Design and Implementation of an Effective Compensation and Benefit System - Case Study Example

Introduction Compensation is one of the major factors that motivate the individual and it is also important in attracting as well as retaining talented employees. Therefore compensation and benefits provided by the organization has an important role and with the passage of time more and more organizations have been emphasizing a lot on providing salaries that are market competitive and providing different kinds of benefits to the employees (Montana, 2008). Organizations have also focus a lot on ensuring that the motivation level of employees is not decreased and therefore they continuously evaluate the compensation system and benefits provided to the employees. Large organizations have a specialized Human Resource Department which is working on ensuring that a proper and effective environment is maintained and they ensure that the motivation level of employees is maintained. Compensation and benefit system do not only include the rewards and benefits given by the organization in monetary terms but non-monetary rewards like health insurance, vacation, sick leave etc are also included in it. Increasing the compensation and benefits could increase the motivation of employees but from the perspective of organization it could increase the cost and thus reduce the profitability therefore human resource department should come up with a system that ensures a healthy and constructive environment is built and maintained and at the same time profitability of the organization is not hurt. Compensation and benefits offered by the organizations should be evaluated and employees that give more efforts should be rewarded accordingly. This report analyzes the compensation and benefit system of Holland Enterprises and the effective of compensation and benefit system of the firm. Also the report analyzes whether compensation and benefit system is important in attracting and retaining employees or not. There are more than 3,500 employees employed at Holland Enterprises. However, it has been found that the company has lost almost 25% of the employees because of paying lower compensation and benefits offered to the employees. how an effective compensation and benefit system contributes to organizational effectiveness Compensation and benefit system of the organization is an important aspect as better compensation helps in improving the productivity of the employees and as the productivity of the organization improves, it will help the company in generating more sales or increasing its revenues. There are two important aspects that the organization has to look while giving higher compensation and benefits to employees; the first one is that higher compensation helps in improving the sales of the company however the second aspect of increasing the compensation is that it increases the cost of the company and therefore it might not lead to improving the profitability (Spector, 2006). Human resource is the most important resource of any organization regardless of what kind of products or services the company offers therefore it is important to satisfy the needs of human resource and to provide them effective compensation and benefits so that they remain motivated as well as productive (Hurtz, & Donovan, 2000). It is important to provide employees market competitive salary so that they are able to retain employees. Holland Enterprises has lost large number of employees since 2007 because of their compensation and benefit system as the compensation offered by the company is unfair and company does not reward the employees accordingly therefore several employees have resigned from Holland Enterprises. principle components of a typical compensation and benefit system There is no perfect compensation and benefit system that every organization can adapt. Compensation and benefit system has to change according to the specific situation and specific organizational culture. However a typical compensation and benefit system would include following important components: Compensation And Benefit Philosophy Compensation and benefit philosophy used by the organization is an important aspect in defining the overall compensation and benefit system of the organization. If the philosophy of the company is to give more and more benefits and compensate employees a lot more than the other firms in the market, then the firm would be having a compensation system that gives higher salaries and bonuses to employees in comparison to other firms in the market or vice versa. Therefore the compensation and benefit philosophy would have a major role in formulating the compensation and benefit system of the organization. Holland Enterprises offers lower compensation and benefits to its employees in comparison to other firms in the market and this is one of the main reasons why several employees have been resigning from the company and moving to other companies. Pay Structure Architecture It is important for the organization to establish pay policy and define the pay scale of different grades. So, when an employee reaches to a certain grade he should expect certain amount of compensation. Ratio Of Base Pay To Incentive (Bonus) Pay Organizations need to define the amount of bonus they would be paying to employees in advance. At times, it is better to inform the employees about the bonuses that he would earn as a ratio of base pay. Bonuses are important for employees to motivate them and it can drastically boost the morale of the employees. Holland Enterprises does not pay sufficient amount of bonuses to its employees whereas on the other hand other firms in the industry are paying bonuses to their employees thus it is another important factor that has encouraged employees to leave Holland Enterprises and join other companies. Organizations need to continuously evaluate bonuses paid to employees and employees that work harder and are more productive should be given bonuses so that they remain motivated. Emphases On External Equity Or Internal Equity An individual analyzes the compensation he is given by the organization with the other employees inside the organization as well as outside the organization. When an individual compares his compensation and benefits with other employees inside the organization then it is called as the internal equity whereas when he compares his compensation and benefits with other people outside the organization then it is termed as external equity. Internal equity can be expressed when an individual compares his compensation and benefits with other employees in the same department, employees in other department and employees doing similar kind of work. However, external equity can be expressed when an individual compares himself with other people in the same industry, in other industries, in the same geographic location, in same profession, in organization of similar sizes as well as in organization of different sizes (Romanoff, Boehm, and Benson, 1986). Employees of Holland Enterprises have left as they felt that their compensation and benefits are not equivalent and unfair in comparison to the compensation and benefits offered by other firms. Principle Types Of Benefits Employees not only compare the compensation and monetary rewards they are given but they also analyze other benefits that organizations give to them. Some of the most important benefits that employees are looking for include health insurance, vacation, sick leave, deferred compensation match and many others. So, when an organization is offering different kinds of benefits comparing all the factors constant then an individual would like to work in an organization giving such benefits rather than joining and working in an organization that does not give such benefits. Holland Enterprises also has lost 25% of employees since 2007 because employees are not provided fair compensation and benefits by the employer and thus they have switched to other firms in the market offering attractive benefits. Strategies to convince top managers to increase their compensation and benefit expenses Compensating more and giving several kinds of benefits is a major cost for the organization however by giving these benefits and rewarding employees for their hard work could be important as it would increase the morale and motivation level of employees and thus it would be helpful in improving the productivity of the organization. As employees work more for an organization, they learn the art and skill of becoming more productive at their work and thus they are able to give more to the organization however if they are not compensated and their needs are not satisfied then this could be demoralizing and could drastically hurt their productivity (Katz, and Kahn, 1966) and thus they could leave the organization where their needs could be satisfied. Also when an employee leaves the organization then another one has to be hired which is an additional cost for the company and when a new individual would be hired, he might take time to adjust and understand the work thus reducing the productivity of the organization. Therefore it is important for Holland Enterprises to reward and give appropriate compensation along with several benefits to the employees working in the organization so that they can become carefree about their personal problems and devote their time and work with more dedication and commitment and therefore it would improve performance of employees and thus the performance of the organization. conclusion Compensation and benefit system is an important aspect of every organization and every individual before joining the organization analyzes the compensation and benefits he will be getting from the organization. Also it is important for organizations to motivate as well as retain employees. If Holland Enterprises would have given market equivalent and fair compensation and benefits to employees then they would have not resigned from the organization. References Hurtz, G., & Donovan, J. (2000). Personality and job performance: the big five revisited. Journal of Applied Psychology, 85 (6), 869-879.  Katz, D., and Kahn, R. (1966). The social psychology of organizations. New York: Wiley. Montana, P. (2008). Management. New York: Barrons Educational Series. Romanoff, K., Boehm, K, and Benson, E. (1986). Pay Equity: Internal and External Considerations. Compensation And Benefits Review, Retrieved February 4, 2012 from http://theperfectpayplan.typepad.com/Pay_Equity_Article.pdf Spector, P. (2006). Industrial and organizational psychology: research and practice. New Jersey: John Wiley & Sons. Read More