: Compensation Decisions Your job now is to pull together all the information you’ve completed so far in and make salary decisions for your team. You have completed Cathy’s evaluation and received assignment feedback. This is the first year that you’ve made salary decisions for this team. Be sure to carefully review the information provided. You may simply type in the cells as the text will automatically wrap. You are required to: 1. Enter Cathy’s appraisal rating (she is last on the list); 2. Within your budget dollars, make your salary decisions based on performance for your team taking into consideration their Salary Grade and the Pay Ranges identified for the Salary Grades (fill in the Salary Decision Column); 3. Within your budget dollars award bonus money (fill in the Bonus Dollars Column); 4. In the green line areas, provide your substantiation and risk analysis for the salary decisions made; and 5. Identify any items from this scenario in whole you may want to address. Evaluation ratings are 1 = Needs Improvement to 5 = Exceeds Expectations Salary Budget: $9,000 Bonus Budget: $5,000 Company Designated Salary Pay Ranges A2 = $12,750 – 17,000 A3 = 16,500 – 22,000 A4 = 21,000 – 28,000 Employee Information Salary Grade Current Salary % at Pay Scale* Appraisal Rating Salary Decision Bonus Dollars John is a white male, 58YO, with 31 years’ service. John is a good worker and you like him. You don’t want to lose his skills and experience as he’s been talking about retiring, but you realize his skills are too valuable to lose. A4 $27,900 99.6% 5 100.00 2000.00 Substantiation and Risk Analysis: Is valuable and needs an incentive to stay, thus his salary is capped with the largest share of the bonus. Alice is a Hispanic female, 42YO with 17 years’ service. Alice is a good worker. She has a lot of potential, which netted her the higher rating. She needs some more skills and experience at this level though. A4 $22,500 80.4% 3 1360.00 200.00 Substantiation and Risk Analysis: Her value to the company needs to be acknowledged, but it is disconcerting that she does not rate better than adequate as an employee. She has been with the company for seventeen years, which must be honored with a decent salary bump, but doesn’t warrant a higher percentage of the bonus. Calvin, 28YO black male with 9 months service. Calvin is a real go getter. He hasn’t been with the company long enough to earn a higher rating, but his work is outstanding, high skill set and is looking to stay with our company for a career. A4 $26,500 94.6% 4 1500.00 500.00 Substantiation and Risk Analysis: With the short period of time the man has been with the company, he has shown higher than average skill sets and is valued as a long term investment. However, having only been at the company a short time, his salary can warrant no more than capping at this time and an equal portion of the appraisal rated bonus money. Jane is a 32YO white female with 12 years’ service. Jane joined the company as an A3. Her work is satisfactory, nothing to brag about, but she’s been with the company awhile and can be dependable. A3 $19,100 86.8% 3 700.00 200.00 Substantiation and Risk Analysis: Due to dependable service, Jane must be compensated, but not past 90% pay scale, as this would leave little incentive for improving overall performance. Beth is a 64YO Asian female with 41 years’ service. Beth stated she would probably retire this year, but has yet to turn in her paperwork. She’s had a history of higher ratings, but her ratings have slipped over the last 6 years. A3 $19,700 89.5% 3 100.00 200.00 Substantiation and Risk Analysis: Because her ratings are slipping, her performance does not justify an increase of her salary grade, which might have happened had she shown better overall performance. An increase that meets her maximum pay scale provides incentive to go ahead and retire, which may benefit the company as her position can then be given to someone who has a longer future potential with company and more enthusiasm for higher ratings in job performance. Ben is a 47YO white male with 27 years’ service. He’s a good worker, been with your group for a couple years. Hasn’t yet expanded his skills, which you thought he’d do even though hired for a specific job. What he does, he does outstandingly. A3 Increase to A4 21,000 95.5% 4 1680 500.00 Substantiation and Risk Analysis: As this employee has shown higher than average job performance, his pay scale reflects an equitable increase and bumps him into the A4 status. However, his skills must be shown to improve or his appraisal rating for the next review should reflect a much lower rating. Keeping him doing the outstanding job that he is performing justifies fueling his morale through pay incentives, however. Alex is a 30YO white male with 9 years’ service. He’s quite a guy, performs well at his job. Started as an occupational worker and has worked his way into management. A2 Increase to A3 $15,800 92.9% 5 1580 800.00 Substantiation and Risk Analysis: At his age and his years of service, Alex has shown himself to be a valued employee. Therefore, bumping him into the next salary grade is justifiable. As an excellent employee who exceeds expectations, showing him this appreciation is appropriate and mitigates the risk of losing him to a competitor. As well, his service justifies a sizable bonus. Preserving his morale and enthusiasm is a priority. Ken is a 20YO Hispanic male with 1 year service. Ken is young and fresh. You think he should have been hired at a higher level because his skills are so good. You don’t want to lose him because he adds value to the business. You’ll probably jump him to an A4 position soon. A2 Increase to A3 $17,000 100% 4 1360 500.00 Substantiation and Risk Analysis: In order to keep his service and to provide incentives for staying with the company, increasing his salary grade is essential in continuing to groom him for a higher position. Therefore, receiving the appropriate increase and a good portion of the bonus helps to minimize any potential for him to shift to a competitor. Cathy is your 19YO (ethnicity unknown) female HR Receptionist. She has been with the company for 1 year. You recently completed her performance evaluation. A2 $12,000 70.6% 2 480 100.00 Substantiation and Risk Analysis: While it is important to keep her morale in providing a small increase, it must be made clear that Cathy’s job is on the line and if her performance doesn’t improve, she will be replaced. A small portion of the bonus is appropriate, but her efforts are not meeting, let alone exceeding her potential, thus she cannot be compensated on the same level as the rest of the employees. *This shows the pay scale range for each employee by percentage. Formula is current salary ? top salary range. This percentage range should be between 75% - 100%. Overall Comments: Employee compensation and decision making The total amount of increases comes out to a total of 8760.00. Two criteria were used to assess the percentage of the increase. Due to the budget, the increases were at twice the percentage of the review appraisal rating, such as a rating of 5 = 10%, 4=8%, 3=6% and 2=4%. The notable exception were those who only had a rating of 3 were given increases that brought them only up to the 90% pay scale as a merely adequate performance does not rate a pay scale that exceeds the 90% level. Calvin had to have his increase capped at 1500 because that tops him off at his Salary Grade and his short length of service does not rate him a bump in Salary Grade. However, since his pay scale was already at 94.6%, there seemed no reason to deny him his increase. In order to keep the pay scale fair, he receives only a 100.00 pay raise to maximize his yearly salary. However, due to his excellent service his bonus reflects a higher level than that of any other employee. The first criteria in the decision making process was to assess the budget in relationship to the criteria available for the assessment of the employees. Through the appraisal ratings, the first criteria was established as this directly related to the overall assessment of how much of the salary increase budget could be given to the employee. Using the five scale assessment allowed for an easily transferable marker from which to assign an percentage of increase. The second decision making criteria was viewed from the perspective of the salary caps on each salary grade in comparison to whether or not they deserved to have that increased to allow for a better level of pay per year. Through an examination of the years of past service, the potential of future service, and the appraisal ratings that were received by the employee, appropriate compensation was determined. Where someone who is only doing adequate service did not deserve an increase in pay grade, someone who is showing high levels of skills and increased productivity due to exceeding the expectations that had been outlined for their position, the employee was compensated according to how much value it was assessed they would have in the coming years. Where one employee showed adequate service, her years on the job had seen a decrease in productivity and performance and her future was framed through aspirations to retire. On the other hand, an employee in a similar situation was still showing highly valuable performance and his skills were needed in order to sustain productivity. His compensation pay grade was at the highest level and was near capped, thus leaving little room for providing incentives for him to stay rather than retire. In order to encourage his continued performance and to seek a way to compensate him for excellence, he was given the largest share of the bonus budget, even though his salary could not be increased in a significant way. Through the bonus, his overall yearly salary was increased, thus appreciation was shown and his continued service will hopefully be the result. Although not directly associated to compensation, in order to increase sustainability in the company, this assessment suggests that someone should be currently groomed to duplicate the skill sets that John has developed through the years, perhaps through a mentoring program in which a selected employee who has shown great skill growth and potential can learn all of the skills that John has developed and duplicate them should John end up choosing to retire. While the performance that Beth gives to the company is valuable, a similar situation is questionable as her enthusiasm and overall performance has decreased, thus providing for an opportunity for a new set of skills to replace her when the time comes. Her position in the company might be served by a fresh perspective, rather than one that is tainted by the decrease in performance that has been observed from the reflection of the evaluation process for salary compensation. Payment for services rendered is an important part of the relationship that an employee has with satisfaction on their job. If a person is doing a job that does not provide enough compensation to provide them with adequate standards of living, doing the job becomes much more difficult as resentments become tied to stress due to a shortage of income. Pay has multiple dimensions from which to provide satisfaction. According to Williams, McDaniel and Ford (2007) there are primarily four areas of compensation that will affect employee satisfaction, with three of the four being linked to one another and the fourth having a less direct value. Pay level, pay raises, and pay structure are all directly related to employee satisfaction over compensation, where benefits are more indirectly related to satisfaction levels. The satisfaction levels with all three areas of directly related compensation factors provide an overall satisfaction, where if one of those aspects of pay is inadequate dissatisfaction becomes associated to all three factors. The nature of benefits in relationship to each of these three satisfaction determinates is significantly less than the relationship of the three together, thus benefits, while valuable, do not significantly affect satisfaction overall. One notable finding in the study done by Williams, McDaniel and Ford (2007) is that there is a relationship between age and satisfaction where pay raise increases are concerned. As in the example of John and Beth, people with more experience and longer time periods within the company have an expectation of higher raises and higher overall pay. When that level is not maintained, they will have an increased dissatisfaction, thus creating the potential for lowered production and performance. The predictors of dissatisfaction are relevant to the actions taken respectively for John and Beth as one presents a high risk if he leaves the company, where the other presents an opportunity to fill her position with a more enthusiastic person with higher performance. Through an understanding of the correlation between pay and satisfaction, the needs of the company can be served through progressive responses to employee performance, thus weeding out any problem areas that might be observed. The core meaning behind the compensation situation between the employer and the employee is as an aspect of the relationship that is built between them. The tension occurs as the employer must watch to make sure the employee is performing adequately or better while giving time to the company and in a way that is cost efficient, while the employee must be sure that the employer is compensating them adequately for their performance. According to Fisher, Maines and Peffer (2005) the two sides of the issue is concerned with opportunistic behavior, each side trying to get the most out of the other side. This creates a battle of stressors in which each side is trying to gain the advantageous position. The employer wants to get as much financial benefit from his or her employee that they can, while the employee is trying to do as little as possible at the highest level of compensation possible. This does not mean they are trying to abuse the advantages of the other, but find the best possible position for themselves. The optimum situation is where the two sides find a way to have cooperation so that evaluation and compensation systems mitigate the fueling of opportunism. Systems of compensation guide two aspects of the decision making process: that of how much in funds to allocate to compensation, and how to allocate those funds to the employees. I other words, budget and distribution are the key to lowering opportunism when those two aspects are efficiently and fairly considered. Although Fisher, Peffer, and Sprinkle (2005) found that on the whole opportunism was minimal in a work atmosphere as both management and employees understand their respective roles, the use of systems of compensation so that fair and known variables affect pay provided a less opportunistic tension within a company. Through understanding how and when compensation was earned or defined as earned, employees did their jobs and worked towards understood goals of compensation. As well, employers did not use compensation to manipulate employees, but used systems to define how compensation was distributed so that employees respected the opportunities for pay raises and incentives. This occurs when it is defined rather than a seemingly arbitrary decision. In defining compensation for the employees in the included table for the company , decisions were based on first the amount allowed in the budget, and second on a process of creating a system in which the budget could be utilized. Boyd and Salamin (2001) extend this discussion into a strategy in which strategic reward systems are put into alignment with company goals. In other words, if a company meets certain expectations, then employees are compensated through systems that reflect those met goals. Boyd and Salamin state that “hierarchy has a significant main effect on pay plan design and an interactive effect with strategic orientation” (p. 777). Two decision making processes are necessary in order to fully utilize this type of strategy. First, it must be understood that this creates a complex arrangement as far as the ways and reasons compensation is made to the employee. Therefore the system must be not only complex, but comprehensible to both the employees and the management team. The second decision process that must be made is to define the system through a hierarchy so that the goals of one level are attainable, but also each level sees higher levels to strive towards. In creating such a strategy, however, some of the problems that can be caused are defined by the difference between the personal goals of employees and the goal reaching strategies of the companies. If the goals of the employees are far away from the overall goals of the company, the lack of control over their compensation may create frustration. As an example, if a hotel sets up strategies for compensations that include goals for housekeeping and the front desk, but makes those compensations contingent on goals that are not disclosed fully, the lack of follow through will be perceived as deception on the part of management. In other words, if overall profit is part of the goal, but housekeeping is charged with gaining good comment card responses, which causes a division in the overall strategy that will backfire as an incentive. The decision making process where compensation is involved is a complicated series of problems that must be well considered as the relationships that a business has internally will have an impact on production and performance. According to Mahoney and Thorne (2005), there is a relationship between the way in which a business treats its employees in terms of compensation and the overall social responsibility of that firm. Businesses that create a higher level of fair and generous compensation for their employees, avoiding the pitfalls of encouraging opportunistic behaviors, will have a greater chance of having an overall higher level of socially responsible practices than a company who is not using methods that reflect an interest in stakeholders within the company. In discussing the nature of compensation, Mahoney and Thorne (2005) bring up the fact that “the impact of modern economic activities on the quality of human and social life has led to a growing concern in society about corporate social responsibility” (p. 241). Where the 1980s led the world to believe that the short term profit was the goal, the turn of the millennium has brought about an understanding of sustainability and the advantages to considering the value of human capital. As well, businesses that are considering the needs of stakeholders are now seeing long term advantages to providing socially responsible levels of compensation. As in the example compensation sheet that is attached to this report, the needs of all of the employees were considered, as well as performance. The morale was just as important as the evaluation; the needs of the employees to all feel appreciated considered an investment for the benefit of the company. The needs of the stakeholders are just as important as that of the owners as without their valued participation; the goals of a company cannot be reached. Through good solid strategies and decision making, compensation will increase cooperation within the company framework. References Boyd, B. K., & Salamin, A. (August 2001). Strategic reward systems: A contingency model of pay system design. Strategic Management Journal. 22 (8): 777-792. Fisher, J. G., Maines, L. A., Peffer, & Sprinkle, G. B. (April 2005). An experimental investigation of employee performanc evaluation and compensation. The Accounting Review. 80 (2): 463-583. Mahoney, L. S. & Thorne, L. (March 2005). Corporate social responsibility and long term compensation: Evidence from Canada. Journal of Business Ethics. 57(3): 241-253. Williams, M. L., McDaniel, M. A. & Ford, L. R. (March 2007). Understanding multiple dimensions of compensation satisfaction. Journal of Business and Psychology. 21(3): 429-459. Read More