Compensation Strategy

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Pay is one of the most important elements of any organization. It is what compensates, drives, motivates, and rewards employees for the work they do. Or it does the opposite of these things. What is a strategic compensation strategy? Simply stated, it is the compensation of employees in ways that enhance motivation and growth, while at the same time aligning their efforts with the objectives, philosophies, and culture of the organization (Bohlander &Snell, 2010. Compensation includes all forms of pay and rewards received by employees for the performance of their job. Employees desire compensation systems that they perceive as being fair and commensurate with their skills and expectations. An effective compensation and benefit system will contribute to organizational effectiveness.

Holland Enterprises is one of the city’s largest employers. Your firm currently employs 3,500 employees. However, since 2007 the firm has lost 25% of its staff. From the research that has been presented, it is because your firm lacks an effective compensation and benefit system. In order for Holland to remain an effective organization, your compensation and benefit system needs a long overdue makeover. The current compensation system is being perceived as unfair and uncompetitive in the marketplace.

An effective compensation and benefit system will contribute to the effectiveness of your organization. To survive and be successful in a global economy, an organization must be competitive (Henderson, 2006). In order for any organization to be effective they must attract and hire people who have knowledge, skills, aptitudes, and attitudes. An organization designs and implements a reward system to focus worker attention on the specific behaviors the organization considers necessary to achieve its desired objectives and goals (Henderson, 2006).

A successful strategic compensation plan allows your business to compete in the market for the best employees in your industry. The compensation plan that you choose to utilize will play a huge role in attracting competent employees. Organizations that have a competitive base pay in your industry will allow you to demand workers with more experience. Employing more qualified workers leads to better results.

Once you have found the right employees, a strategic plan should also include retaining those workers. Retaining quality workers requires a strategic plan for compensation that rewards employees for company loyalty. Compensation is the pay that is provided by an employer to an employee for services rendered. Organizations can offer fixed pay, also known as “base pay”. Fixed pay is nondiscretionary compensation that does not vary according to performance or results achieved (WordatWork, 2007). Fixed pay is determined by the organization’s pay structure. Short-term and long-term incentives, benefits, and rewards are tools used to motivate employees. Short-term incentive pay is designed to focus and reward performance over a period of one year or less. Long-term incentives are designed to focus and reward performance over a period longer than one year. Typical forms include stock options, restricted stock, performance shares, performance units, and cash. Benefits are becoming more important in compensation administration as they become a larger proportion of total compensation, representing close to 40% of the total cost of compensation (Atchison, Blecher &Thomsen, 2010). Benefits are programs that an employer uses to supplement the cash compensation that employees receive. These programs are designed to protect the employee and his or her families from financial risk. Social insurance includes: unemployment, workers’ compensation, social security and disability. Organizations can also provide group insurance, such as medical, dental, vision. The kind and amount of incentives and awards must be linked directly to desired employee behaviors, contributions, or results...
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