Compensation Strategy Report Recommendations

Base Pay Approach for the Compensation Strategy

The right compensation strategy is an important aspect of the organization as it leads to the improvement of the organization competitive advantage. On the other hand, wrong compensation strategy creates room for the failure of the company (Matthew, 2014). This is because improper strategy causes underperformance among the employees. Therefore, it is appropriate for the organization to ensure that its compensation strategy is feasible and addresses the needs of the employees. Failure to observe this the full potential of the employees may never be utilized leading to decreased performance (Pearce, 2010). This should be followed by the analysis of the three critical aspects that comprises of defining the market, knowing the competitiveness the company wants to achieve and choosing what to reward (Danish, 2010). In the context of this report budget allocation is the most appropriate compensation strategy for the client. This strategy includes allocating compensation based on the base pay or salary, performance benefits, and indirect incentives.

Benchmark Positions in the Salary Survey

As noted above the compensation of the employees involves several rewards. These rewards may be classified as base pay, performance pay and indirect pay. This report will discuss on how the client should use each approach in the recommended compensation strategy.

Provided that base pay or salary is the major reward of the employees it should always at the largest percentage (Ellig, 2012). Therefore, in the budget allocation strategy recommended to the client base pay should be 90 percent. This will ensure that the employees are kept motivated through even if other benefits associated with the job are not available. Again, given that each company is out to develop and maintain a good reputation as a well-paying company the client should ensure that the basic salary paid to the employees is above that of the competitors (Shearer, 2008). This comes with several advantages such as attracting the best labor in the market and avoiding the intervention of trade unions or employment government agencies.

Internal Factors

Profitability: If the major goal of the company is to realize high-profit margins at the end of the trading period. Then, it is forced to pay its employees below average industry wage (Shearer, 2008). However, this can have alarming effects, and the company may fail to realize the anticipated profits (Rizwan & Ali, 2010). This report recommends that paying employees well it comes together with increased profit. This is because employees will be motivated, they will utilize their total potential, the performance will increase and finally the sales of the company will increase leading to the increased profits.

Internal Factors to Consider for the Compensation Strategy

Company Size: Small companies tends to pay their employees low compared to the big companies (Aslam & Ghaffar, 2015). However, provided that the client company is a big one it is recommended to maintain a base pay of 90 percent.

Labour Market: The salary to be paid by the employers depends on the unemployment rates in the market (Shearer, 2008). When they are high, the employers are likely to pay low compared to when they are low (Muhamad, Idrus, & Mintarti, 2014). In the client’s labor market the unemployment rate is low. Therefore, the company has no other alternative rather than to pay a higher base pay.

Competitors: Company competitors are offering higher pay to their employees. Therefore, the report recommends that the client should receive a higher base salary to attract the experienced and competent competitors’ employees.

Trade Unions: To avoid the pressures and industrial strikes initiated by the trade unions the company should aim to pay a higher basic salary.

Base Pay Structure

The client will establish a pay structure by developing various job grades. This should be followed by identifying a market line and then finally computing pay ranges (Jenaibi, 2010). Upon accomplishing the above three tasks, the client should set up pay structure based on the pay for a person. This is because base pay will be paid irrespective of the normal business hours an employee stays in the workplace. Similarly, the administrator pay structure will be based on the paid person.

Salary Ranges

Salary ranges will be designed according to the market research provided to the client. Alternatively, the base pay structure will be guided by step-based compensation system. This means the salary structure will be subjected to the standard progression rates within a pay range for a job. The employees will progress to the next level of payment by promotion or performance.

On the other side, the salary structure will be based on the 90 percent and will be arrived based on the minimum, midpoint and maximum approaches.

Grade I

$1250-$1000 = 250

250/1000 = 0.25

Market rate = $1250

Minimum = (1250/1.25) = $1000

Maximum =1000 + (0.5 x 1000) = $1500

Grade II

$1000-$800

200/1000 = 0.2

Market rate = $1000

Minimum = (1000/1.2) = $800

Maximum = 800 + (0.2 x 800) = $1200

Upon calculating for range spread the base pay structure remains the same for all employees. This is because the spread range is based on the fixed percentage.

Pay Structure for the Compensation Strategy

Only seven percent will go to the performance pay. The pay will be allocated to the specific job grades, and it will be effected as an employee moves from one grade to another. This will apply to all employees in specific job groups. The extraordinary performance of the employees will be rewarded through the provision of bonuses. This approach is associated with several advantages and disadvantages.

Pros

• Improves performance within a short span of time.
• Appeals to employees compared to the non-monetary incentives.

Cons

• Motivation to performance can disappear immediately the employee is rewarded.
• Continued provision of bonuses can be perceived as a culture resulting t resentment among the employees.

In addition to the bonus, this report recommends that the client shout carries out a performance review within four months. The company can use sales or production to gauge the performance of the employees.

The remaining three percent of the budget allocation should go to indirect pay. This should include a medical cover, child care, retirement benefits, further employee education and training and leave benefits.

Purpose

The company aims to be the best rewarding organization to its employees. This will ensure that the employees work and the shareholders do business. Therefore, the company strives to ensure fair distribution of the business profits.

Compensation Criteria

The compensation of the employees will be based on the survey collected locally, nationally and globally. This will also be influenced by the internal and external factors facing the company.

Responsibilities

The funds allocated for compensation will be approved by the board of directors with the support of the executive management.

Management Responsibility

The president of the company will be responsible for ensuring the company has the best, competent and highly qualified employees to ensure that the company performs to its best.

Company compensation to employees is always linked to the strategic direction of the business (Yamoah, 2013). This is supplemented by communication the target goals to employees and motivating them so that they can align their efforts with them (Held, 2010). However, this will be futile if the employees are not motivated (Steers & Porter, 2008). All the issues mentioned above should be done in stages as illustrated below.

References

Aslam, A., & Ghaffar, A. (2015). The impact of Compensation And Reward System on the Performance. European Journal of Business and Social Sciences, 4(8), 319 – 325.

Danish, R. (2010). The impact of Reward and Recognition on Job Satisfaction and Motivation. An empirical study from Pakistan. International Journal of Business and Management, 5(2), 159-167.

Ellig, B. R. (2012). Executive compensation – a total pay perspective. New York: McGraw-Hill.

Held, K. M. (2010). Money and subjective well-being it’s not the money, it’s the motives. Journal of Personality and Social Psychology, 72-80.

Jenaibi, B. A. (2010). Job satisfaction: Comparisons among diverse public organizations in the UAE. Management Science and Engineering, 3, 60-79.

Matthew, O. (2014). Compensation Management and Employees Performance in the Manufacturing Sector, A Case Study of a Reputable Organization in the Food and Beverage Industry. International Journal of Managerial Studies and Research, 2(9), 108-117.

Mphil, A. H., & Arslan, M. (2014). The Impact of Compensation on Employee Performance (Empirical Evidence from. International Journal of Business and Social Science, 5(2), 302-309.

Muhamad, R., Idrus, S., & Mintarti, R. (2014). Effect of Compensation on Motivation, Organizational Commitment and Employee Performance (Studies at Local Revenue Management in Kendari City). International Journal of Business and Management Invention, 3(2), 64-79.

Namasivayam, K., Miao, L., & Zhao, X. (2010). An Investigation of the Relationship between Compensation Practices and Firms Performance in the US Hotel Industry. International Journal of Hospitality Management, 2(6), 574-587.

Pearce, L. (2010). Managerial Compensation Based on Organisational Performance. Journal of Industrial Relation, 5(2), 3-28.

Rizwan, D., & Ali, U. (2010). The impact of reward and recognition on job satisfaction and motivation. An empirical study from Pakistan. International journal of business and management, 5(3), 22-39.

Shearer, B. (2008). Piece rates, fixed wages, and incentive effects: evidence from a field experiment. 

Steers, R. M., & Porter, L. W. (2008). Motivation and Work Behaviour. New York: McGraw-Hill.

Yamoah, E. E. (2013). Relationship Between Compensation and Employee Productivity. Singaporean Journal of Business Economics, and Management Studies, 2(1), 110-114.

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