How do you Pay for Performance in a downward economy - Essay Example

The cost of living expenses are on the rise in the 21st century for the American people. The cost of food in the United s is five times higher than in emerging economies such as many South American countries and the Sub Saharan African region. Employers want their employees to compensate for inflation, but on many instances companies in America are dealing with such thin margins that they cannot afford to increase the pay of its employees. It is imperative for human resource departments to become creative in their compensation strategies.

A way to offer employees additional compensation without increasing their salary is through the stock option mechanism. A stock option plan gives the employee the opportunity to buy the stock of the company they work for at a discounted price. The workers typically obtain instant capital gains when they exercise their stock options. A good attribute of stock options is that the wealth of the company is being shared with the people that create the corporate empire. The pension plans of companies should not include any investment in common stocks of the firm.

One of the lessons from the demise of Enron was the necessity for diversification in employee pension plans. The shaky economy is causing a lot of problems for the workforce in America. Massive layoffs, downsizing, and divesture strategies are hurting the economy. The unemployment rate in the United States in September 2011 was 9.1% (Bls, 2011). People have become hesitant of asking for raises when employees don’t automatically give them because they fear being singled out for future downsizing initiatives.

"The communication of economic challenges is an opportune time for financially stable companies to tell their employees that they are taking care of them” (Ceridian, 2011). Loyalty from both sides has decreased a lot in the 21st century. Employees are more willing than ever to quit a job in search for a better employment opportunity. An example of a current labor confrontation among a union and an ownership team is the National Basketball League labor dispute. The NBA players are in lockout because the owners want lower the salaries of its employees.

The NBA owners instead of offering higher salaries are looking to decrease the total compensation of the players by a minimum of 12.28% (Myfoxboston, 2011). The entertainment sporting industry has been hit hard by the recession. Last year NBA owners lost $300 million. Employees across every industry are seeing their salaries stagnant compared to the traditional annual increases that occurred during the bull era of the 1980s and the computer age of the 1990s. As companies move forward in the second decade of the 21st century they are going to find that employees are seeking higher total compensation packages than in the past along with a preference for long term employment contracts that provide job security.

The use of stock option plans can be used to increase the total compensation packages of employees in order to keep them happy despite offering low salaries increases. Companies cannot expect employees to obtain zero salary growth during a prolonged period of time due to time value of money considerations. ReferencesBls.gov (2011). Latest Numbers. Bureau of Labor Statistics. Retrieved October 29, 2011 from http://www.bls.gov/ Ceridian.com (2011). Shaky economy causes companies to rethink compensation strategies.

Retrieved October 29, 2011 from http://www.ceridian.com/employee_retention_productivity_article/1,6266,15758-70604,00.html Myfoxboston.com (2011). Report: NBA Owners, Players Move Forward 50-50 Revenue Spit. Retrieved October 29, 2011 from http://www.myfoxboston.com/dpps/sports/nba-labor-talks-adjourn-until-thursday-dpgonc-20111019-kh_15557445