Total Compensation Methods

Total Compensation Methods

With a steady increase in unemployment, outsourcing, and globalization, salary and benefit packages are undergoing constant change. Compensation has and always will be a key element of choice in today’s job market for candidates seeking employment. Due to a declining economy, employers have been forced to become more creative in their benefit and compensation packages offered to employees. Strategic planning has become the key element in a successful human resource department of large corporations throughout the United States. Our learning team paper will analyze the impact of three key salary methods on employees and organizations, explore three benefit packages, and explain how salary and administration strategies relate to organizational culture and performance.

The importance of a company’s ability to sustain a balance between employee and company interests is significant. Compensation is defined as the methods and practices of maintaining balance between interests of operating the company within the fiscal budget and attracting, developing, retaining, and rewarding high quality staff through wages and salaries which are competitive with the prevailing rates for similar employment in the labor markets. (HR Guide, 2008)

A strong awareness of the overall job market is necessary for any organization that wishes to hire a job candidate who will understand and be able to participate in the organization’s culture. The salaries paid by an organization considerably affect the type of job candidates who will seek a position within the organization.

According to Noe, Hollenbeck, Gerhart, and Wright (2004), if employees conclude that they are under rewarded, they are likely to make up the difference in one of three ways. They might put forth less effort, find a way to increase their outcomes, or withdraw by leaving the organization. (p. 355) Therefore, it is imperative that an organization is able to create a pay structure that allows each of its employees to feel they are paid what they are worth. If the employees of an organization are paid fairly, they are far more likely to continue working for the organization.

The overall performance of an organization is significantly affected by the compensation plans it offers to its employees. Employees who are provided with some form of incentive pay often try harder or get more creative than they might without the incentive pay (Noe et al., 2004, p. 374). In order for organizations to attract and retain their workforce, key components of benefits and compensation must be competitive. These components include; salary, Lump sum adjustments, merit pay, performance feeds, bonus incentives, and Employee Stock Ownership Plan (ESOP).

According to HR Guide, merit pay is an incentive plan implemented on an institution wide basis to give all employees an equal opportunity for consideration, regardless of funding source. The merit increase program is implemented when funds are designated for that purpose by the institution's administration, dependent upon the availability of funds and other constraints. The merit plan has many advantages and disadvantages. One advantages is that it allows employers to differentiate pay given to high performers as well as allow the employer to satisfactorily reward an employee for accomplishing a task that might not be repeated. On the opposite side, that pay may be biased.

The employee stock ownership plan (ESOP) allows employees to become owners of stock in the company they work for. ESOP is an equity based deferred compensation plan. An ESOP is required by law to invest primarily in the securities of the sponsoring employer. An ESOP provides a cost-effective plan to motivate employees since they will be acting as owners of the company and thus will work harder to insure maximum profit for the organization.

Performance feeds linked to organizational goals, culture, and strategy allows employees to improve and empower work performance. By providing employees with the resources necessary to meet goals, employees are more apt to value potential rewards, believe they can meet performance standards, and believe the reward system is fair (Noe et al., 2004, p. 430). The most successful human resource strategies measure employee satisfaction, promotion potential, and employee development. Good compensation strategies place a higher value on the employee and should promote the organization’s internal culture and performance goals. Various compensation methods and benefit programs impact organizational culture and performance differently. Delivering compensation and benefits to employees both directly and indirectly based on the diversity of the workforce is a crucial part of attracting and retaining a competitive workforce of employees.

Employee benefits are compensation in forms other than