Developing a Compensation Strategy - Research Paper Example

COMPENSATION STRATEGY Developing a comprehensive total compensation strategy is key to the overall performance of an organization and more importantly the efficiency of employees. The design of this brings into light the consideration of the direct and indirect rewards, employees’ responsibility, the complexity in the specific duties, and focus on external and internal equity as well as the company’s competitive strategy. Good compensation practice balances all the factors to ensure the short-term and long-term objectives are obtained. Some of the leading edge companies have a compensation philosophy that can be emulated. It is important to re-design the total compensation strategy so as to keep up with the market changes. The Wilson Bros Company has maintained a successful business strategy providing and their total compensation strategy is quite intriguing (Milkovich & Broderick, 2009). With the focus on the total compensation strategy of Wilson Bros, the pay philosophy reveals the foundation on which the compensation strategy is placed. The existing pay system for the employees entails financial compensation in the form of wages and salaries, incentives and the indirect forms of compensation. The engineering architectural company utilizes the services of employees equipped with a wide range of skills. There are construction architects, the constructions experts as well as land scapers. Its business strategy that shapes the competitive advantage is to keep around these services by integrating a total compensation strategy that outperforms that of its competitors. At Wilson Bros, creating a sustainable competitive advantage is intricately related to the art of innovation. This pillar business strategy demands the employment of personnel that is not only productive but also very creative. The architectural works of the organization are a result of the appealing compensation that has seen the best of the best individual working at the company. The role that the compensation strategy has played in this success is of the essence. On the salary schemes, the employees are paid in accordance with the services they bring the organization. Each skill is treated uniquely such that there is no standard salary. The HR goes a notch higher to review the salaries based on performance of each employee. This practice fuels productivity and the best of the services from the staff which is the key focus of the business. The reward program suits employees that prefer financial compensation as opposed to the indirect forms of compensation. To cap on it, the work environment that the company provides is the best compensation that employees enjoy even without realization. In spite of the fact that this is company that deals with a manual production and a hard laboring, the work environment is overly rewarding in its normal state (Kaplan, 2007). Wilson Bros because of its legendary works receives numerous construction and architectural contracts. The non-financial compensation that underlies this qualifies the company as the super keeper type. Employees are allowed to choose which contracts to work on and this offers the flexibility advantage. Since contracts have their stated salaries, employees develop their schedules leaving them time to spend on their families but still offer the company the best skills. The skill-based pay and the non-financial compensation of the company goes a long away in bridging the gap between the business strategy and the total compensation strategy. However, keen analysis and the bigger picture of a total compensation strategy would also account for a comparison with what the competitors offer alongside the impact of the compensation on the company’s business structure. Typically, companies show laxity in offering employee security in terms of the compensation strategies. Wilson Bros is no exception because the compensation plan has had a fair share of criticisms. The retirement compensation plan and group health benefits are the areas of concern to most laborers knowledgeable of their rights. While this is a scare to most employees with enviable potent, it is majorly attributed to the nature of the space within which the company operates. On the brighter side, the company invests generously on the permanent employees. The variety of non-financial compensation plan provides a range of choices from which employees select. This freedom of choice from holidays, travels, promotions and so forth is an enticing aspect. It offers a competitive compensation strategy that draws employees (Kaplan, 2007). The stability also grants planning of the operations enhancing smooth running of the activities. With such stability, timely delivery of services and completion of contracts is also a plus for the company against the fierce competitors. For Wilson Bros Company, a total compensation strategy with all the elements of a compensation package as proposed streamlines the business strategy while strengthening the culture and objectives of the company. In a large way, the compensation package incorporates hourly wages, the employee annual salary, pay rise, bonuses and incentives and the retirement savings. The compensation plan allows for the accommodation of the different needs and the varied interests of the workforce. There are employees that are value bonuses and pay rises much more than the overtime pay. Essentially, this compensation plan is tailor made to suit the needs of employees. Underneath this tailored compensation plan, consideration of the competitors’ mechanisms creates the sought for competitive advantage (Milkovich & Broderick, 2009). What differentiates compensation packages is how meaningful they are to the employees. Tailored compensation strategies are a result of segmentation of internal markets to understand what motivates the employees. This macro analysis of each form of compensation related with the key drivers of the business strategy. In addition to the diversification of the employee compensation package, the non-exempt employees are rewarded in proportion to their input. This way, it is possible for the organization to harness even the skills that are deemed rare. For instance, hiring exquisite service provider would still excellent performance for the unique production. Aspects such as creativity add a market value to the company. Also, the hourly wage and bonuses top up to the levels of productivity for the organization. Strategic compensation is thus aligned with the company culture that is creation of high end structures which is the framework of differentiation. The mapped total compensation strategy upholds the aspect of external equity by virtual of giving a comparable price. The comparable price of compensation created the difference with the competitors for such that a magnetic effect results. More than this, assessment of the salary ranges means inclusion of official duty descriptions for every employee. Along with this, inclusion of the employee equity policies is a sound compensation guideline. Cutting across the bonuses and overtime pay, employees are offered compensation security that stretches to the retirement benefits. Each specific role with a corresponding salary or wage. Salaried employees subjected to constant appraisals to keep them grinded and motivated in the work. Compensation through job promotions and bonuses translates to employee happiness and productivity. This is translated to increased sales, employee discipline, lower costs and reduced turnover which are central focuses in the business strategy. The basis of this compensation plan is performance and the individual services offered. In several case studies, it is found that organizations find themselves in between providing compensation that fuels commitment against an entrapment (Ruekert, 2012). The broken down compensation enables the employees to understand the basis of the compensation. One would recommend the compensation package to be applied strategically either after appraisals, upon achievement of a goal and high performance. Employees do not have to feel entrapped in the incentives but rather understand the cause of compensation. In this light, the course of implementation uses effective communication as part of the organization’s culture and for harmonious operation. The management translates the values of the organizations such that the compensation package leverages on talents, skills and abilities that are useful in realization of a competitive advantage in the market space. Implementing the total compensation strategy fundamentally begins with the pay philosophy of the organization. Talking about the pay philosophy, salaries and wages are compensated based on the specific type of job, its value and consequently the price and the organization’s internal factors; budget is paramount. Since the external market analysis is already established, the salary rate or hourly pay has to be set as a guideline for the compensation. The total compensation strategy policy details all these elements. The top factors of the compensation strategy are addressed and all that pertains this recorded for presentation in the various organizational ranks. This winds up the preparation that there is for the full implementation of the total compensation strategy. There is no time frame for the preparation as this is subject to a myriad of factors (Ruekert, R. W. 2012). Since the compensation strategy is a key function of the HR strategy, the implementation process takes the stair mechanism. It ought to spread from the top management down to the departments to the individual employees. At the top level, the compensation package must be approved by the management as being streamlined with the basic business principles of the organization, the culture and values as well. At this point, the value that the compensation strategy adds to the organization is compared to the impact on the employees. Essentially, the skill-based or performance based compensation packages is not exploitative as opposed to where the strategy sounds like a pay for performance system. More importantly, the association of the compensation package with the organization value is approved at this level. Crucial factors such as these give the certainty to the top managers that this is the pathway for achieving the business strategy (Allio, 2005). This is followed by the drafting of the compensation strategy document explaining the all the information pertinent to the existence of a compensation strategy. The general compensation strategy document is for the use of the top managers while another document known as the compensation policy is issued to the employees. This compensation policy provided o the employees is clear and concise (Ruekert, 2012). Each employee or contract worker of the organization is provided with these for the comprehension of all forms of bonuses, the mode of payment and all the rewards tied to the term of contract. As the employees recalculate on this, the HR should be at work to clarify all questions and eliminate any misunderstanding that arises. The employees would have the issues addressed but no access to the key components of the strategic compensation is allowed. Having accomplished this, the compensation delivery system is responsible for how and when the incentive pay, bonuses and other compensations are delivered. For the large company in consideration payroll soft wares are modified to deliver the financial compensations in a very confidential and professional technique. This would work adequately especially in hour-based compensation where automation executes and delivers the pay. This would be incorporated for the compensation system that is newly incorporated. Other than this, there are the competence based compensations. As opposed to the good old traditional methods of compensating for exceptional skills and abilities, the company compensates this as per the stipulated terms in the compensation policy issued. In line with this, competency skills is done formally say monthly or annually, the qualitative or quantitative measure of employee efforts must be recognizable to avoid misunderstanding among the employees (Allio, 2005). The compensation strategy is assessed before and post the implementation process. Various parameters for the assessment would lead to the determination of the impact of the implemented compensation strategy. First, the compensation has to support the organization’s business strategy. For instance the Wilson Bros Co. rendering unique architectural designs is fundamental. The compensation strategy is assessed on time intervals on how well it fosters the realization of this competitive strategy. Re-examination of the business strategy on this level is linked with the expected market changes after the implementation. The outcome reflects the adequacy of insufficiency of the compensation strategy. A well though off compensation strategy such as this is able to enhance the employee input for the realization of short term and long-term goals. For the better outcome, the HR’s implementing of this strategic compensation builds the employees’ stamina necessary for realization of business goals (Allio, 2005). As part of the reassessment procedures, conducting primary surveys to gather the general opinion of the implementation strategy will provide legions of feedback. This measure is inseparable with the fact that communication and the accompanying freedom to communicate. The regular employee surveys on this reveal how employees feel about the compensation plan and the necessary changes to improve on the company performance. The effectiveness of the total compensation plan is also evaluated alongside the changes in the market segment and the company’s internal environment. Key tenets include the implication on company’s budget, equity and the competitive pay structures. Positive impact on such key areas relating the program objectives communicates that the compensation strategy propels growth as anticipated. In the course of the assessments, the compensation strategy infrastructure demands review and modification of the short term incentives against long-term incentives, salaries, job description, pay ranges, job titles meant to streamline the outcome (Kaplan & Norton, 2001). In conclusion, compensation occurs as a very powerful tool that Human Resource used to recruit, motivate and retain employees. In as much as developing a total compensation strategy demands the consideration of internal and external market factors, there is greater reward when it is in tune with the existing business strategy. The exploration of the relationship in these factors reveals that company culture, employee needs and key business strategies the key determinants. The best compensation practices such as systematic implementation, effective communication and reviewing work hand in hand in driving the company to success. Above all, the company’s ability to embrace a variety of compensation packages offers the overarching advantage of magnet culture where employees are constantly drawn to the organization for the proper reward of the energetic service. This makes the best outcome of the informed total compensation strategy. References Allio, M. K. (2005). A short, practical guide to implementing strategy. Journal of business strategy, 26(4), 12-21. Kaplan, R. S., & Norton, D. P. (2001). The strategy-focused organization. Strategy and Leadership, 29(3), 41-42. Kaplan, S. L. (2007). Business strategy, people strategy and total rewards. Benefits & Compensation Digest, 44(9), 12-19. Milkovich, G. T., & Broderick, R. F. (2009). Developing a compensation strategy. Ruekert, R. W. (2012). Developing a market orientation: an organizational strategy perspective. International journal of research in marketing, 9(3), 225-245. Read More