Compensation and Benefits - Essay Example

Unit V (Compensation and Benefits) Question Describe the characteristics of pay structure. Define, in your own words, a pay policy line, and how it is determined. A pay structure is a strategy through which an organization administers its pay philosophy. The two main types of pay structures are internal equity method and the market pricing. In the equity method, each job is compensated according to its hierarchy in the job groups. In the market pricing system, each job is compensated according to the prevailing market conditions. In an ideal environment, a company needs to have job descriptions for all its positions for people to know where they fit within the organization. Indeed, pay structures enable the human resource department to administer fairness in compensation and provision of services to the employee (Samuelson and Marks, 2012). The structure also includes incentives for each job level. In addition, a pay structure acts as a payroll budget whereby senior management decides the value of salaries. This is a significant aspect of strategic management that enables employees to be compensated according to their contribution to the company (Mathis & Jackson, 2011). Pay structure are fully outsourced in the sense that they keep up with the current market trends. Pay structures also set the benchmark on a particular type of job. This is done by establishing the right value for a particular job and the appropriate compensation. This also helps to create equity in compensation and awarding to different employee. The most significant aspect of a pay structure is the comparison between external and internal pay rates. A policy line is a tool that provides analytical comparison between an organization’s pay with respect to the market situation (Henderson, 2006). A policy line can be either a lead or a lag policy. In a lead policy, a company decides to pay above the market rate or above the market line. On the other hand, a lag policy line occurs when a company’s pay is below the market line. A company can also choose to use a match policy line where payments are synchronized with the market rates. A pay policy is determined through market pricing which relates jobs to external forces. Question 2: Explain why more than one pay structure may be needed in an organization. Discuss the role between internal worth and market value. In today’s business environment, employees are considered the main source of competitive advantage. This requires that a company compensate its staff adequately and in relation to the market forces. In order to meet the required payment demands, an organization need more than one pay structure. A company can choose either a monthly pay, a commission based or an hourly pay structure (Henderson, 2006). The pay structures determine how a company compensates its employees and the subsequent rationale. Moreover a company has different categories of employees and hence the need for different pay structures. For example, a company may have both monthly and casual employees and therefore it requires pay structures for monthly and casual staff (Mathis & Jackson, 2011). Besides ensuring that a pay structure meets with the payment requirements of an organization, companies choose to have different pay structures in order to remain competitive. This enables them to attract and retain the best employees within a particular market. Having different pay structures enables a company to hire different categories of employees and hence remain competitive within its market (Henderson, 2006). Having different pay structures also enables a company to meet its work requirements. This is of particular interests since a company needs to have different grades and classes of employees (Samuelson and Marks, 2012). Existence of different grades and classes of employees enables a company to recruit employees with different qualification. This contributes to human resource development and ensures that the company has adequate staff. Employees measure their participation within a company through their pay. Having different pay structures is a good strategy of motivating and rewarding employees. Indeed, employees have different qualifications and contribution to a company (Samuelson and Marks, 2012). This requires companies to have different modes of compensation to their staff. This is of particular interests since it sets a hierarchical system among employees that determine salary groups. Existence of different pay structure also strengthens leadership within an organization. This is essential since organizational developments are established on leadership. The internal worth of an employee is the value of their contributing in relation to the organization (Mathis & Jackson, 2011). On the other hand, market value is the average worthiness of an employee within the overall market. The market value determines the average pay that an employee would receive if they were on an alternative organization. Comparing the internal worth and the market value of employees is a significant aspect of human resource (Samuelson and Marks, 2012). The prices ensure that a company pays competitive wages and that company employees are compensated adequately. Question 3: Compare and contrast the similarities and differences among skill-based pay-for-knowledge and competency-based pay plans. In modern business environment, organizations are continuously adopting pay systems that compensate employees based on their knowledge, skills and competencies rather than their jobs. Currently skill-based pay is applied among manufacturing and high volume service works. In such environment, the skills of employees are evident and they provide a useful reference for compensation (Henderson, 2006, p. 23). The main similarity between the three-payment systems is existence of factors to measure employee’s reward. For example in skill-based pay, an employee’s value is determined by their skills and level of contribution to the company. On the other hand, a pay-for-knowledge system compensates employees based on their knowledge. This system is mainly applied among technical staff or on jobs that are knowledge based. Competency-based pay system rewards employees according to their ability to perform a certain task with ease (Mathis & Jackson, 2011). Moreover, the pay system seeks to identify outstanding employees and reward them above other workers. For example, skill-based pay indentifies and rewards employees with exceptional skills. However, the three payment systems are not performance based in the sense that they do not concentrate on individual performances. Unlike sill-based pay, knowledge based pay reward employees based on their knowhow and behavior. This system is not related on the experience of employees and duration of service. On the other hand, knowledge pay is based on the experience and the duration at which an employee has been in service. This is because the knowledge of an employee is defined relative to their immediate work and organization (Mathis & Jackson, 2011). On the other hand, skills can be acquired and transferred from one organization to the other. Transfer of skills from one organization to another is common in organizations that do not offer competitive terms to their employees (Mathis & Jackson, 2011). For example, companies that do not pay competitive salaries experience massive employee turnover leading to transfer of skills. Similarly, competence-based pay is dependent on employee’s performance and duration of service. This is because competence is build through practice and continuous training. The pay for competence plan rewards employees based on the ability of an employee to meet an organization’s production goals. The plan compensates employees based on their ability to meet certain production standard rather than the ability to meet certain production capacity. Similarly skill-based compensate employees based on their production capacity rather than their level of contribution to the company (Mathis & Jackson, 2011). These plans avoid job-based compensations and reward employees based on their actual value to the organization. Competence and knowledge based pay plans are advantageous to both the employee and the organization. This is because the plans enhances on building employee’s skills while maintaining a firm’s capacity to meet its goals. The plans require commitment and sufficient financial resources to train and build employee’s capacity (Henderson, 2006, p. 23). Consequently, the pay plans set and maintain performance standards for workers. This requires workers to develop their skills and capacity to meet the required operation standards. The plans also require a training system through which employees can upgrade their skills. However, training and capacity development is not necessary in knowledge-based plans since employees are compensated depending on their levels of knowledge. References Henderson, R.I. (2006). Compensation management in a knowledge-based world (10th ed.). Upper Saddle River, NJ: Prentice Hall (This is the text book) Mathis, R.L. & Jackson, J.H. (2011). Human resource management (13th ed.). South-Western Pub Samuelson, W. F. & Marks, S.G. (2012). Managerial economics (7th ed.). New Bakersville: MPS Limited Read More