Employee Compensation - Essay Example

Swarnambika S Academia Research MBA July 26, 2007 Employee Compensation The literal meaning of compensation is to counter-balance. In the case of human resource management, compensation is referred to as money and other benefits received by an employee for providing services to his employer. Money and benefits received may be in different forms-base compensation in money form and various benefits which may be associated with employee’s service to the employer like provident fund, gratuity, and insurance scheme and any other payment which the employee receives or benefits he enjoys in lieu of such payment. As organizations are rapidly changing in the dynamic world in which exist, so, too, are compensation programs (Cascio, 1995, p.341). Most notably, organizations are finding that they can no longer continue to increase wage rates by a certain percentage each year (a cost-of-living raise), without some comparable increase performance. Subsequently, more organizations are moving to varied theme the pay-far-performance systems. These may include incentive compensation plans, and competency and team-based compensation. In this paper, we have picked up three organizations, namely, WALMART, Toyota and Southwest Airlines to research. A Comparative Study of WALMART, Southwest Airlines and Toyota The compensation program at WALMART, Chicago is extensive and very competitive on the industry. Management positions are salaried. Human Resource managers receive additional compensation based on the company’s profitability. But, during the past five years, the top five executives at WALMART made $219,684,584. If instead they had received a still generous $300,000 per year during those five years ($7,500,000 combined), they could have taken the rest of their compensation and used it to double the pay for one year for nearly 200,000 workers making products for WALMART in China or given a $5 per hour raise for one year to 20,000 U.S. WALMART workers (IPS, 2005, p.1). WALMART offers an executive compensation package for Management positions. South West Airlines, Texas, California offers flexible benefits package in addition to salary for all the Management positions. Southwest Airlines spent $13 million on health care in 1989, with 1990 projections of $15 million. The flexible-benefits program could save 6 percent of the company’s health-care costs if enrollment was 40 percent or above (Hitchcock, 1992, p.25). The company has four goals for the flexible-benefits plan: meet the individual needs of employees, rein in health-care costs, make employees aware of what benefits cost, and provide a tax advantage. The flexible-benefits program at Southwest is known as BenefitsPlus. It offers four medical plans, dental care, vision care, dependent-life insurance, two long-term disability plans, multiple life insurance, accidental death and disability pay, and two pretax spending accounts. Employees are able to select from the menu of benefits those that best meet their individual needs. At Toyota, Japan, unlike WALMART and Southwest Airlines, the salary components of a typical blue-collar worker comprise the following percentage. Job Based Wage Component - 30% Individual Competence - 30% Team Efficiency Component - 20% Experience Based Component - 20% Although the salary structure is not entirely competency-based as yet, much has been done over the years to move away from the traditional seniority-based wage system, with the support of the union. In other words, the compensation package at WALMART differs from that of Toyota and Southwest Airlines in that it offers an imbalanced compensation for its top executives which would prove harm to the organization. Types of Compensation Some of the types of compensation that are most important for me and that I would look for in one of these positions, are as follows: Incentive Compensation Plans In addition to the basic wage structure, organizations that are since committed to developing a compensation system that is designed around performance will want to consider the use of incentive pay. Typically given in addition to-rather than in place of-the basic wage, incentive plans should be viewed as an additional dimension to the wage structure. Incentives can be paid based on individual, group, or organization wide performance – a pay-for-performance concept (Spiers, 1992, p.17). Competency-Based Compensation While establishing pay plans, one specific aspect of the process is payment for the jobs. People who hold those jobs just happen to get the salary assigned to that position. That assumption, however, has started to change in several organizations-like Consolidated Diesel, Famous Footwear, and Eli Lily and Company (LeBlanc & Ellis, 1995, p.53) - which are advocating something radically different. Rather than thinking of the job as the most critical aspect to the organization, organizations are viewing the employees as one of their competitive advantages. When that conviction dominates organizational philosophy, compensation programs become one of rewarding competencies, or the “skills, knowledge, and behaviors” employees possess. This is commonly, referred to as competency-based compensation. Strengths and Weaknesses of my current compensation structure My current compensation structure has a huge executive compensation package which is a weakness. The compensation structure consists of lavishing exorbitant sums on management level while penny-pinching on pay for other workers. This is an example of a harmful business model. The company can, and should narrow its pay gap by bringing down the top – and lifting the bottom up. It has a pay for performance plan for the management level employees. This is strength of the compensation structure but this need to be stretched out to the entire workforce so that the weakness exhibited by way of the huge executive compensation. To conclude, instead of cutting down on the executive compensation package, it would be beneficial if an opportunity is given to enter the profit sharing plan (Greenwald, 1991, pp.42-43) allowing employees to share in the success of a firm by distributing part of the company’s profits back to the workers. In essence, employees become owners of the company. The logic behind profit-sharing plans is that they increase commitment and loyalty to the organization. References Cascio, Wayne F. 1995. Managing Human Resources, New York: McGraw-Hill, p. 341. Greenwald, John. 1991. “Workers: Rules and Rewards,” Time, pp. 42-43. Joy E. Hitchcok. 1992. “Southwest Airlines renovates benefits system - Southwest Airlines Co - HR Agenda: HRIS - Company Profile,” HR Magazine, July, p.25. IPS. 2005. “Wal-Mart’s Pay Gap”, CEO Compensation 871 times as high as U.S. Wal-Mart Worker Pay; 50,000 times Chinese Worker Pay, p.1. LeBlanc, Peter V & Ellis, Christian M. 1995. “The Many faces of Banding,” ACA Journal, p.53. Spiers, Joseph. 1992. “Wages are starting to inch up”, Fortune, p.17. Read More