Human Resources Management: Effective Compensation and Benefit System - Research Paper Example

HRM: Effective Compensation and Benefit System Introduction Human resource management (HRM) necessitates strong leadership commitment, corporate ethics and values, competence in performance management and a business policy founded on company’s vision, mission and goals (Armstrong, 2003). This is because (HRM) involves systems, policies, procedures and practices in dealing with employees. This review aims to provide an advice, an analysis, and to provide some recommendations about how to enhance Holland Enterprises Inc.’s compensation and benefit system. Holland Enterprises is one of the largest firms with 3,500 employees but is challenged on high turn-around rate of employees since 2007. The resignation phenomenon indicated that there are about 25% of its total human resource who left the company with major cause attributed to unfair and uncompetitive salary scheme of the company in the marketplace (Hunt, 2004). This review will specifically discuss (a) how an effective compensation and benefit system contributes to organizational effectiveness; (b) explicate the principle components of a typical compensation and benefit system for a large-scale organization which will detail compensation and benefit philosophy; pay structure architecture (pay grades, pay ranges, and pay width); ratio of base pay to incentives pay; external equity or internal equity; fringe benefits like health insurance, vacation and sick leave or the like; and (c) the recommended strategy to convince management in the organization about the need to increase their compensation and benefit expenses. Compensation benefits & principles Human resource management is not solely about the hiring and firing policy of a company. This relates about to employees performance management by taking into core the motivational factors to discourage the increasing resignation of its employees which has significantly impacted to company’s operations (Burduş, 2005). Experts discussed that the strategic method of motivating employees is basically for the management to understand their fundamental needs as person and to involve them in decision-makings (Drucker, 1955). It also include opening up communication to effectively inform them of the strength, weakness, opportunities and threats confronting the company; defining motivational approaches to inspire them to achieve company’s goals and targets; capacitating them to sustain their efficiency as labor forces; and to nurture such business ethics where employee-employer relations sustain harmonious relations to ascertain high economic productivity and efficiency (Drucker, 1955; Goleman, 1999). However, more than the desire to effectively dispense strategic management of human resources, the company must have an integrated and comprehensive approach of its salary scheme and such commitment to practice fair labor’s salary and fringe benefits rules (Turner, 2001). As such, the company must be transparent of its total income derived from services offered and to calculate all these to meet equitably the standard salary for its workers and of anent benefits (Turner, 2001). Compensation benefits refer to four components: guaranteed, variable, benefits and equity-based. Guaranteed pay refers to the basic salary paid to the employee in exchange for the services rendered to the company (Turner, 2001). Variable pay is part of the reward system which may come in a form of bonuses and allowances in accordance to employees’ discretion following empirical evidences showing good employees’ performance (Turner, 2001). Benefits cover health, car or travel insurances, medical supports, perks and the like which could supplement the operational cost of the employee in the dispensation of duties (Gannon, 1995). Equity-based pay relates to a company policy which accommodates its employees to take part in the stockholder option (Grant, 1991). The latter may include provision of employee’s right to be engage in stock purchase plan or stock appreciation rights. All of these options to co-own a stock of the company is possible only if its human resource office have a sub-function for compensation and benefits. Such meant that the human resource office of such corporation extolled the policies upholding and integrating HR business partnerships, HR excellence and shared services that are explicatory of its organizational capacity mechanism and organizational development processes (Gratton, 1999). These policies are perceived effective if the company is able to adjust the needed salary cost for employees to companies’ financial state following just equity plans (Guest & Conway, 1998). This is plain and simple. The company will adopt the policy of providing more bonuses, perks and benefits during good times and less of it when it’s financially challenged. The company must therefore maintain an open communication line and encourage employees to become stakeholders too in its sustainability plan by making them significant forces in decision-makings (Guest & Conway, 1997). Such will illuminate the fact that their participation is primordial to secure financial viability and of their security as employees, hence drive them to improve their performance. Fringe benefits which came in as bonuses does not guarantee retention of employees but this illustrate how employees are valued by the management. Experts on human resource management argued that those employees who are paid fairly and satisfactorily are less likely to leave the company and the company’s competitor are less likely to do counter-offer too for their resignation and subsequent transfer of workplace (Harrison,1997). It is likewise perceived that when their fundamental needs are assured through fair salary and good company relations, such will also boost its performance. Recommendations Considering the foregoing, it must be understood that human resource managers should be keen in strategizing the systems and relations of the organization and of the employees by effecting the following recommendations: a. Redefine recruitment strategies, standardize it and choose employees who are highly motivated and whose interests and skills can be anchored on companies’ goals; b. Improve employees capacities by providing them professional support and skills training as part of their professional development and of enhancing their technical skills in performance management; c. Standardize salary scheme and provide workers with fringe benefits, salaries, perks, reward systems and benefits but such must be based on company’s policy or performance appraisals; d. Integrate HR strategies with the economic strategy of the company; e. Improve level of communication and participation of employees in decision-makings, specially on matters affecting their rights and privileges; f. Practice corporate transparency and accountability about the financial standing of the company and involve workers in decision-making, as stakeholders of the company, to nurture such business culture that will uphold efficiency, effectiveness and resource harmonization. Conclusion Human resource management is not just about hiring and firing of employees. It’s about nurturing workers to become primary movers for company’s growth and expansion. HR managers must therefore integrate workers’ roles to company’s vision and goals to develop a culture of efficiency in performance. The company must likewise be sensitive to what are the motivating factors that will drive the employees to participate and upscale its performance to achieve targeted goals and forecasted outcome. Their participation is also essential in developing workplace’s cohesion and relations. Good HRM can encourage superior performance, innovation, and competence for the company to gain competitive leverage in the market. True, human resources strategies, politics and practices are distinct in every company, but there remain one common point to work about: motivating employees to gain competitive advantage by providing them standard salaries and benefits in accordance to company’s fair adjusting cost. . Such is significant to decrease the retention of employees and to deflect potential negative impact it may bring to the operation of the company. But taking care of the interests of the employees through compensation and benefits is not enough. Performance management requires that employees must likewise be developed through seminars and trainings. They must also be protected from cultures that discourage and wearies them off. This must also be coupled with system of accountability within the company’s financial department. Finance distribution for salary, operation, administrative management and for monitoring or evaluation should be equitably secured. Goleman (1996) further argued that the company must operate within a sound environmental workplace where teambuilding are encouraged and to attune workers emotions and mental faculties hence, harmonize their biological makeup in working mode. Goleman (1996) argued that attuning workers state of mind to harmonious work place will improve their motivation and performance. When these are activated, Goleman (1996) perceived that their cognitive abilities are also responsive to produce positive output. This, the psychologist said, can also make employees perceived the meaningfulness of their works and they could relate these better to their relation with the company. Workers are motivated to work too depending on how the nature of the job provides meaning to their subsistence, their lifestyle, to their personal goals, and to their innate motivating factors. Goleman (1996) said that this should be integrated by the company as part of its business ethics. These can make workers too optimistic, engaging and positively contributing for personal and company’s growth. As such, it can be inferred, that aside from securing the salaries and benefits of its workers, the company must also practice transformational leadership to accommodate desired changes in its operation and administration (Pastor & Mayo, 2006). Transformational leadership allows them to radically change the companies’ mechanisms, policies, and systems to better its salary scheme and relations with employees (Pastor & Mayo, 2006). This is integrating the science of management and the passion needed to genuinely effect desired organizational changes. References Armstrong, M., (2003) Managamentul resurselor umane, Editura Codecs, Bucureşti. Burduş, E.,(2005) Tratat de management, Editura Economică, Bucureşti, Dobrotă, N. (coord.), (1993), Economie politică – Economics, A.S.E. Bucureşti. Drucker, P., (1955) The Practice of Management, Heinemann, London. Gannon, M., (1995) Personal development planning, in The Performance Management Handbook, ed. M Walters, Institute of Personnel and Development, London. Goleman, D., (1999). Emotional Intelligence, Presentation at IPD Conference, New York. Grant, R.M. (1991), The resource-based theory of competitive advantage: Implications for strategy formulation, California Management Review, 33(3), p14-35. Gratton, L et al (1999), Strategic Human Resource Management, Oxford University Press, Oxford. Guest, D. E., & Conway, N., (1998) Fairness at Work and the Psychological Contract, Institute of Personnel and Development, London. Guest, D. E., And Conway, N., (1997). Employee Motivation and the Psychological Contract, Institute of Personnel and Development, London. Harrison, R., (1997), Employee Development, 2nd edn, Institute of Personnel and Development, London. H. Allan Hunt (ed.), 2004.Adequacy of Earnings Replacement in Workers Compensation Programs: A Report of the Study Panel on Benefit Adequacy of the Workers Compensation Steering Committee - NASI," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number aer, January. John Turner (ed.), 2001. "Pay at Risk: Compensation and Employment Risk in the United States and Canada," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number par, January. Juan Carlos Pastor & Margarita Mayo, (2006). Transformational and transactional leadership: an examination of managerial cognition among Spanish. Working Papers Economia wp06-13, Instituto de Empresa, Area of Economic Environment. Read More