Compensation and benefits (C&B) is a sub-discipline that is covered by human resource practitioners. C&B focuses on making compensation and benefits policies which account for the tangible and intangible benefits that employees receive at work (Bryant & Allen, 2013). Compensation refers to the payment an employee receives for the services they render to an organization. The most frequently used forms of compensation are salaries, wages, and tips. Employers offer compensation in one of two variants, variable pay or base pay. Variable pay depends on an employee’s performance in their assigned role whereas base pay depends on the role that an employee is expected to perform within the organization and the marketability of their expertise (Roschk & Gelbrich, 2014).
Contrastingly, benefits refer to the non-payment value forms that an employee is awarded for the contribution made to the organization. Common benefits that employers offer their employees include insurance, maternity leave, pension pay as well as holiday and vacation pay, among others. Apart from the said tangible benefits, employees also receive intangible benefits like recognition and promotion (Muse & Wadsworth, 2012). Therefore, for an organization to keep its employees motivated and satisfied, it must incorporate a competitive compensation and benefits strategy that meets the market standards and also provides room for organizational profitability.
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Effective Compensation and Benefits System vs. Organizational Effectiveness
An effective compensation and benefits system is one that positions the organization to become an employer of choice, allowing it to appeal to the best quality of workers. Often, when employees are analyzing organization compensation strategies, they look at factors that go beyond money such as job stability, future, and security. Hence, for Holland Enterprises to brag about an effective compensation and benefits system, the latter must be characterized by possession of packages that attract and retain employees (Daley, 2012). According to Ibrahim and Shah (2013) regardless of an organization’s priorities, it must factor in the costs that are associated with implementing a competitive compensation and benefits plan, the employee perceptions on the same and the consequent perceptive differences, thereof. Thus, the attainability of Holland Enterprises’ organizational effectiveness must encompass balancing labor costs and employee motivation, a factor that would lead to the reduction of the heightened turnover rate.
Moreover, the management of Holland Enterprises must recognize that compensation plays a key role in the alignments of employee behavior and business objectives. The four Ms (man, money, machine, and material) of business management are critical to organizational success, a fact that has prevailed since the industrial era. Furthermore, man is the most critical factor contributing to the efficiency and effectiveness of a business, and his needs, as relates to the other Ms, must be fulfilled to enhance the positivity of his output. Hence, efficient employer policies must be implemented to sustain organizational goals that set the ‘man’ component on the productivity path. Having the right person for the right job is critical to business success, but the emotions, expectations, and ambitions of the person also contribute to their excellence. Thus, the creation of a compensation system that employees view as fair is essential to maximizing their productivity within the organization (Smith, 2013).
Components of the revised Compensation and Benefits System for Holland Enterprises
In large organizations, like Holland Enterprises, the Human Resource function is further divided into subsections that facilitate better handling of HR roles. The three HR subdivisions that are common in the said business are HR centers of excellence, HR business partners and HR shared services. Thus, the HR center for excellence is tasked with C&B related tasks as its main roles are centered on organizational development and staffing (Bailey et al., 2018). Additionally, apart from the sub-division of its HR department, in revising its compensation and benefits system, I recommend that the management of Holland Enterprises focus on the key strategies for an effective compensation and benefits system.
First, the management must discuss matters concerning budget allocation, which will determine the strategy that the business will use to allocate salary and benefits, and the costs, thereof. Secondly, it will be essential to develop salary ranges that are competitive on an internal and external basis. Thirdly, Holland Enterprises management should commit to performing salary audits periodically to update their systems to fit prevailing compensation trends. Also, the organization should compile a compelling benefits package to attract and retain employees. Moreover, it should incorporate performance management systems for regular employee assessment and have a structured administration that will facilitate the sustenance of an effective compensation and benefits system (San et al., 2012)
Compensation and Benefit Philosophy
A compensation and benefits philosophy is a statement that is formulated by an organization’s management, in conjunction with the HR department, to document the position of the said organization on the compensation of employees. The philosophy provides the rationale behind employee pay in an organization and enables the creation of a framework that governs payment frequency. Thus, an employer may use the compensation and benefits philosophy to gain a competitive advantage in the market through attracting, retaining and motivating the best talent from the job market ("What is a compensation philosophy? What should be included in a compensation philosophy?" 2019).
Therefore, when revising the compensation and benefits philosophy, I considered a variety of factors including the financial position of the business, its size, and objectives, the nature of the industry it belongs to and market salary rates, among such other factors. Analysis of the latter allowed the determination of the incompetency of the previous compensation and benefits philosophy, providing a starting point for its revision. For instance, the previous compensation and benefits philosophy which did not support the value of specific expertise skills was altered to adjust the said value as per the current market trends ("What is a compensation philosophy? What should be included in a compensation philosophy?" 2019).
The definition of Holland Enterprises’ revised compensation and benefits philosophy focused on market factors including location, growth stage, organizational size, and industry as well as employer competition. The said factors facilitated the determination of the organization’s attractiveness to employees and the establishment of the most competitive areas of expertise in the organizational field. Secondly, the employee value proposition was also critical to the revised compensation and benefits philosophy, as it elicited the need for the organization to compensate employees satisfactorily for the work they do in a manner that elicits a differentiated employee experience. Hence, the employee value proposition presented in the organization’s compensation and benefits philosophy now communicates the work culture and behavior that the organization seeks to generate among members of its workforce (Hong, 2009).
Also, critical to the revision of the employee compensation and benefits philosophy was pay range positioning, a component that allowed the determination of Holland’s competitors in the market and the pay range the organization should use to remain competitive. Additionally, growth opportunities were also critical when creating the revised philosophy as it allowed the justification of upper and lower pay ranges established. Lastly, internal data obtained from the exit interviews was accounted for to allow Holland Enterprises to eliminate the cause of the high turnover rates (Hong, 2009).
It is recommended that before Holland Enterprises implements the new philosophy, a quality test is undertaken to establish the philosophy’s equitability, defensibility and employee perception of its fairness. Moreover, the quality test should also seek to establish whether the programs that are incorporated comply with legal requirements and the ability of the organization to communicate the entirety of the philosophy changes made to its employees ("What is a compensation philosophy? What should be included in a compensation philosophy?" 2019). Nonetheless, Holland Enterprises should benchmark its new compensation and benefits philosophy with competitors in the industry to ensure that the revisions made make the organization’s philosophy the most, or among the most, competitive in the market (Xavier, 2014).
Pay Structure Architecture
Pay structure refers to the pay policy that results from decisions made about job structure and pay level in an organization. Job structure refers to the different pay that is allocated to varied jobs in the organization whereas pay level refers to the average total amount that is payable to a specified job position within the organization. In an organization like Holland Enterprises, comprising of thousands of employees, the development of a pay structure is critical because it simplifies the decisions on employee payment by grouping employees with similar jobs together (Shaw, 2015).
The revised compensation and benefits system was developed from a series of steps including job analysis to determine the job requirements of all positions within the organization. Next, job evaluation was undertaken to determine the relative worth of jobs in the organization and the appropriate pay policy for Holland enterprises was established. The selected pay policy is hoped to be one that will either lead or meet the market compensation rate to eliminate the incompetent payment rate complaint. Additionally, I also conducted a survey to analyze the market relevant compensation data provided by Holland’s employees and eventually came up with a pay structure that incorporates internal employee needs and can compete in the external labor market (Armstrong & Chapman, 2011).
The creation of a relevant pay structure for Holland Enterprises also required the establishment of appropriate pay grades, pay ranges and pay widths. The pay ranges are the most basic components of the pay structure and they are used to determine the general range of salaries for people working in a specified field. Sequentially, pay grades determine what workers of a specific profession should be paid whereas pay widths are used to group pay grades. The most appropriate pay grades for Holland Enterprises are the broad grades that comprise of about 6-9 job grades, which have pay ranges that are fairly broad, like the 70-80 th percentile. The broad grading system will allow the association of job progression with contribution and can be controlled by zones or thresholds (Meer & West, 2016).
It is recommended that the policymakers at Holland Enterprises refer to the Bureau of Labour Statistics when reviewing the proposed pay grades, as the said institution provides information on professional salary parameters which range from the 10 th to the 90 th percentiles of specific professions (Katz & Krueger, 2012). Additionally, to the revisions made, Holland Enterprises may consider defining job families and a pay spine in their compensation and benefits system. The job families will facilitate the grouping of similar jobs (Turner, 2006) whereas the pay spine will establish consequent pay rise points covering all job positions in the organization (Seniwoliba, 2014).
The ratio of Base Pay to Incentive Pay
Base pay refers to the basic compensation rate of an employee for the execution of their duties at the workplace, excluding any lump sum benefits. Contrastingly, incentive pay is the compensation that an employee is awarded for the results born by their efforts rather than the time they have worked. Thus, the ratio of base pay to incentive pay is what is referred to as the pay mix. In determining the appropriate pay mix for Holland Enterprises, as the HR consultant, I conducted a competitive pay analysis that provided information on the different base salaries and total compensation at different job percentiles according to the prevailing market rates. Thus, if the base pay at a given percentile was $60000 and the total compensation was $120000 then the base pay to incentive pay ratio was established as a 1:1 ratio. Additionally, the competitive pay analysis was reviewed against industry practice to determine whether the ratios aligned with current industrial tendencies (Kalén, 2017).
I recommend that the management and HR department of Holland Enterprises further scrutinize the revised pay mix presented based on their new compensation plan philosophy. The latter will allow the determination of whether the organization will use the pay mix in the proposed draft or they will prefer a higher pay mix to attract a competitive workforce to replace the employees that left. Additionally, based on the organization’s culture, the said decision makers may determine whether certain jobs like marketing, can be structured based on a 0:1 pay mix, where efforts made are rewarded according to the result yielded (Hulkko-Nyman, 2016).
Emphasis on External Equity or Internal Equity
The revision of the compensation and benefits strategy for Holland enterprises focused on both external and internal equity. The causes for leaving the organization, as depicted by the evidence collected from the exit interviews showed that both aspects were part of the problem exhibited by the old strategy. Internal equity refers to the position comparison done in an organization to ensure that the payment allocated to employees is fair. Without internal equity, it is likely that employees may feel less valued compared to their counterparts, a factor that may result in high turnover rates, like those recorded by Holland Enterprises. I attained internal equity of the revised compensation and benefits strategy by comparing the job tasks executed by employees in the organization and ensuring that employees with similar tasks were allocated the same pay. Job titles did not matter as long as employees’ tasks were similar but other factors like educational background and work experience may have contributed to the pay differences that may have been allowed with that regard. Thus, it is recommended that the management of Holland Enterprises maintain fairness and transparency in matters concerning the organization’s payroll to continue upholding internal equity of their compensation and benefits strategy in future (Ghazanfar et al., 2011).
However, external equity refers to the perception of employees that they are receiving fair compensation compared to similar position holders in other organizations. Thus, to raise Holland’s compensation and benefits strategy to a standard level, I conducted research and determined the base pays for the varied organizational professions in the market. The findings of the research resulted in the new suggested base pays, most of which are higher than the rates that applied previously. Moreover, apart from matching the payment within the organization with what other organizations in the same industry offer, I also compared other job factors like security, opportunity and the nature of the work environment, and suggested necessary changes that can elicit more job satisfaction and in turn increase employee motivation. In future, apart from meeting the external equity criteria, I recommend that Holland Enterprises consider surpassing the same and setting the standard, as a means of increasing the organization’s competitive advantage (Till & Karen, 2011).
Principle Benefits
Attracting more employees to the organization would require that the employer incorporate some key benefits in the compensation and benefits strategy. Among the said benefits that I deemed most important for the strategy revision was deferred compensation match. This revision is expected to allow employees of Holland Enterprises to receive a portion of their income later, providing them options for purchasing employee stock as well as pension or retirement plans (Marton & Woodbury, 2013). Another principle benefit included was health insurance, specifically a group insurance plan. The employer is expected to pay for the plan and employees can opt to be part of it or not (Bluhm, 2012). Moreover, I deemed it necessary to incorporate vacation and sick leave in the revised compensation and benefits strategy. These benefits would allow employees to take time away from work for leisure or treatment without negative implications on their pay or threats to their job positions (Colla et al., 2014). It is recommended that the organization consider incorporating more benefits like maternity and paternity leave as well as paid day offs. Such benefits do not only better employee well-being but can also earn the organization a reputation as an employer of choice, thus increasing its access to high-quality employees (Kor & Hur, 2014).
The necessity of increasing Compensation and Benefits Expenses
It is common knowledge that cheap is expensive! In the past, the budget expenses allocated to compensation and benefits at Holland Enterprises has not proved effective as many employees have left claiming that the pay is both unfair and incompetent. The need to increase the said budgetary allocation is undeniable if Holland Enterprises is looking to maintain its position in the market as the biggest employer in the city. For the organization to regain the 25% of high-quality employees lost, it must invest in a better compensation and benefits system that meets the needs of both its employees and potential employees. Satisfactory compensation benefits will not only facilitate the attraction of top talent from the market but also boost employee motivation and loyalty. The latter will elicit job satisfaction, which will foster higher productivity and profitability levels within the organization. Hence, the management must not look like the increase in compensation and benefits budget as an expense, but rather as an investment that is likely to better the organization’s position in the market (Gupta & Shaw, 2014).
Conclusion
The compensation and benefits strategy that an organization chooses to use can determine its success or failure owing to the impact it has on employee motivation and satisfaction, both of which are factors that affect productivity. Therefore, if Holland Enterprises is looking to sustain its success in the market, it must remedy the gaps in its compensation and benefits strategy, as suggested, because employee compensation and benefits are fundamental to organizational success.
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