Table of Contents
- Buy Human Resource Consultant essay paper online
- How an Effective Compensation and Benefits System Contributes to Organizational Effectiveness
- Compensation and Benefits Philosophy
- Compensation Philosophy of Holland Enterprises
- Rationale for the Total Rewards Approach
- Pay Structure (Pay Grades, Pay Ranges, and Pay Width)
- Ratio of Base Pay to Incentive (Bonus) Pay
- Emphasis on External or Internal Equity
- Principle Benefits
- Related Free Management Essays
To achieve organizational success in the long-term, it is imperative for an organization to attract and retain top talented employees. One of the approaches that can be used to retain and attract talented individuals is through designing and implementing an effective compensation and benefits system (Armstrong, 2010). Compensation and benefits constitute one of the several human resources (HR) that companies use for managing their personnel. Various scholars emphasize on the importance of ensuring that the benefits and compensation system is linked to overall strategies and goals of an organization, as well as the HR strategy. Disregarding many benefits, a compensation system can result in disastrous outcomes for an organization due to the fact that laborious and costly process, associated with hiring new employers, gaining the trust of existing personnel, and renewing motivation and energy levels within an organization (Biswas, 2012). Successful firms regularly plan and review their benefits and compensation for employees (Bruce, 2012). As for a human resource consultant for Holland Enterprises, the current paper proposed a revised benefit and compensation strategy for the company, which is currently perceived as uncompetitive and unfair. As a result, the company is losing its employees. This proposed compensation and benefits system covers various aspects, including the role of an effective compensation and benefits system in ensuring organizational effectiveness, the philosophy underpinning compensation and benefits system, the pay structure, the ration of base pay to incentive, pay, prominence on internal or external equity, and the principle benefit types.
How an Effective Compensation and Benefits System Contributes to Organizational Effectiveness
An effective compensation and benefits system is an important aspect of the overall HR strategy, adopted by an organization. In the current business world, competitive conditions make acquitting and retaining talented employees a challenging task (Biswas, 2012). At the same time, success of organizations is hinged on their ability to have top performing employees. After an organization has identified its right personnel, it might not be able to provide the right compensation and benefits needed to retain best talents (Kopp, 2014). The benefit and compensation system is a crucial component of HR strategy that helps in ensuring that an organization remains competitive. At the same time, the challenge for organizations is to ensure that the personnel costs are under control, while simultaneously offering the right benefits and compensation to its employees (Thomas, 2009). An effective benefits and compensation strategy helps in achieving organizational effectiveness in various ways, which are discussed in the subsequent paragraphs.
First, the compensation and benefits system contributes to organizational effectiveness by enhancing competitive advantage of the organization in the labor market (Moore & Viscusi, 2014). Nowadays, most products, offered in the market, appear similar. For instance, distinguishing cars made by various auto manufacturers is difficult for consumers. Employees, just like other consumers, are in the same predicament in the sense that they face difficulties when differentiating employers (Moore & Viscusi, 2014). This challenge stems from problems, associated with recognizing excellent organizations, especially when they are the same as others. As a result, competitive advantage is a crucial component of the mix for an excellent organization to be recognized by employees. There is a need for an organization to differently portray itself in the labor market. The compensation and benefits systems are the tools of differentiation that an organization can use. The compensation and benefits system plays a crucial role in differentiating a company on the labor market and building attractiveness of a firm for the best talents (Shields et al., 2015). Top performing individuals have a preference for an organization they perceive attractive, rather than average organization that offers the same conditions, similar to the industry average. Therefore, the benefits and compensation system is a key variable with respect to the attraction and retention of top talents by a firm, which is directly associated with its business performance (Moore & Viscusi, 2014). The underlying implication from this observation is that an effective compensation and benefits system is crucial in differentiating an organization in the labor market, which helps in attracting top performing employees.
Second, the compensation and benefits system results in organizational effectiveness by supporting and increasing the efficiency of HR processes. Armstrong (2010) asserts that the compensation and benefits systems have a strong bearing on the HR performance. Reddick and Coggburn (2008) agree by stating that the compensation and benefits system is an effective tool for managing human resources performance, which is also linked to the overall performance of an organization. One of the HR processes, supported by an effective compensation and benefits strategy, is recruitment (Armstrong, 2010). Various authors agree that staffing and recruitment cannot be effective in the absence of effective compensation system. Although the recruitment process can draw upon brilliant HR marketing policies, it is essential for recruiters to provide employees with competitive salaries and benefits, which are both competitive in the labor market and aligned with internal compensation strategy (Reddick & Coggburn, 2008). Essentially, staffing and recruitment processes should have the backing of an outstanding compensation system.
Thirdly, an effective compensation and benefits system helps in achieving organizational effectiveness through motivating employees (Armstrong, 2010). Salaries and bonuses have been found to be an effective tool for motivating employees. Although motivation is not solely about compensation, it is essential for compensation to support the overall framework for motivation used in an organization (Bruce, 2012). Even with the best management practices, it is impossible to maintain high levels of motivation in an organization in cases whereby the compensation and benefits strategy is unsynchronized with the labor market. Employees are often informed of the industry levels of salaries and benefits, and when an organization is offering salaries and benefits that are below industry average, it should recompense the difference in some other aspects (Reddick & Coggburn, 2008). Nevertheless, high disparities demotivate employees, since they feel that they are not getting paid for their efforts.
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Fourth, an effective compensation system contributes to the effectiveness within an organization by supporting talent development. For talent management and development to be effective within an organization, it has to be supported by compensation and benefits systems (Reddick & Coggburn, 2008). An organization should be concerned about the need to develop skills and knowledge of its employees. Therefore, the compensation and benefits systems offer a tool through which an organization can build the ability of its employees by offering the right career opportunities mix, coupled with the right compensation.
In addition, an effective compensation plays a crucial role in supporting performance management and differentiating employees, since successful employees are not interested in looking for new job opportunities (Shields et al., 2015). In essence, when employees are offered with the right compensation and benefits, they do not direct their effects on web search boards in the course of working hours. Instead, they are focused on delivering results, since their efforts are reflected in salaries and benefits that a company gives them. Therefore, effective compensation systems contribute to the overall effectiveness of an organization by enhancing employee productivity (Shields et al., 2015). In addition, offering employees with the right compensation and benefits has been linked to innovation and effective performance management processes within an organization. Effective compensation and benefits strategies have also been linked to positive organizational outcomes, such as job satisfaction (Bruce, 2012); low absenteeism; and low employee turnover (Biswas, 2012).
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Compensation and Benefits Philosophy
A compensation philosophy denotes a formal statement, outlining the position of a company with respect to employee compensation. Principally, it elucidates the “why” aspect of employee compensation and benefits and offers a consistent framework. It is beneficial for an organization to have a transparent compensation and benefits philosophy (Biswas, 2012). The compensation and benefits strategy depends on various factors, including the goals and objectives of an organization; the financial position of a firm; a firm’s size; salary survey data; and the difficulty level in obtaining the best talent (Kopp, 2014). Regular review and modification of the compensation and benefits philosophy are recommended, based on its effectiveness, as well as the prevailing factor variables, influencing an organization (Bruce, 2012). Based on the circumstances, specific to Holland Enterprises, the following is the proposed compensation philosophy.
Compensation Philosophy of Holland Enterprises
The philosophy underpinning the compensation and benefits program at the company is to build a program, supporting organization’s values and mission. Holland Enterprises believes that its compensation and benefits program is a tool for management that helps in supporting, reinforcing, and aligning its business strategy, values, and financial and operational needed with the objective of achieving profitability and growth. The compensation and benefits program at the company has the main aim of attracting, motivating, and retaining talent personnel who play a crucial role in contributing to the company’s success. Holland Enterprises is committed to adopting a total compensation approach, where in compensation comprises of the base salary, incentive pay, pension, and diverse benefits to employees. The company strives to offer a base salary that is consistent with the 50th percentile of the market rates when employees demonstrate full proficiency and meet outlined expectations. Holland Enterprises believes that employees who have consistently demonstrated above board performance and proficiency should be rewarded by receiving a higher base pay. Also, it is imperative to note that newly hired employees, who are not satisfying their expectations, will receive a pay that is below the 50th percentile target. The company also seeks to offer pay levels considered external competitive, when compared to a selected group of peers in the sector. Besides the base salary, Holland Enterprises will use a variable pay (incentive) as a means of achieving the company’s strategic goals. The availability of incentive pay will be made to some employees, based on numerous factors that draw upon the achievement of individual goals that are related to the company’s performance and objectives. Consistent with the company’s culture, goals of the organization, as well as the compensation and benefits structure will be communicated openly and regularly. Holland Enterprises seeks to ensure that the compensation and benefits process is fair, in order to make sure that all employees have an understanding of the outcomes and goals, associated with the process. The company will set up initiatives aimed at administering the compensation program in a way that meets the criteria of both consistency and devoid of discrimination.
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Rationale for the Total Rewards Approach
The majority of companies tagged “best employers” place a lot of emphasis on leveraging and engaging their personnel to reinforce their workforce with the total value of what firms offer, comprising of both intangible, as well as tangible (Cao, Chen, & Song, 2013). Armstrong (2010) describes the total rewards philosophy, as a crucial tool for attracting, motivating, and retaining employees using compensation; aligning the compensation strategy with the organization’s business strategy; building competency through establishing linkages between performance management and career development; and nurturing a performance-driven organizational culture that contributes to growth (Cao et al., 2013). Therefore, the compensation philosophy is based on the need to offer diverse compensation types for contemporary employees.
Pay Structure (Pay Grades, Pay Ranges, and Pay Width)
The ideal approach to determining the pay for a specific job position is to perform job evaluation in order to determine the worth of position to the organization, rather than what an employee should be paid. Shields et al. (2015) outlined an approach that can be used to determine the pay structure, which includes writing the descriptions for all job positions in the organization; evaluating and ranking the positions based on responsibility; and putting them in the compensation structure, wherein positions with approximately equal weights are classified under the same tier. The next step entails performing salary surveys to ascertain what workers in the same industry are getting for the same position. As a result, the pay structure is developed based on the market rate, which should outline the salary offered to a solid, experienced worker. Entry level employees may be provided with about 75-80% of the market rate, whereas experienced employees are provided by about 120-125% of the market rate (Biswas, 2012; Moore & Viscusi, 2014). This is the recommended rate for employees at Holland Enterprises.
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Although there are no established standards or regulations for setting the pay grades, some fundamental rudimentary steps are involved. The core aspects, outlined by Biswas (2012), in developing and sustaining salary grades entail ensuring participation and commitment of the management in determining maximum and minimum salaries offered by the company; utilizing the compensation philosophy in the creation of pay grades supporting the philosophy; and ascertaining the frequency of modifying the grades, as a result of market changes and inflation (Thomas, 2009). Moreover, it is imperative for Holland Enterprises to consider pay equity when designing the pay structure. Biswas (2012) emphasizes the importance of employers, considering internal pay equity. A market analysis can be used in determining external pay equity.
In establishing the pay grade, the company will first determine the minimum and the maximum pay offered to employees. The minimum pay will denote the first, as the lowest grade, whereas the maximum pay will represent the highest and the last pay grade (Armstrong, 2010). All the company’s positions will be listed, and based on the company’s compensation philosophy, the aim is to lead the market. This means that the mid-point will exceed the average salary offered to employees for various job positions. Pay ranges often spread about -/+ 15% around the mid-range (Bruce, 2012), which is recommended for Holland Enterprises.
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Establishing the number of grades depend on size of a firm, the outcomes of job evaluation, and diversity in job positions. It is recommended for large organizations to make use of more grades. For instance, the US federal government makes use of 15 grades (Armstrong, 2010). On the other hand, it is recommended for smaller organizations to make use of smaller grades. For instance, a small organization having a Chief Executive Officers, managers, and administrative assistants may use three salary grades. There is no definite required a number of salary grades; instead, the number depends on the size of an organization and salary structure (Thomas, 2009). For the case of Holland Enterprises, five pay grades are recommended based on chiefs and directors, managers, supervisors, exempt professionals, administrative staff, and administrative staff.
The next step entails setting the maximum and minim pay for each grade, that is, the range for each grade. It is possible that the maximum pay for a certain grade might overlap with the minimum of another grade. The commonly used spread is +/- 15%, which has been recommended by various authors (Armstrong, 2010; Moore & Viscusi, 2014). The recommended approach for Holland Enterprises is to perform a salary survey and average the midpoints of job positions in the grade. This will help in establishing the range for the grade. The range will serve the aim of ensuring that employees in the same grade are compensated in accordance to experience and skills (Biswas, 2012). Lastly, the pay grade chart will be developed, wherein the sum of the maximum and the minimum pay are divided by two to determine the mid-point. It is also crucial to review the pay structure annually in order to make adjustments when needed.
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Ratio of Base Pay to Incentive (Bonus) Pay
The target base pay in accordance to the compensation philosophy is the 50th percentile of the market, with a 15% range for the maximum and minimum for all salary ranges. The incentive pay will be used to recognize individual contributions with respect to the success of a company. The recommended incentive pay is the 50th percentile of the market rates, and will depend on the financial capacity and performance of the company.
Emphasis on External or Internal Equity
Equity is a core considering when developing effective benefits and compensation system (Thomas, 2009). Equity can be achieved by ensuring that all employees receive fair treatment; ensuring that salary ranges are consistent with how an organization wants to position itself in the labor market; rewarding workers in accordance to the relative value of job positions within a company; and setting the salary depending on the requirements of the job rather than skills and employee performance (Armstrong, 2010). When employees perceive compensation as being unfair, organizational effectiveness is reduced due to the low morale. Perceived unfair compensation may result in employees limiting their efforts or deciding to quit, which is detrimental to the overall performance of the organization.
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Internal equity denotes fair compensation in terms of how various job positions in a company relate. It is based on ranking all job positions relative to each other by drawing upon their value contribution to a company. At Holland Enterprises, internal job equity is not an issue; therefore, emphasis should be placed on external equity since employees are quitting because of the perceived unfair and competitiveness of the pay in the marketplace. Therefore, the Holland Enterprises emphasis should be concentrated on achieving external equity, which focuses on achieving competitive and fair pay based on the job’s market value (Armstrong, 2010). Since the company targets to lead the market, it is essential for the company to ensure that the salary it offers exceed the industry average for employees to perceive them as being competitive.
Holland Enterprises will offer numerous benefits including financial and non-financial benefits. Some of the non-financial benefits recommended for Holland Enterprises include career development opportunities; awards and recognition; health benefits; and retirement savings. Career development opportunities have been found to be an effective intrinsic motivator for employees (Armstrong, 2010). Moreover, when organizations provide employees with a clear career path, they feel valued and tend to contribute to the success of the firm. Awards and recognitions will be aimed towards recognizing employee contributions to the success for the firm (Thomas, 2009). Moreover, employees will be allowed to participate in the 401k plan, which will be sponsored by the company, wherein Holland Enterprises will 50 percent of employees’ contribution to the savings plan. Other recommended benefits include health insurance, life and disability insurance, and providing some job positions with a company car.