Compensation and Benefit System - Essay Example

?Running Head: Compensation & Benefit System Compensation & Benefit System [Institute’s Compensation & Benefit System Worker benefits and compensation are turning out to be more and more intricate and costly. Companies should cautiously think about both the business's financial needs and the workers' requirements when making compensation and benefits plans. Employee benefits usually include health indemnity, holiday time, disability coverage and retirement plans. Compensation incorporates a set salary or inspirational income plans, for instance, commission, bonuses and value income. With the passage of time, more workers are comparing one business to another not just with respect to salary but also benefits. A number of individuals, indeed, are more concerned about the benefits they get instead of wages because of family requirements or aspects of their standard of living, such as “health care coverage and financial planning” (World at Work, 2007). If someone has a company, his employee compensation and benefits package may simply be the basis someone does or does not agree to the job offer. To make the company aggressive and create a center of attention for very skilled applicants, one has to present an attractive benefits package. The business should make this a significant element of the planning process, if the management would like to appoint and retain top workers. In the present day, employees are not ready to work merely for the money; they look forward to something more than cash. This ‘something more than cash’ is known as employee benefits or fringe benefits. Employee benefits are non-monetary type of compensation provided besides cash earnings to improve employees’ lives - both personal and professional. Employee benefits are not based on performance. Employees get benefits irrespective of their performances. “Employee benefits as a whole have no direct affect on employee performance” (Dixon et al, 2009); however, insufficient benefits do contribute to a decreasing satisfaction level along with increasing absence and turnover in workers. Therefore, the employers would have to plan their benefit package vigilantly. All individuals have different kinds of requirements. A few would like have cash so they work for the corporation that offers them higher salary package. Some individuals give importance to success more than cash; they would join the companies that offer better opportunities of promotion, learning, development, and personal growth. A compensation plan that goes well with employees’ requirements is more expected to encourage them to work in the way their company wants them to. The Group compensation structure includes different types of compensation. This guarantees proportionate compensation, in this manner reinforcing and supporting short as well as long-term goal setting and attainment. Executive Management’s fixed income must be individual and supported on the content and responsibility of the job, the person’s capability along with experience with respect to the job held, in addition to the region in which the position is based. As well as a fixed income, Executive Management as well has a variable income component. The variable component is planned as a fraction of the entire cash compensation package and is mainly linked with the realization of general group financial performance objectives (World at Work, 2007). The main performance signs for variable income components shall mostly be connected to the result of particular financial goals inside the group compensation and benefit structure. The size of the variable income component relies on the job held and may “add up to between 30 percent and 60 percent of the fixed salary for on-target target performance” (Wynn, 2004). Performance next to fixed objectives and compensation for results attained are calculated periodically. In accordance with the company’s strategy, the entire compensation against variable income components is ‘capped’. The objectives for the variable income component are founded yearly by the Board to maintain the company policy as well as goals. Other main performance signs may be utilized to shift focus on non-financial goals of some specific interest. For performance associated to financial objectives within the variable income arrangement going beyond 100 percent of the objective, there is the chance for further compensation known as a yearly inducement or additional benefit. The yearly inducement involves a chance to get a maximum of a further 55 percent of the objective variable income component. In view of that, the maximum expenditure level for the variable income component, as well as the yearly inducement is ‘capped’ at a 155 percent of the actual objective for variable compensation. The policy as well “encloses a minimum performance level or threshold under which no variable salary or annual incentive will be paid out at all” (Tropman, 2001). With the intention to guarantee continuing engagement as well as maintenance of important employees with regard to the attainment of latest company, the divestment of functions, or other intermediary activities, an added annual inducement with an overdue payment of one to two years may or may not be useful. This overdue inducement needs constant employment until an approved future date for any expense to be made and is useful simply during exceptional conditions. The overdue inducement should never go beyond 50 percent of the regular annual variable income component and shall in other aspects act in accordance with the company’s bonus plan. While establishing new retirement fund contracts, senior executives who are sanctioned to pension benefits must only be registered in identified contribution plans. The normal retirement age is 65 years (it may vary a little from country to country). “The most important law is that the amount of pension contributions be based only on the fixed salary. Certain individual adjustments may occur based on local market practice” (Wynn, 2004). Benefits like company maintained cars and health care, medical and illness related indemnity schemes should be of a more limited value in comparison with other items of the compensation package and in proportion to the market practice for the relevant regional market. Pay structures are the sturdy determinant of employee’s worth within the business. It facilitates in investigating the employee’s position and standing within the organization. It gives fair dealing to every employee. Pay structures also take account of the evaluation of inducements. The internal equity technique accepts the job position within the organizational chain of command. The procedure intends at harmonizing the compensation offered to a job profile as compared to the compensation offered to its senior and junior level within the chain of command. The equality is guaranteed by means of job status, job categorization, level of supervision, level of status and factor comparison. External equity helps in market pricing analysis. Businesses plan their compensation policies by reviewing the competitors’ or industry averages. Companies set the compensation packages of their employees aligned with the established compensation packages within the market. This needs fair dealing with the employees. Sometimes businesses present higher compensation packages to create a center of attention and keep the finest talent in their organizations. Compensation and Reward system plays a central part within a business organization. “Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the property owner, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour expects wages from the process” (Lencsis, 1998). As a result, a fair compensation system is a necessity for all business organizations. A perfect compensation system will have helpful impact on the competence and results generated by employees. It will support the employees to do well and attain the set objectives. It will improve the process of job assessment. It will as well assist in setting up a perfect job assessment and the set standards would be more practical as well as attainable. Such a system must be clear and standardized. It will be relevant to all the levels of the business as a common system. The system is supposed to be easy and flexible so that each worker would be able to calculate his personal receivable compensation. A good compensation and benefit system will boost the self-esteem, effectiveness, and collaboration between the employees. Primarily, conventional ways of compensation involve predefined pay levels with standard raises. Raises are usually given for “promotions, merit increases, or cost of living increases” (World at Work, 2007). As companies modify their focus, they must modify their approach to compensation as well. Conventional compensation techniques may restrain a business from satisfactorily rewarding its best employees. On the other hand, a number of latest compensation systems concentrate on compensation for expertise and performance, with the employees having share in company’s profit or loss. One basic principle of latest compensation plans is that as workers turn into employee owners, they are expected to work harder to guarantee the success of the business. In fact, plans that encourage employee ownership - and as a result employee responsibility as well as emotional investment - are becoming more and more popular. Compensation programs and policies must be told clearly and comprehensively to workers. Workers obviously would like to have a clear knowledge of what they can rationally look ahead to in terms of compensation and performance assessment. To guarantee that this takes place, advisors advise business owners to “detail all aspects of their compensation programs in writing” (Dixon et al, 2009). Taking this step not just helps encourage staff, but as well gives the owner extra legal defense from charges about unjust labor practices. In conclusion, the paper included discussion and analysis of some of the significant aspects of compensation and benefit system. In addition, the paper has recognized and analyzed different studies related to the topic and it is expectation of the HR consultant that the discussion will allow the organization to establish an effective compensation and benefit system that will be beneficial for the employees, as well as for the employers. It is anticipation that the paper will be beneficial for students and professionals in comprehensive understanding of the issue. References Dixon, L. Macdonald, J. W., Barbagallo, W. (2009). California's Volatile Workers' Compensation Insurance Market: Problems and Recommendations for Change. Rand Publishing. Lencsis, P. M. (1998). Workers Compensation: A Reference and Guide. Quorum Books. Tropman, J. E. (2001). The Compensation Solution: How to Develop an Employee-Driven Rewards System. Jossey-Bass. World at Work. (2007). The WorldatWork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for HR Professionals. Wiley. Wynn, B. (2004). Adopting Medicare Fee Schedules: Considerations for the California Worker's Compensation Program. Rand Publishing. Read More