A compensation strategy is part of an organization’s overall strategic culture that aims at rewarding their employees through various means. Compensation essentially means the provisions an employee receives from their employer in exchange for their work. Therefore, compensation includes not only the base salary, but also direct and indirect financial rewards, and other non-financial rewards (BLS information, 2018). Compensation strategies are vital for a company’s success since they allow the management to recruit and retain the best available talent and alternatively remain competitive in the industry. There are different types of compensation strategies that include; benefits like health insurance, vacation, retirement among others, commissions, stock options overtime pay, bonuses among others. This research paper will discuss the keys to effective compensation strategies, benefits; types and most in demand, legally required benefits, and how multinational companies handle pay and benefits outside the United States.
An effective compensation strategy has to incorporate all the company’s short and long-term goals and objectives. This approach allows an organization to budget, recruit, and retain the best talent available. Therefore, creating a balance between strategic goals and the available resources in developing a compensation policy or plan is vital. The link between direct salaries and or wages and indirect benefits is a prerequisite in developing a culture that will determine the company’s success. The reason for this is that it creates a relationship between the company and employee, since satisfied employees will lead to an overall better performance. That is why different organizations use these policies based on the types of employees, that is, their roles, responsibilities, and productivity levels. It is also important to note that compensation plans vary for the different levels of management, departments and regions or locations that employees work in. Compensation policies are vital in a firm’s competitive advantage because if the employees are happy, then they become more efficient and yield results that allow the company to realize its objectives faster. According to Lotich (2017), there are several keys to an effective compensation strategy. They are; defining the budget allocation to determine how much money is for salaries and or benefits, developing salary ranges that are competitive in the industry, performing salary audits for all individuals to ensure they match a particular job. In addition, offering a benefits package to employees, as this can retain or make an employee leave, employing a performance management system to evaluate employees’ contribution to the overall company effectiveness, complying with legal requirements and organized administration.
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Employee benefits are non-wage remunerations accorded to the labor force in an endeavor to recruit or retain personnel. According to hrcouncil (2018), employee benefits are compensation plans that workers receive in addition to the salaries. These include but are not limited to insurance packages like health, dental, and life insurance, retirement benefits like 401k, pension and or 403b, housing, legal assistance plans, free utilities, sick leave (paid or unpaid), vacation, social security, profit sharing, stock options, disability income protection among others. Organizations can also individualize these benefits depending on the values and behaviors of employees or in accordance to their output and seniority. Most employees require financial security and that is why these benefits are a necessity to most. Some employees prefer retaining certain positions due to the economic advantages that they receive. That is why benefits are an integral part of the overall corporation’s compensation plan or policy. Some of the most in demand benefits include group insurance and retirement plans like health, dental, medical, and life insurance as well as retirement benefits like 401k, pension, and 403b accounts. These packages are vital to employee loyalty and motivation tools for corporations. Additionally, according to Bureau of Labor Statistics (BLS), some of the legally required benefits by the state, federal, and or local statutes laws are social security at 6.2% of gross income, Medicare at 1.45% of gross income, both of which are employment taxes funded under the Federal Insurance Contributions Act (FICA). An additional 0.9% deduction of the compensation is necessary for salaries in excess of the $200,000 threshold (2018). Some of these benefits are tax deductible while others are not and are deductibles from the employer’s returns. Additional required benefits are unemployment, health, workers’ compensation insurance, in case of injuries sustained in the workplace, and family and medical leave of up to 12 weeks in a 12-month working period. However, some packages offered by employers like Medicare vary depending on the size of the organization. For example, 55 % of employees in small organizations (100 staff members and less) received Medicare benefits, 83% of employees working in medium sized companies, with 100 to 499 personnel, received employer-sponsored Medicare benefits whereas 88% of those working in large organizations (500 people and more), by March 2018 (BLS, 2018).
Pay and benefits in most developed countries is at par with the United States although they might have different names and categorizations. For example in the UK, companies offer flex, core, and voluntary benefits with the core schemes offering the life insurance, pension, and income protection. In Canada, benefits incorporate; employer sponsored life, health, dental, and disability plans. However, these benefits vary when it comes to other developing nations and that is why most multinational companies offer different types of plans depending on the location or region they are situated. That is why the United States employment laws have considerations for employment by U.S companies operating outside the country. These four major employment laws are; The Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA) (Society for Human Resource Management (SHRM), 2017). These laws protect American citizens working outside the country for a U.S firm or companies outside the country but are under the control of U.S based firms. The benefits are essential as they make considerations to the different hardships that employees face during their stay and work in the different regions of the world, especially, third world countries. According to DeZube, Some organizations providing opportunities to their employees in smaller economies, for example tend to offer Foreign Service premiums, cost of living adjustments, housing allowance, hardship allowance, spousal employment, tax assistance, health insurance, and retirement benefits (2018). All these benefits enable people to work in similar environments and ease the transition of working abroad. They also ensure that the repatriation process is smooth by offering services like safety and security, home trips, mentoring and guidance on the cultural standing of their host nations.
In conclusion, therefore it is critical for organizations to realize that financial security is at the core of their employees and to attain the goal of employing and retaining their best employees, compensation plans and policies ought to remain attractive. Additionally, companies should individualize employee benefits depending on their roles and responsibilities, their performance to increase their productivity, motivation, and loyalty to the organization. Therefore, creating a compensation culture is a sure means of attaining the necessary corporate goals whether locally or in the global market environment. In every industry, there are certain standards that are met either mutually or legally, therefore, it is important for human resource and management executives to employ effective compensation strategies that are both legal requirements and rewards systems meant to improve the livelihood of their workforce.
References
BLS Information. (2018). U.S. Bureau of Labor Statistics Division of Information Services. Retrieved 30 October 2018 from, https://www.bls.gov/news.release/pdf/ebs2.pdf
DeZube, D. (2018). What’s Inside an International Compensation Package? MonsterIternational. Retrieved 30 October 2018 from, https://www.monster.com/career-advice/article/international-compensation
hrcouncil, (2018). Compensation & Benefits. hrcouncil.com. Retrieved 30 October 2018 from, http://hrcouncil.ca/hr-toolkit/compensation-systems.cfm
Lotich, P. (2017). 7 Keys To An Effective Compensation Strategy. thrivingsmallbusiness.com. Retrieved 30 October 2018 from, https://thethrivingsmallbusiness.com/compensation-strategy/
Society for Human Resource Management. (2017). Managing International Assignments. Society for Human Resource Management. Retrieved 30 October 2018 from, https://www.shrm.org/resourcesandtools/tools-and samples/toolkits/pages/cms_010358.aspx
