Compensation is an essential element of an organization's performance. The employees get motivated after receiving payment and benefits which improves their efficiency. It is the responsibility of every company to reward their employees responsibly to enhance their growth. The compensation and benefits are rights of every employee as stipulated in the constitution. The companies can fail to reward their employees due to financial setbacks such as low profits, mismanagement of funds, inadequate allocation of financial resources and increased borrowing from the lenders. The company’s performance decreases as a result of giving employees low compensation and benefits.
Potential Causes of Financial Setbacks that result in Limited Compensation and Benefits
The mismanagement of finances in a company can influence the compensation and benefits rates. The company faces financial constraints as a result of poor management of their funds. The employees receive low compensation and benefits. The company can recall their employees in case the period of financial setbacks prolongs (Biswas, 2013) . An example of a corporation that faced a financial setback for mismanaging their finances is Toyota Company. The company’s management used their finances to expand their manufacturing activities to Japan. The company did not make enough profits, but the managers increased their operations to other countries. The expansion of processing activities in Toyota Company led to financial constraints. The company was unable to meet the compensation and benefits obligations. At some point, the corporation had to recall their employees for them to continue carrying out their operations ("The 10 Companies Burned Worst by Bad Press", 2011) . The other example is Johnson and Johnson Company. The corporation increased their quality process where most of the funds were mismanaged. The company had to lay off some of their employees due to their inability to meet the compensation rates ("The 10 Companies Burned Worst by Bad Press", 2011) .
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The low margins in a company can affect the compensation and benefits rates of the employees. An organization cannot meet its financial obligations when the profits are low. A company needs to make profits to find its expenses and make investments (Biswas, 2013) . The low profits in a company will affect the wages and benefits of the employees in the company. This reduces their morale and efficiency in the organization (Biswas, 2013) . An example of a company that has incurred low margins is Amazon Corporation. The company did not make projected profits for some time, and this affected its ability to meet the compensation and benefits of their employees. It had to recall some of their employees which led to the low performance ("5 Successful Companies That Didn't Make a Dollar for 5 Years", 2014) . Another illustration is Tesla Motors where they did not make profits for five consecutive years. The company had to reduce the number of the employees to meet the compensation and benefits rates of the remaining staff ("5 Successful Companies That Didn't Make a Dollar for 5 Years", 2014) .
The inadequate allocation of financial resources on the compensation and benefits expenses can reduce their rates. The budget deficit can affect the compensation rates of the employees. The budget deficit is mostly caused by inadequate or wrong allocation of finances to the own expenses (Biswas, 2013) . An illustration is McKinsey and Company where the managers did not allocate the actual financial resources in the expense benefits of the employees. The employees had to receive the assigned benefits until the funds were re-allocated. The employees got low benefits which affect the performance of the company ("McKinsey & Company," 2018) .
The increase in loans in the company can affect the compensation and benefits levels. Companies borrow funds for them to make investments and expand their operations to other regions (Biswas, 2013) . The organization should not exceed their loan rates because it can affect their ability to meet their financial obligations. It can lead to the company’s liquidation because they cannot cater for their expenses (Biswas, 2013) . An illustration of a company that had more loans than their assets is the American Network Insurance Corporation. The employees of the company received low compensation and benefits before it was liquidated ("Companies Currently in Liquidation," n.d.) .
Recommendations on Financial Recovery
The organizations should make sure that their funds are managed n an appropriate manner to prevent mismanagement. The companies should implement financial management strategies that can be used in handling their financial resources (Periasamy, 2009) . The companies should use the approach of Toyota Company. The corporation incorporated a business information system that assisted in tracking the utilization of funds. After incorporating the system, the company was successful in effectively handling their finances ("The 10 Companies Burned Worst by Bad Press", 2011). Johnson and Johnson supervised their management to make sure that they made decisions that would improve the proper utilization of finances ("The 10 Companies Burned Worst by Bad Press", 2011). An organization can combine the financial management strategies to handle their funds.
The organization should increase their profits for them to meet their financial obligations. The organization needs to engage in profit-generating activities to boost their margins. They can sell part of their shares or partner with multinational corporations to develop their brand (Johannson, 2014) . Amazon Company engaged in profit generating activities to increase their margins. The company took advantage of profitable opportunities in the market. It assisted Amazon Company to regain their margin rates ("5 Successful Companies That Didn't Make a Dollar for 5 Years", 2014) . Tesla Motors increased their profit opportunities by acquiring credit from financial institutions. The company recovered its profit rates after improving their margins ("5 Successful Companies That Didn't Make a Dollar for 5 Years", 2014). An organization can utilize the profit strategies to increase their income.
The companies should use proper accounting measures to allocate their financial resources. The inappropriate allocation of the funds could be caused by poor accounting measures ( Needles, Powers & Crosson, 2011) . McKinsey and Company incorporated accounting measures in their financial activities that assisted them in allocating the funds appropriately ("McKinsey & Company," 2018) . The organizations can utilize accounting standards to improve the budget allocation process.
The organization should reduce their borrowing rates and focus on generating profits. The companies should minimize the investment opportunities to reduce their borrowing rate. The increase in benefits will assist the company to meet their obligations (Johannson, 2014) .
In conclusion, employee compensation is essential for the growth and performance of the company. The causes of low compensation are mismanagement of finances, low margins, increase in the borrowing rates and poor allocation of funds. The organizations should use financial management strategies, increase profit opportunities, reduce borrowing rates and implement proper accounting standards.
References
Biswas, B. (2013). Compensation and benefit design: Applying finance and accounting principles to global human resource management systems . Upper Saddle River, N.J: FT Press.
Companies Currently in Liquidation. Retrieved from https://www.insurance.pa.gov/Regulations/LiquidationRehab/Pages/Companies-Currently-in-Liquidation.aspx
Johannson, S., R., M. (2014). Profitability, Financing, and Growth of the Firm: Goals, relationships & measurement methods . S.l.: STUDENTLITTERATUR AB.
Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting . Mason, Ohio: Cengage Learning.
Periasamy, P. (2009). Financial management . New Delhi: Tata McGraw-Hill.
5 Successful Companies That Didn't Make a Dollar for 5 Years. (2014). Retrieved from https://www.inc.com/drew-hendricks/5-successful-companies-8217-t-make-a-dollar-for-5-years.html
The 10 Companies Burned Worst by Bad Press. (2011). Retrieved from https://www.theatlantic.com/business/archive/2011/06/the-10-companies-burned-worst-by-bad-press/240448/
