Practical Applicable Compensation System for the Healthcare Company - Case Study Example

Compensation System “Student’s Name” “Institution Affiliation” “Instructor” “Date” PART ONE Standardization or localization? Introduction Compensation system within healthcare is not only an area of concern but also an emotive aspect. Healthcare uses a global compensation approach based on localized compensation. However, implementing the compensation system is extremely complex, time consuming, and expensive for the company. Human resource managers of respective countries, on the other hand, support the localized system because it offers high returns and compensation to them. Considering that the current system is unsustainable, it becomes necessary to develop a friendly and sustainable compensation system that will enhance employee motivation and business development. Compensation and benefit designs Employees earn rewards in form of compensation as reward for their labour. Such compensation involves financial pays such as salaries, wages, bonuses and incentives. Other forms of compensation are exempted from direct compensation where employees earn benefits such as retirement benefit plans, medical schemes leaves, employee in-services benefits, education, and workshops. Nonetheless, factors such as skills, experience, roles and difficulty of job come to play when determining employee compensation. Mainly, a just compensation system strives to find a balance between internal equity and external competitiveness. Analysis of healthcare global compensation system The aim of this paper is to suggest the practical applicable compensation system for the healthcare company. In a globalised system, compensation serves as most critical facets of internationalization. As such, good compensation system offers a firm with a competitive advantage. Nonetheless, compensation strategy heavily relies on national culture because employees tend to compare their earning with those of their counterparts in the nation while each nation has its own unique pay structures. Thus, while striving to standardize compensation, best practices would call for respect of national culture and regional characteristics. Researchers argue that the best global compensation systems incorporate both aspects of localized and standardized compensation systems. Imagine you are a manager in high-income country and you are being deployed in low-income country for a managerial position. Will you be motivated to take this position in case of a localized compensation system? Building on the submission by Wolfsburg and the testimony from the various human resource managers, it is apparent that the hybridization of the standardized and localized compensation system is the best design that can be employed at healthcare. This is because each system offers its unique benefits and disadvantages; hence, a hybrid of the two systems will yield the highest benefit. In this case, standardization will help determine standard pay for which healthcare employees will be compensated while localization practices will help attune such compensation to match the local needs. Localization involves basing the employees’ salary on the local (host country) salaries. This method seeks to cater for cost of living, including housing, taxation and dependents. The benefit of this system to Healthcare is to enhance administration and equity. However, this will push Healthcare to deal with diverse standards, multiple currencies, inflation and deflation rates, exchange rates, and tax systems of local countries. This means that there will be a lot of work for healthcare to meet localization compensation system. Healthcare will also require negotiated supplements and compensation based on host country economics, which will be competing against job responsibilities and performance. Therefore, localization would require tailoring compensation structure to each country (Mejia & Werner 2008). The advantage for this approach is there is little variation if any in culture, laws, market characteristics, and institutions. Organizations carry out different practices of human resource management based on what they deem to be most appropriate and relevant to the organization. For international organizations, strategies such as standardization and localization are utilized. Lu and Bjorkman (1997) emphasize this position arguing, “Different HRM practices often have different levels of MNC standardization and localization.” Some of human resource practices are culture free while most of them such as compensation are in line with socio-cultural context (Leat and El-kot 2007). In most countries, local human resource managers enjoy the protection of the law (mostly labour and industrial laws). However, the law also provides framework for how to compensate local workforce. In most states, the labour laws hold that employees have to pay workers within or above a stipulated minimum wage and not lower than the set amount. Such laws precede compensation frameworks and serve as a guide for which to remunerate employees. Therefore, standardization of salaries should be based on the work level. Each work level salary should have its own range from a given percentage scale. In developing a fair and standardized compensation system, the market conditions and economic factors are important to consider. There is need to conduct market surveys to understand these conditions as well as compare remuneration with other health employers. This plays a crucial role of avoiding resentment among the local staff members if they are earning significantly less. This can eventually affect the amount of cooperation they are likely to give an expatriate and adversely affect the outcome of an assignment. Compensation designs that portray an expatriate earning or getting a favourable treatment more than a local staff sends a message that the locals are less valued by the firm. Another benefit is that healthcare will be able to deploy its best expatriates to its other branches globally as most will not prefer to remain in their local country in fear of losing their compensation and benefits such as medical care when sent out to low-cost countries. The compensation philosophy exists to guide in design and execution of compensation system. The philosophy distinguishes financial, benefits compensation, and recommends harmonization of the two when it comes to ensuring employee satisfaction and motivation (Chen, S., & Wilson, M. 2003). As such, a standardized compensation that addresses financial compensation and rewards employees with benefits might help resolve compensation crisis at Healthcare. Just as argued by the Japanese HR Mr.Okubayashi aspects like culture, the firms’ tradition and local working environment need consideration when designing the compensation system. Localization helps in the performance appraisal and commitment to individuals’ work rate. This is because localization serves to address local economic and social factors taking care of local administrative requirements such as taxation. In addition, localization of compensation ensures standardization of compensation at a local level whereby compensation of employees takes into account the minimum wage at local level and economic status of the country of work. Localization will, therefore, bring into contexts the local conditions. This will allow for long terms programs implementations to enable sustenance of the organizational compensation philosophy as it also caters for local constraints, tax policies and native cultures.Varying labour features such as collective bargaining, employee representation and government regulations similarly can be looked on by localization of the compensation policies. The employees’ unions determine quite a lot of features and provisions in the remuneration of the staff. Regionalized systems, brings uniformity of remuneration approaches. This is because the closeness of countries may lead to the perception that compensation practices are more similar than they really are. Localized compensation strategies are more likely to be in line with the global systems. Conclusion In the face of globalization, most companies tend to address long-term incentive system in a standardized manner. Nonetheless, the practice of localizing pay to align pay structures with local interest is becoming popular. This is because localization of compensation aligns compensation with cultural, social, and economical aspects at the local level. In addition, hybridization of localized compensation with standardization serves to promote a harmonious system that observes not only the needs of people at local level but also at global level. This proves to work, as the standardization and localization tend to fill the voids created by the other. Therefore, the application of both standardized and localized compensation is considered. Healthcare should put into consideration compensation dynamics such as overall structure of rewards both formal and informal as this is what offers the directions for effective attraction, retention, and motivation of the human resource. Aspects like performance local traditions and global integrations and localization. PART TWO Competency based compensation system Overview This competency-based compensation system seeks to reward employees based on their competences. The compensation system rewards employees in exchange for official certification of employee’s mastery of knowledge and skills (also known as competencies). Competencies refer to traits desired to perform tasks effectively. This compensation system proposes that employees receive pay according to their competences. That is, people who demonstrate more competencies will receive higher pay than those who exhibit fewer competences (Zaim, 2007). Therefore, this competency based compensation system is a person-based system since it seeks to reward competencies of the individual rather than the job. The competency-based compensation is not like job-based compensation that rewards employees even if they are not proficient in their job, competency based compensation systems strictly rewards competencies. This system ensures that money plays its rightful role of fulfilling human needs; thus, compensation affects key outcomes and promotes desirable practice such as talent attraction, job satisfaction, and performance among others (Boyett & Boyett 2004). The proposed competency based compensation system will content the present situation of performance in which Healthcare observes standardization and flexibility. In developing a competency based compensation system, the following steps were followed: Development of a competency archetypal Competency charting Relating competencies to paying elements Developing compensation based on actual competencies Competency model a. Personnel competences for shop attendants and sales agents/marketing agents Job/role analysis: Behavioural competency Technical competencies Certification criteria and performance measurement Demonstrates team work Respects and upholds dignity of others Stimulates affirmative and pleasant team atmosphere Freely shares knowledge, talent, and time Offers help to share workload Resolves conflicts in a friendly way Patiently listens to ideas Marketing acquisition and retention strategies Upsells Healthcare Group’s products to customers and provides them with critical information of product and services Advice customers on available products as well as service enhancements that are available Demonstrates ability to apply retention techniques such as it is your success, it is your win Demonstrates internet or digital marketing promotions Customers agree to purchase Healthcare Group’s products Customers keep on coming back Transactions in the platform system are paid promptly or within the assigned shift Managerial competencies for supervisors, human resource personnel, and human resource managers Job/role analysis Leadership competence Corporate human resource competencies Business-related competencies Achievement orientation: able to set and work towards achieving challenging business objectives, targets, and delivers outstanding results (Festing & Engle nd) Decision-making: makes sound, timely, and bold decisions while balancing risks and benefits (Festing & Engle nd). Innovation and change: identifies the need for change and generates novel ideas to improve existing processes or create new processes (Festing & Engle nd). People-related competencies Capability development: develops organization and people to ensure that the Healthcare Group has capabilities needed for future success Team leadership: inspires the team to maximize output by providing clear directions as well as empowering them. Balancing team resources with assignments and establishing oneself as a leader. Impact and influence: influences others to gain support or driving the Healthcare Group’s goals and strategy forward. Relationship building: develops mutually trusting relationships with people that are within and out of the Healthcare Group in order to enhance open communications as well as advance the goals of the business. Personal competencies Analytical thinking: confronts situations by identifying the available information and systematically assesses it for meaning and impact. Business understanding: shows an understanding of implications of the Healthcare Group’s strategies, market trends, industry dynamics, and the competitive environment. Also demonstrates one’s function in accomplishment of the business objectives (Festing & Engle nd). Self-development: upholds critical awareness of one’s own working performance and style, and takes action to build on strengths. Focuses on development needs with the strategic objectives of the Healthcare Group. Recruitment-related competencies Recruitment of key talents: demonstrates good recruitment practices and strategic workforce planning (Festing & Engle nd). Management development: understands and demonstrates corporate management development (Ledford2011). Performance management: exhibits balanced goal setting, measures performance, and provides clear feedback Performance-oriented: Assesses employee performance, contributes to improvement of the system for performance assessment, organizes and conducts training activities, and carries out on job training activities (Ledford & Salimäki 2008). Collaboration: actively listens and clarifies for understanding, empathizes with audience, shares resource and information, and builds internal and external networks to create value. Manages alliance relationships through complex issues and draws upon full range of relationship to ensure appropriate candidates with right skills and competencies are hired People-related competencies Influential: influences Interpersonal understanding Analytical thinking Interview skills Achievement orientation: demonstrates ability to set goals, motivate workforce, planning and organizing consistently with the Healthcare Group’s objectives, and promotes self-improvement Leadership: provides effective leadership, demonstrates communication skills, motivates employees, and provides effective feedback (Ledford & Salimäki 2008). Competency mapping Competency mapping is a simple method of valuing competencies. The valuation method creates flexible foundation for ranking competencies through a degree of complexity. This helps assign value to compensation basing on competency and complexity of tasks (Manjunath &Rajesh 2012). This method is appropriate because it considers competences of an individual and functions performed. Points derived from competency mapping will be used to develop compensation system for Healthcare Group. Complexity level Description point 6 Highly diverse and highly complex Generally, the job is highly varied as well as multifaceted most of the time. The work requires planning, identifying and providing solution to numerous problems (related and unrelated) and opportunities. In this work, problems and opportunities are not apparent. Always requires critical judgment. 11 5 Very assorted and slightly multifaceted Problems and prospects in this job are not ostensible. Requires devising new approaches to solving problems. Resources are not always available. 9 4 Varied and intricate The job is generally varied and sometimes complex. Prospects and problems are not constantly obvious. The work requires devising and construing solutions to problems before arriving at concrete decisions. 7 3 Noticeable diverse and semi-complex Breaks in this work are not often clearly defined. The person must interpret and utilize resources to solve problems 5 2 Minimally diverse and less complex Work routine is somewhat monotonous and provides minimal intricacy in tasks. Prospects and problems are visible while instruction is available to help in decision making 3 1 The job is not diverse The job is repetitive and is a routine. Few easy problems to solve 1 From the above competency mapping, values are assigned to complexity work designs. Varying points depending complex level are awarded to the work designs from a low of one related with least complex level to a high of eleven (11) associated with highly diverse and highly complex job design. Relating competencies with compensation systems Although a competency based compensation system is not built on jobs, jobs should initially have a compensation base. This step will configure compensation base to house competencies of individuals (Fuehrer 2011). Therefore, number of competencies will determine amount of compensation as well as combination of competencies that an individual has and the level difficulty in the work assigned. Therefore, individual competencies are not in any form ordered. As such, an individual with greater number of competences will receive higher compensation than one will less combination of competences (Mazer & Nicholson 2004). The compensation structure, therefore, encompasses rational compensation advancement of compensation arranged in hierarchical manner (from the lowest to the highest). The lowest compensation will target those individuals with minimum (lowest) competences in easy work environments. As such, the compensation system does not consider which country one is assigned. At Healthcare Group, the lowest level job is that of a shop assistant. The shop assistant is responsible for selling products directly to customers. The lowest level job is compensated on three percentiles depending on individual’s competences. The three percentiles are 25th, 50th, and 75th percentiles. The 25th percentile hourly rate provides reference point for job grade 1 (which is the lowest job at Healthcare) on at the bottom side of compensation arrangement. Jobs that comprise highly valued competencies include those of human resource personnel and human resource managers in different countries. This group serves as reference point for grade five (5) (which is the highest job at Healthcare) at the upper side of the compensation arrangement. The compensation rate for job, which requires a large number of competencies and involves diverse and complex work structure, will thrice as much amount compensated for the lowest job. This compensation system proposes that the lowest job level receive a compensation of $8.70 per hour. This hourly rate will be converted into local currency depending on the country an individual is serving. Designing compensation on basis of actual competencies Based on the above evaluation and relation of competency to compensation, the following compensation system was proposed: Position Lowly competent (Exhibit few competencies: 1-5 competencies) 25th percentile Moderately competent (Exhibit significant competencies: between 6 and 10 competences) 50th percentile Highly competent (have a large number of competencies: above 10 competencies) 75th percentile Shop attendants $8.7 $9.7 $10.7 Sales agents/marketers $14.2 $15.7 $17.2 Supervisors $17.4 $19.4 $21.4 Human resource personnel $20.4 $22.9 $25.4 Human resource managers $26.1 $29.1 $32.1 The above compensation provides hourly compensation rate of different competencies. Compensation is expressed in dollar. This amount should be converted into respective local currencies. Reference List BOYETT, J.H., & BOYETT, J.T. 2004. The Skills Based Pay Design Manual. Lincoln NE: ASJA Press. CHEN, S., & WILSON, M. 2003. Standardization and Localization of Human Resource Management in Sino-Foreign Joint Ventures. Asia Pacific Journal of Management, 20 (3), 397-408. DING, D., FIELDS, D., & AKHTAR, S. 1997. An empirical study of human resource management policies and practices in foreign-invested enterprises in China: the case of Shenzen Special Economic Zone. .The International Journal of Human Resource Management, 8(5), 577-616. FESTING M. & ENGLE D. A. (nd). Wolfgang’s balancing act: rewarding healthcare executives in dispersed yet integrated firm. 326-335 FUEHRER V. 2011. Competency based pay: a modular, flexible, and scalable business solution. WoldatWork Journal. Third Quarter. 5-16 LEAT, M., & EL-KOT, G. 2007. HRM Practices in Egypt: The Influence of National context. International Journal of Human Resource Management, 18 (1), 147-158. LEDFORD, G., HENEMAN, R.L., & SALIMÄKI, A. 2008. Skill, knowledge, and competency pay. In L. A. Berger and D. R. Berger (Eds.), The Compensation Handbook (5th ed.). New York (NY): McGraw‐Hill LEDFORD, G., HENEMAN. 2011. Skill-based pay. Society for Industrial & Organizational Psychology MEJIA L. & WERNER S. 2008. Global compensation: foundations and perspectives. London: Routledge. MANJUNATH V.S. & RAJESH CNB. 2012. Competency based compensation system: as a strategic HR. New Delhi: Tata McGraw-Hill publishing company limited MAZER, M. AND W. NICHOLSON. 2004. Variable Competency Banding: Combining Variable Pay, Competencies and Broadbanding.” Workspan WEICK, K., & ROBERTS, K. 1993. Collective mind in organizations: Heedful inter-relating on flight decks. Administrative Science Quarterly, 38, 357-381. ZAIM, H. 2007. Competency Based Pay – A New Approach to Compensation Policy. Journal of Academic Studies 9(32): 115 – 133. Read More