A compensation philosophy is an organization’s formal documentation of guidelines for employee remuneration. The employee philosophy is based on the market averages and can either meet, lag or lead the market. Leading entails paying more than the average market salary while meeting means paying salaries at the midpoint of market rates while lagging means setting the wages below the market midpoint range. Roline Designs is a New York-based multinational company that specializes in the manufacturing and distribution of beauty products, accessories and women's clothes. They produce fur, leather, textiles, and fibers for both the retail and wholesale market and they offer jobs to two thousand employees in their various factories and shops. The most appropriate market philosophy for the company would be the
The meeting the market compensation strategy is guided by the prevailing market compensation rates and the employers pay the same salaries as their competitors (Reed, 2017). The benefits of this strategy include the ability of the organization to compete with their competitors, and it also facilitates the attraction and retention of talented employees. The strategy also motivates employees and reduces turnover rates if the working conditions are right since competitors pay the same salaries (Reed, 2017). The downside to this strategy is that it can lead to losses if the company overstretches its budget to meet the going market remuneration rates (Reed, 2017). It can also lead to an imbalance in the company culture since the organization, and the employees are more focused on the salary at the expense of other motivational incentives.
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The leading remuneration strategy involves the company paying more than the industry averages (Reed, 2017). The benefits are increased employee attraction, and retention increased job satisfaction and motivation levels and the ability to attract and retain talent for improved invention and innovation and also increased the brand equity. The risks include the possibility of the costs of the salaries surpassing the benefits, reduced profits due to the salary expenses and it could increase employee laxity since they make employees have unrealistic expectations (Reed, 2017). The lagging remuneration strategy involves paying lesser than the industry averages. The advantages of the strategy include reduced expenses on salaries, but the risks are greater (Reed, 2017). The system leads to high turnover rates, leads to de-motivation and demoralization of employees and restricts the company’s recruiting efforts and lowers employee motivation and job satisfaction levels.
For the Roline Designs Company, meeting the market compensation levels is the best-suited compensation philosophy (Reed, 2017). Considering that the job seekers are more than the available jobs in the industry, the strategy will ensure the company doesn't spend more than it should have to while recruiting top talent. Unlike the lagging strategy, the employees will be more motivated which will, in turn, increase productivity and lead to profit maximization. The company will end up balancing the costs and benefits unlike in the leading strategy (Reed, 2017). The strategy would also allow the organization to compete in the marketplace with other companies and enable them to cultivate a competitive advantage to remain profitable and increase their brand equity against their competitors.
The best compensation philosophy would, therefore, be the meeting strategy. It would lower organizational expenditure on salaries, increase motivation and job satisfaction levels and also improve employee attraction and retention.
References
Reed, S. M. (2017). A guide to the human resource body of knowledge . Hoboken, NJ: John Wiley & Sons, Inc.
