Compensation and Benefits - Research Paper Example

 Organizational Research Paper Compensation and Benefits Compensation and benefits are two important tactics of modern human resource management. These instruments are developed with the objective of achieving traditional business goals like profit maximization and market domination. As the modern marketers have realized the necessity of minimizing the cost of production, they give more emphasis on employees’ welfare. Compensations and benefits are the special rewards given to employees in order to motivate them and thereby their work performance. A firm may have specific provisions for deciding compensation and benefit systems. While developing strategies for the provision of these systems, as Pride, Hughes & Kapoor (p.260) state, a firm must consider whether the system is potential enough to satisfy employee needs whether it is a competing figure with those offered by others, and whether it considers varied individual needs (Pride, Hughes & Kapoor, p.260). Thy following part illustrates types of compensation and benefits systems in a manufacturing concern. Compensation system Compensation is the reward offered to employees as remuneration for their labor. A firm’s 80% of the operating expenses constitute the compensation for the labor as it is equally important to employees as well as to management. So the strategies of management regarding employees’ compensation play a crucial role in the active employee participation. Generally, the compensation policies are formulated after considering the various elements such as wage level, wage structure, and individual wages. Types of compensations Compensation for the labor can be paid in variety of forms which mainly fall under the following heads. Hourly wage: it is the predetermined amount of money paid to labors for their each hour of work. Under this system, ‘fixed amounts are paid for the first forty hours of the employees’ work’ (Mishel, Institute & Bernstein, 1992-93, p.131). Then the employees are granted their hourly wages plus one-half of the hourly wages for each time worked in excess of these forty hours. Hourly wages are mainly paid to temporary workers. Weekly or monthly salary: salary is the fixed amount of money paid to the employees for a fixed interval of time irrespective of number of hours worked in the firm. Salaried employees do not have the opportunity to acquire overtime payment since their working hours do not take into account for salary computation. However, they get the regular salary for the absent days also. This mode of compensation mainly aims the managerial persons. Incentive payments: these are the rewards offered to the employees in addition to their wages and salaries. This system tries to encourage and motivate the employees with outstanding performance. It may be paid either to all employees or to certain employees according to the strategies of the organization. In addition to this, earnings of the company also determine the period of payment and figure of incentive (Colt, 1998, p. 125). Sometimes the manufacturing industries offer incentives to certain employees who broke specific production targets. Similarly, service period of the employees are also taken into consideration in order to discover extraordinary talents. Anyhow, these special incentives motivate the employee a lot. Lump- Sum Salary Increases: in this method, the payment to the employees increases annually with relation to the increase in regular pay period. This system gives the employee an opportunity to achieve entire compensation rise in one lump-sum. Profit sharing: some industries distribute certain percentage of their profit among the employees with the intention of encouraging them. It will motivate employees who are the partners in the financial operations of the firm. Thus employees will further help the firm to spread across the market by establishing their stature in the business world. Types of benefits Benefits are the encouragement rewards paid to employees in addition to compensation. The employee benefits mainly consist of services (insurance) and employee expenses (e.g. college tuition fee). The service expenses may either fully or partially paid by the employers whereas the employee expenses are completely reimbursed by employers. The allowed benefits of an employee will always be a fixed percentage of his compensation. As in the case of compensation, benefits can also be awarded in a variety of forms. They are briefly described below. Majority of the firms pay their employees for the time not worked on the ground of official holidays or sick leave. It boosts the sincerity of the employees toward the organization. Similarly, the firms have developed insurance packages for the employees, which give coverage to them as well as their family. Sometimes the employer shares the cost of insurance package with the employees. Provisions for pension and retirement programs are other benefit facilities offered by some firms. The firms may also share the costs of these programs with the employees. In certain situations, the firm needs to pay extra benefits to the employees under statutes. The law directs the employers to maintain ‘workers’ compensation insurance’ in order to reimburse the workers in the occasions of job site injuries and losses. Likewise, firms must provide fixed incomes to the employees who have disabled as a result of job-related injuries. Pride, Hughes & Kapoor (2010) describe how firms are directed to pay certain percentages to social welfare funds and ‘unemployment insurance’ fund. According to them, firms may create provisions for credit unions, child care, exercise rooms and other employee service facilities; for instance, firms like Diamler Chrysler, Compuware Corporation, and Dayton Hudson provide some unusual benefits to their employees in order to minimize the cost of production and thereby maximize profitability (Pride, Hughes & Kapoor, 2010, p.263). Types of optional post-termination compensation According to Smith & Mazin (2004), an employer may provide some additional benefits to his employees while he terminates their job. It is not a legal obligation but only an option. Some of them are given below; Severance: it is the extra benefit offered to a terminated employee. Severance indicates the stability of the firm and it helps the terminated employee to overcome the crisis of unemployment. Outplacement: under this method, the firm aids the dismissed employee to acquire a new job. In order to conduct these services actively, the firm organizes personality development workshops and sessions of interview techniques. Other compensations and benefits: some employers allow terminated employee to continue the usage of official equipments for a specified period. (Source: Smith & Mazin, 2004, pp.202-203). Suggestions for employee compensation and benefits Finnegan& Finnegan (2010) says that “since all compensations and benefit entries are debits on organization’s financial statements, they must be balanced carefully against the cost of turnover” (p.190). The mere introduction of a better compensation or benefits system will not give desired results, but the results also depend on the mode of implementation of the system. So, there should be an efficient department in operation for the effective supervision of compensatory affairs. It is found that some employees resign their job only with the intention of obtaining benefits; hence the firm must take necessary actions to prevent these malpractices. Most of the firms try to recruit and retain potential employees; but they do not take any efforts to encourage an average employee. This practice badly affects the balanced operations and stable growth of the firm. In my opinion, firms must also provide compensation to the workers who eliminate wastage during the course of production. Similarly employees who damage the factory equipments least should also be awarded. In addition to this, firms have to provide safety factory conditions in order to protect the employees from work site injuries; it helps to minimize firm’s healthcare compensation expenses. It is a general truth that incentives or additional benefits increase the efficiency of employee management. However, a number of factors such as nature, size, and turnover of the firm are to be considered before the implementation of any of these systems. References Colt, S. B. (1998). The sales compensation handbook. New York: Edition-2, AMACOM Div American Management Association. Finnegan, R. B. & Finnegan, R. P. (2010). Praise for Rethinking Retention in Good Times and Bad and Dick Fennegan. UK: Nicholas Brealey Publishing. Mishel, L. R & Bernstein, J. (1992). The state of working America. New York: M.E. Sharpe. Pride, W. M., Hughes, R. J. & Kapoor, J. R. (2010). Business. US: Edition- 10, South- Western Cengage Learning. Smith, S. A. & Mazin, R. A. (2004). The HR Answer Book: An indispensable guide for managers and human resources professionals. New York: AMACOM Div American Management Association. Read More