Compensation Strategy at XYZ Plc - Case Study Example

COMPENSATION STRATEGY AT XYZ PLC Assess the situation and identify the three most critical, external, environmental factors that will affect the companys compensation strategy, for each of these factors, explain why the factor is critical and how the factor might impact compensation. XYZ Company, according to the latest revenue estimates, is the largest management consulting, technology consulting and technology outsourcing firm in the world. The same is true for the number of service deliveries and orders which are received from the global companies. Its current staff strength is in the region of 186,000 employees working in 52 odd countries. This figure alone speaks volumes about its compensation related strategies and initiatives. This paper would focus on the learning outcomes on the current strategic external environment factors concerning compensation strategy at XYZ Company at present (Armstrong, & Murlis, 1994). Theoretical and conceptual frameworks on employee performance and compensation have been developed over the years to support pay-related job enrichment and enlargement schemes. Employers have often been influenced by the existence of a variety of factors like performance enhancement and strategic skills development processes to adopt such schemes or programs. While the economic principle behind such pay schemes is basically the productivity enhancement there is also the motivation factor that such inducements as money and non-monetary benefits might not be able to bring about. Compensation strategies are nothing new in the modern work environment though, many of them might be lacking in those essentially significant aspects of performance paradigms and pay/benefit packages. However, the theoretical and conceptual frameworks of reference and analysis in this paper would seek to cover an adequate amount of current literature on the subject of compensation strategy so that the paradigm shift in the XYZ Company’s policy and strategic initiatives would cover a sizeable area of literature on the subject. Developing a better compensation strategy is crucial though sometimes it is regarded as a major challenge by the managers of the modern organizations due to different, uncontrollable external factors. Thus it is obvious that these external factors would affect the manager’s decisions at XYZ Company to adopt different compensation policies and strategies (Herod, 2009). However there can be identified major three factors which would directly affect on compensation strategy of the modern organizations, such as technology barriers, labor supply constraints and complex regulatory framework. Therefore compensation strategies must innovative to gain competitive advantages with the changing pressure in the external environmental factors. 1. External Environmental Factors a) Technology barriers In the first instance, most of the organizations need to run up against the technology barriers which prevent successful alignment of the organizational compensation strategies. In today’s complex business environment, along with new behaviors and collaborations are necessary to integrate across the organizations functions. Yet its compensations strategy should aligned with those emerging needs of the external environment. Especially payment tools and incentive management programs which are using by the XYZ Company is considerably inadequate to meet today’s demand of the employees. b). Labor supply constraints Secondly, labor supply constraints would be directly impacted on XYZ Company’s compensation policies and strategies. Growth patterns in labour demand and supply have been highly characterized by a regional trend of change. This is particularly obvious in respect of XYZ Company operations with worldwide presence. Supply-side theory basically underscores the importance free mobility of labour, i.e. geographical and occupational. However when supply of labor increases labor supply constraints will be removed and it will affect on compensation strategy at XYZ Company. c). Complex regulatory framework Thirdly, legislation framework especially in the Western European countries also would affect compensation policies and strategies at XYZ Company. Thus XYZ Company has set above average compensation policy for the culturally diverse workforce and moreover it is the most comprehensive compensation package which has been offered by the technology based service providing company in the world. In order to achieve this goal the EU government policy must be in alliance with far reaching reforms to health benefits & pension programs, labour markets and their structures. One of the hurdles to this efficient functioning of labour markets is the national minimum wage policy. Similarly another hurdle is the granting of unemployment benefits. These are common features in the national economy though XYZ Company has successfully tackled some of the negative consequences arising from these government policies in labour markets. Figure 1: Competitive Labor market of Accenture Labor demand Unemployment labor supply W W* N1 N N2 According to the above diagram, labor supply curve shows the number of workers who are willing and able to work in an occupation at different wages. A labor demand curve shows the number of workers firms are willing and able to hire at different wages. The intersection of the supply and demand curves for labor indicates the equilibrium, or market wage rate for certain types of labor.  However in XYZ Company employees have been offered competitive wage rates which are higher than the competitors’ in the industry. (2) Analyze the companys basic operations/overall strategy and recommend how the firm can align their compensation strategy to gain a competitive advantage. XYZ Company’s current strategic initiatives on compensation philosophy to its strong international workforce and the domestic workforce aren’t intended to distinguish between the two workforces. In other words any employee irrespective of his or her geographical location on its payroll will enjoy the same compensation strategies and programs (Appelbaum, 1991). However despite this claim there is a qualifying statement which says that international employees hired locally would be entitled to pay and benefits according to that country’s domestic laws. The universal principles on which XYZ Company promises its employees a performance related compensation strategy (including base and incentives) can be summarized as follows. They are intended to meet the requirements of a culturally diverse workforce and a fast changing corporate environment. They are intended to provide the company with that competitive edge in the markets where it competes against other companies for highly skilled labor resources. They are intended to provide a wider array of both monetary and non-monetary benefits and above all security to those employees and their family members. They are more or less expected to enhance pay & benefits for performance. To support XYZ Company’s strategic imperatives in global growth. To mitigate employees’ and retirees’ health care burden by way of compensating through an improvement in the quality of life brought about by consumerism. To guarantee that the sum total of retirement benefits made available to the employee ultimately matches the expectations of the workforce. However despite these claims still some glaring differences between what’s universally promised in the offers made to employees at the time of hiring and the real pay and benefits can be noticed at XYZ Company (Graham, 2008). Though many of these principles were initially intended to help create an internationally competent workforce at XYZ Company’s diverse units of service in the world, the evolving twin strategic environments of competition and corporate social responsibility (CSR) compelled XYZ Company to go back on some of the principles. The current compensation policies and programs as made available to new recruits promise job enlargement and enrichment related benefits that when translated into monetary terms mean quite a lot. Despite XYZ Company’s overall approach to compensation strategy through the adoption of strategically determined pay and incentive schemes, there is a clear lack of motivational factors such as productivity-related incentives based on the principle of contribution to the measurable criteria – volumes and revenues. The theoretical postulate on pay and benefits related to performance is dependent on the economic concept of marginal productivity of labor. In fact XYZ Company has adopted the economic value concept in determining the employee’s contribution. Thus MP of labor must be the basic criterion here. The theoretical and conceptual framework of analysis and the contingency model of compensation strategy at XYZ Company are essentially characterized by the fact that XYZ Company has been more oriented towards setting some international compensation standards as a framework of reference for its employees (Larry, & Mark, 2003). These international compensation standards have benefited both employees and their families notwithstanding the other negligible variables. These negligible variables include XYZ Company’s own policy of distinguishing between economic values and accounting value of output or contribution. Further the XYZ Company’s own strategic initiative at the organizational level to identify and reward performance by employees is based on the logical premise that individual employees are motivated by its management culture and organizational structure. Thus the compensation strategies and policies are based on a more general organizational approach to defining what performance is based on the above criteria. Thus a far reaching strategic shift in the XYZ Company’s compensation policies and strategies have come from a diverse policy approach at the organizational level and in turn has been reinforced by the individual employee commitment. The future compensation related strategies intended to enhance employee performance at XYZ Company would be the cynosure of many companies that hope to achieve performance related growth in their international and domestic operations. Finally, XYZ Company has made it a point to relate success of its compensation strategies to the organizational profit targets. That’s perhaps more deterministic in deciding the kind of employee response to the organizational goals. Pay structure Given above is the pay structure for XYZ Company, which consists of three grades in executive and non-executive positions. Job structure Given above is the job structure for the XYZ Company and it can be identified at three levels such as top level, middle level and lower level staff. REFERENCES 1. Appelbaum, S.H. (1991). Compensation Strategy: Determinants and Contingencies in High-Technology Organisations. International Journal of Manpower, 12(8), 22-30. 2. Armstrong, M & Murlis, (1994). Helen Reward Management: A Handbook of Remuneration Strategy and Practice. Kogan Page, London. 3. Graham, M.D. (2008). Effective Executive Compensation: Creating a Total Rewards Strategy for Executives. New York: AMACOM. 4. Herod, R. (2009). Expatriate Compensation Strategies: Applying Alternative Approaches (Global HR Management). Alexandria: Society for Human Resource Management. 5. Larry, P., & Mark, F. A. (2003). Compensation strategy in transnational corporations. Management Decision, 41(5), 465-476(12). Read More