Compensation and Benefit Strategy in Holland Enterprises - Case Study Example

Compensation and Benefit Strategy Affiliation with more information about affiliation, research grants, conflict of interest and how to contact Introduction Holland Enterprises has been facing a major issue of employee resignation on a mass scale since 2007, which has depleted its human resources considerably. The massive shortfall in the workforce and subsequent recruitment, which has become a common feature in the recent days, has been causing heavy overheads for the company. The firm is in dire need of adequate supply of well trained employees for the successful performance of their business processes. On analyzing the human resource activities in the organization, it was transpired that the main reason why the employees quit their job is that the compensation and benefit packages paid to them are below average as compared to other organizations. Though many of the work positions in the company involve hazards, and people in various departments are putting in extra working hours, the management does not pay them proper compensation at parity with the nature of work. At the present stage, the company is unable to retain its loyal employees due to disparities and inadequacies in the pay structure and they have to sustain heavy expenses on recurring recruitments, which can be avoided if they evolve a proper pay structure that also recognizes high performance. Holland Enterprises is a prestigious company over the last 35 years, employing over 3500 people. In order to retain its image and to receive continued work support of employees with required experience, the company needs to review and rethink its compensation policies to sustain their business and profitability in a competitive environment. The management also has to recognize that, on the one hand, they are losing competent workforce for want of reasonable remuneration, while on the other hand, they are spending a lot of money to carry out recruitment. Considering the present circumstances and all the pros and cons of the issue, I have drafted a proposal for raising the compensation and planned certain benefit strategies for the employees, which are aimed to attract efficient workforce towards the company and help in retaining them in the organization in future. The proposal explores the basic components of the compensation and benefit strategy on factors such as compensation and benefit philosophy, pay structure architecture (pay grades, pay ranges, and pay width), ratio of base pay to incentive (bonus) pay, emphasizes on external equity or internal equity, principle type of benefits to include deferred compensation match, health insurance, vacation and sick leave, etc. Holland Enterprises has immense potential to increase their output if the organization can use the information contained in the proposal to appropriately raise the compensation of their employees and implement the benefit strategies. Compensation and Benefit Philosophy Employees are the most valuable assets in every organization and, therefore, their satisfaction and well being are very important. Fair and effective compensation system is an integral component in achieving employee satisfaction to help the company retain them for a longer period. Therefore, the management needs to ensure that an effective system of pay, which is at par with market competitive base pay programs as well as variable pay programs are prevalent in the company. There is no denial of the fact that “compensation and benefits affect the productivity and happiness of employees,” which in turn will enable the organization to “effectively realize its objectives” (Compensation & Benefits, n.d, par. 5). The management should consider that they are paying what they deserve. The principle of a good compensation philosophy is to attract and motivate efficient employees and to help in the retention of experienced employees who already know well all the specific requirements of the company and their job responsibilities. To achieve these objectives, the company needs to apply a combination of the three key components of compensation such as base pay, in the form of cash or non-cash reward such as benefits or non-financial rewards. There is a need to generate a pay program that recognizes all the pay benefits without affecting the resources. In addition to this, the employees should receive equity in the company, so that they can obtain the rewards of working in the organization. Besides, the company also needs to introduce incentive programs for highly performing employees so that healthy competition in the workplace exists. Identifying the balance that the organization wants to attain between direct salary and indirect benefits is vital in developing an overall total compensation methodology. A reliable philosophy in this context offers a strong base for both the organization and the employees. Without recognizing the compensation philosophy, it is often difficult to put forward a starting salary for a new employee. This will also help in determining a total compensation package for new employees in relation to existing employees. The philosophy should be compatible with the size of the organization and it needs to be stable to support the HR. Since we have a large size employee base, it is suitable to keep our strategy above the standard to administer. It is necessary to make certain that the compensation strategies are clearly communicated, administered and reviewed regularly to make sure that the needs of the employees can be reasonably met by the compensation they receive. Reasonable pay and other benefits are major motivational factors that affect the morale and performance of the employees. Pay Structure Architecture (Pay Grades, Pay Ranges, and Pay Width) Determining the pay structure is a process that assumes significance and the company has to “set a midpoint, minimum and maximum rates of pay, including a minimum and maximum rates of pay for each pay grade and for the organization as a whole. Then the number of grades, the range of pay within each grade, the amount of overlap between adjoining pay grades, and the difference between grade midpoints must be determined” (Henderson, 2006, p. 291). Pay grade is one of the essential components of the pay structure. Pay grades are suitable groupings of a broad range of jobs or classes and they offer a link between the assessment and organization processes and the assignment of pay to a particular job. It presents for a single rate and permits the allocation of a variety of pay within a certain grade. The higher rate of pay grade indicates that the employee holding a job in this grade is important to the organization. The lower rate of pay grade indicates a minimum value on the contributions of the assigned job. Holland Enterprises, therefore, needs to first segregate their entire job positions by according priority and assign specific grades to each category with specific reference to their significance in the company’s production process. Subsequently, each category needs to be designated a specific minimum pay, which needs to be at par if not more than the industry standards. Every employee will have an expectation of the minimum pay range, which is the amount of compensation he/she would accept for a position. A pay range is often offered when a company asks for salary requirements. Thus, by offering the minimum industry standard of pay will help Holland Enterprises attract and retain its employees. However, if they consider the huge expenditure that they will have to incur on massive quitting of their employees, it can be seen than they are in a position to give a minimum pay higher than what their competitors are paying. Since wider range of pay allows more chance for employees to shift in salary, Holland Enterprises may consider this strategy while reviewing their pay system. They may adopt wider salary range if they want their employees to stay for a long time or want to support employees to continue in their positions. This wider range is more important for higher level positions in order retain employees with better experience over a longer period. Ratio of Base Pay to Incentive (Bonus) Pay Incentive pay is intended to generate incentives for workers to improve their work performance by linking the pay to job performance. It has specific effects on employer’s capability to attract and retain employees as well as to guarantee optimal levels of performance. Therefore, Holland Enterprises needs to evolve a system of incentive pay to its employees in all grades at an appropriate ratio to enhance their performance. Such incentives can, in general terms, be on a ratio of 8% of the monthly pay so that an employee will get approximately a month’s pay as incentive in a year. Besides, the company may also provide additional incentives for very high performance, which can be a percentage of the difference between volume of target of sales or production and the actual volume attained by individual employee. Holland Enterprises may like to review their existing pay system and restructure it in the following parameters: Components of Compensation: Direct compensation in the type of salary or wages Base pays that is, monthly, weekly and hourly. Overtime allowances on a daily basis Incentives (commissions and or sales bonuses) Indirect compensation in the type of advantages lawfully required advantages (e.g., Social Security) Optional (e.g., group health advantages) Holland Enterprises has to implement a bonus plan depending on Performance Management and a well-organized process of goal setting. They need to clearly recognize the difference between the Bonus Scheme and Incentive Scheme in benefits and compensation area. They must devise a Bonus Scheme to all employees as this relates to the goals of the company. Similarly, when they notice high performance of individuals, the company must recognize it with special incentives to such individuals in addition to the general incentive given as bonus. “Because employee compensation comprises the largest grouping of expenditures for most agencies, managers with HR responsibilities need to understand the various types of compensation that are part of Total Compensation and how to manage these lines on the budget effectively” (Hamel, 2008, p. 7). This can be done effectively by setting specific goals or bench marks for individual as well a group performance and where an individual or team attains a higher objective than the goals set, the company should immediately recognize it by way of an incentive. In this manner, they can sustain the motivation of the employees and also ensure that they remain loyal to the company for a longer period. Though this may seem as an additional overhead, if one really understands the system, it will transpire that the expenditure is actually insignificant in terms of the performance factors which will yield better profits. Thus, Holland Enterprises needs to evolve a well-organized bonus scheme, which caters to the following criteria: Transparency Trust Simplicity Incentive Pay as remuneration to performance To generate incentives for workers to improve their job performance by connecting worker pay to employee By investing a little on incentive pay the company can improve employee motivation and reap the advantages of: Increased employee efficiency & job performance Increased retention of high performing employees When the employees observe the practice of high performers receiving more pay than low performers, they will try to improve their performance and thus the overall efficiency of the company will increase and help it attach increased capability of attaining its objectives at lower costs. Pay Equity Another major concern for Holland Enterprises is to attain Pay Equity among its varying categories of employees so that they can create a sense of fairness of pay both externally and internally based on the theories of equity motivation. Equity theory, in brief, indicates that an individual observes what he brings to a work (inputs) and what he receives from a work (outcomes) and evaluates that to a reference individual, assessing the other individual’s inputs and outcomes. A worker might verify that she/he brings a certain stage of experience, education, and attempt to their job and that those inputs outcome in a certain level of benefits and salary. She/he would then evaluate these relations to the experience, education, and effort and the subsequent salary and advantages of another individual. If these ratios are not equal, then the worker comes to know of the disparity. Thus, it becomes clear that Holland Enterprises needs to understand that their employees will compare the rates of remuneration being paid by other companies and, thus, their “approach to equity is as important as the actual pay programs it implements. Companies typically emphasize external equity in the design of their compensation structures” (Pay Equity: Internal and External Considerations, n.d, p. 17). Similarly, they also need to ensure that same jobs within the company same pay. However, where they notice high performance of individual cases, these can be compensated through additional incentives so that the morale of high performing employees can be boosted. Thus, overall, it can be construed that if Holland Enterprises evolves a proper system of pay structure, which also amply recognizes individual performance, they can effectively resolve the present issues in their HR activities and increase their profitability in the long run. References Compensation & Benefits. (n.d). HR Council for the Non-profit Sector. Retrieved from http://hrcouncil.ca/hr-toolkit/compensation-systems.cfm Hamel, M. C. (2008). Compensation Guide: A Manual on Compensation Practice & Theory. Onestep. Retrieved from http://www.onestep.ca/Resources/OneStep_Compensation_v6.pdf Henderson, R. I. (2006). Compensation Management in a Knowledge - based World. Pearson Education India. Retrieved from http://books.google.co.in/books?id=9ObjodL0ryEC&source=gbs_navlinks Pay Equity: Internal and External Considerations. (n.d). Pay Equity Article. Retrieved from http://www.onestep.ca/Resources/OneStep_Compensation_v6.pdf Read More