Compensation and Benefits
Kara Sturgill
Siena Heights University
MGT 360 - Human Resource Management
Dr. Ball; Winter 2015
Significant costs and potential for key effects on attitudes, behaviors, and ultimately organization effectiveness show that compensation is an area of high importance. To the employee, compensation decisions also have important consequences. Salaries and wages represent the main sources of income for most people, and may also be taken as a sign of a person's social standing or success in life. Benefits, like health care and pensions, are also important topics of someone’s well being and financial security among employees and their family. It is important to understand how individuals are affected by different compensation decisions.
What is compensation?
Compensation includes any direct or indirect payments to employees, such as wages, bonuses, stock, and benefits. There is abundant evidence that pay level can increase the size of the applicant pool, likelihood of job acceptance, and the quality of job applicants. Pay levels of labor market and product market competitors play an important role in determining pay level. Although labor market and product market competition place important constraints on the choice of a pay level, research says that even after statistically controlling for differences in individual, job, and organization factors, organizations exhibit differences in pay level that are stable over time. Businesses attempt to gather information about pay practices of competitors through the use of pay surveys. The basic idea behind efficiency wages is that organizations setting pay higher than their competitors can realize increased efficiency. Some employers may pay higher rates of pay as a means of hiring and retaining higher ability employees. What advantage is there to having higher ability employees if their higher pay offsets their higher productivity? One answer that is brought up is that some organizations have a technology or work design that is more sensitive to ability than that of their competitors and therefore, receive a greater productivity return from higher employee ability levels. A common theme in the compensation management studies is that organizations have considerable discretion in the design of pay policies. In compensation, actions, rather than intentions or plans, are likely to have the greater consequences for costs and employee behaviors.
Developing a Compensation Package
Before a company can develop a compensation package there should be some analysis into what the company’s philosophy is. Compensation affects businesses because payroll is one of the major expenses of a business. Making a compensation policy is one of the most essential human resource management tasks because it applies to many areas and activities. According to Dias, there are some basic questions that need to be considered before development can begin. Companies must look at what they consider fair wages all the way to making sure the wages are meeting state and federal laws. There are two factors to look at when creating a compensation strategy. First is the internal pay factor which is the compensation strategy that the company has decided to use. The second is External pay factors which can be the state of the economy and inflation. When creating a compensation policy, William Haight from the American Management Association states there are 7 objectives to creating a sound compensation policy, Serve all stakeholders, be simple, identify compensation needs, group employees properly, include a process for developing a compensation program, reflect company culture and values, and be skilled in the art of managing change. Serving all stakeholders start with the top which can be from the company’s shareholders all the way to the customers. A compensation policy does not need to be extravagant or complicated and keeping it simple will create flexibility. Being able to identify the compensation needs can differ within a company but should be bases on the overall human resource needs. Grouping employees should be based on characteristics of the position and also training and recruiting methods required to fill that position. A sound compensation program must reflect the culture of the company which is based on the values and beliefs. Compensation professionals or human resource managers must be able to learn to work in the environment of change because compensation programs are rapidly changing.
Types of Pay, Incentives, & Other types of Compensation
After creating a compensation policy a company must look at the different types of pay when compensating an employee. The first type is salary, this is a pay that is a fixed amount during a pay period, and the downfall is there is no overtime pay. The second type is hourly wages, this is the most simple and based on number of hours an employee works. The final type is piecework system, this is pay based on production of a number of items produced. Incentive plans are another attribute of pay. The first is commission plans which an employee is paid based on a percentage of sales made; sometimes this can go along with salary or hourly wages. Bonus plans is a second incentive program, this can be a pay based on reaching certain goals set by the company or within a department. The third incentive program is profit-sharing plans; this is typically paid out once a year based on what profits are made by the company. Stock options are the last incentive program; an employee can purchase stocks at a certain rate. Other types of compensation include fringe benefits which include paid time off. Health benefits are a second type of compensation, and the third is 401k plans, which an employee contributes to and the employer will match a certain percentage for retirement.
Benefits
Employees will be happy with their jobs and will love their workplace if they get rewarded for their services they provide to the company. According to the U.S Department of Labor, utilizing profit-sharing, bonus or incentive programs can help small-business owners bolster the earning potential of staffers (Mcquerry). People are motivated by two things, money and achievement. Employees who are motivated by money tend to look for companies with higher pay, employees who are motivated by achievement look for companies with promotion and development opportunities.
Benefits are expensive for a company, and offering things like insurance or childcare represents a real effort to provide a good experience for employees. Business have the task to decide what benefits should be offered and to whom. Benefits are not based on performance but the job they have with the business. Research shows that work commitment and satisfaction increase with better benefits. According to the 2013 Aflac Work Forces Report, 68 percent of workers who are satisfied with their overall benefits packages are also satisfied with their jobs, compared to only 5 percent of workers who are satisfied with their jobs but not satisfied with their benefits packages. According to Penn Energy there are 5 “perks” to love for when looking for a job, health insurance, dental and vision insurance, voluntary and ancillary benefits, wellness programs, and time off. (Penn Energy, 2014) It is very important to ask about these benefits before hiring in, this is also a crucial step now with the new health care reform.
Kara Sturgill
Siena Heights University
MGT 360 - Human Resource Management
Dr. Ball; Winter 2015
Significant costs and potential for key effects on attitudes, behaviors, and ultimately organization effectiveness show that compensation is an area of high importance. To the employee, compensation decisions also have important consequences. Salaries and wages represent the main sources of income for most people, and may also be taken as a sign of a person's social standing or success in life. Benefits, like health care and pensions, are also important topics of someone’s well being and financial security among employees and their family. It is important to understand how individuals are affected by different compensation decisions.
What is compensation?
Compensation includes any direct or indirect payments to employees, such as wages, bonuses, stock, and benefits. There is abundant evidence that pay level can increase the size of the applicant pool, likelihood of job acceptance, and the quality of job applicants. Pay levels of labor market and product market competitors play an important role in determining pay level. Although labor market and product market competition place important constraints on the choice of a pay level, research says that even after statistically controlling for differences in individual, job, and organization factors, organizations exhibit differences in pay level that are stable over time. Businesses attempt to gather information about pay practices of competitors through the use of pay surveys. The basic idea behind efficiency wages is that organizations setting pay higher than their competitors can realize increased efficiency. Some employers may pay higher rates of pay as a means of hiring and retaining higher ability employees. What advantage is there to having higher ability employees if their higher pay offsets their higher productivity? One answer that is brought up is that some organizations have a technology or work design that is more sensitive to ability than that of their competitors and therefore, receive a greater productivity return from higher employee ability levels. A common theme in the compensation management studies is that organizations have considerable discretion in the design of pay policies. In compensation, actions, rather than intentions or plans, are likely to have the greater consequences for costs and employee behaviors.
Developing a Compensation Package
Before a company can develop a compensation package there should be some analysis into what the company’s philosophy is. Compensation affects businesses because payroll is one of the major expenses of a business. Making a compensation policy is one of the most essential human resource management tasks because it applies to many areas and activities. According to Dias, there are some basic questions that need to be considered before development can begin. Companies must look at what they consider fair wages all the way to making sure the wages are meeting state and federal laws. There are two factors to look at when creating a compensation strategy. First is the internal pay factor which is the compensation strategy that the company has decided to use. The second is External pay factors which can be the state of the economy and inflation. When creating a compensation policy, William Haight from the American Management Association states there are 7 objectives to creating a sound compensation policy, Serve all stakeholders, be simple, identify compensation needs, group employees properly, include a process for developing a compensation program, reflect company culture and values, and be skilled in the art of managing change. Serving all stakeholders start with the top which can be from the company’s shareholders all the way to the customers. A compensation policy does not need to be extravagant or complicated and keeping it simple will create flexibility. Being able to identify the compensation needs can differ within a company but should be bases on the overall human resource needs. Grouping employees should be based on characteristics of the position and also training and recruiting methods required to fill that position. A sound compensation program must reflect the culture of the company which is based on the values and beliefs. Compensation professionals or human resource managers must be able to learn to work in the environment of change because compensation programs are rapidly changing.
Types of Pay, Incentives, & Other types of Compensation
After creating a compensation policy a company must look at the different types of pay when compensating an employee. The first type is salary, this is a pay that is a fixed amount during a pay period, and the downfall is there is no overtime pay. The second type is hourly wages, this is the most simple and based on number of hours an employee works. The final type is piecework system, this is pay based on production of a number of items produced. Incentive plans are another attribute of pay. The first is commission plans which an employee is paid based on a percentage of sales made; sometimes this can go along with salary or hourly wages. Bonus plans is a second incentive program, this can be a pay based on reaching certain goals set by the company or within a department. The third incentive program is profit-sharing plans; this is typically paid out once a year based on what profits are made by the company. Stock options are the last incentive program; an employee can purchase stocks at a certain rate. Other types of compensation include fringe benefits which include paid time off. Health benefits are a second type of compensation, and the third is 401k plans, which an employee contributes to and the employer will match a certain percentage for retirement.
Benefits
Employees will be happy with their jobs and will love their workplace if they get rewarded for their services they provide to the company. According to the U.S Department of Labor, utilizing profit-sharing, bonus or incentive programs can help small-business owners bolster the earning potential of staffers (Mcquerry). People are motivated by two things, money and achievement. Employees who are motivated by money tend to look for companies with higher pay, employees who are motivated by achievement look for companies with promotion and development opportunities.
Benefits are expensive for a company, and offering things like insurance or childcare represents a real effort to provide a good experience for employees. Business have the task to decide what benefits should be offered and to whom. Benefits are not based on performance but the job they have with the business. Research shows that work commitment and satisfaction increase with better benefits. According to the 2013 Aflac Work Forces Report, 68 percent of workers who are satisfied with their overall benefits packages are also satisfied with their jobs, compared to only 5 percent of workers who are satisfied with their jobs but not satisfied with their benefits packages. According to Penn Energy there are 5 “perks” to love for when looking for a job, health insurance, dental and vision insurance, voluntary and ancillary benefits, wellness programs, and time off. (Penn Energy, 2014) It is very important to ask about these benefits before hiring in, this is also a crucial step now with the new health care reform.