Compensation System Plan
Patricia Elizabeth Scott
BUS 434
Compensation System Plan
Instructor Foster
September 19, 2011
Compensation System Plan
When designing a strategic compensation plan, key considerations include criteria for strengthening performance, containing cost, limiting liability, and promoting fair pay. (Mayer, 2004, pg. 2). To ensure long-term success, organizations need a compensation system that links company strategy to performance, ties the strategy to the labor market, is within legal compliance, and provides a sound salary structure. The combined, collaborative interdependency between these elements must be designed in such a way that will support the firm’s business strategy and stand the test of time. This paper serves to identify and discuss the key components and considerations associated with the creation of an efficient compensation system. A case study which reflects a compensation plan proposal for Holland Enterprises is included.
Components of a Strategic Compensation Plan:
Individual Equity The strategic criteria associated with strengthening performance places a focus on individual equity. If an organization intends to see a ROI for their most valuable asset, they will need to design a compensation system that rewards employees for their constructive efforts. (Henderson, 2006, p. 360). To keep employees engaged and committed to the organization, a short term incentive plan must be incorporated in the compensation system design. Organization wide short-term incentives include everyone in the organization. Indicators such as profit, costs, sales, ROI, ROA, or the change in any of these indicators from one year to the next can be used to gage performance. (Henderson, pg. 358). “Over the years, a variety of productivity improvement programs have focused on increasing products and reducing costs. These plans enable the employee to share with the employer any benefits gained from improved profits or a reduction in costs”. (Henderson, pg. 358).
BUS 434
Compensation System Plan
Instructor Foster
September 19, 2011
Compensation System Plan
When designing a strategic compensation plan, key considerations include criteria for strengthening performance, containing cost, limiting liability, and promoting fair pay. (Mayer, 2004, pg. 2). To ensure long-term success, organizations need a compensation system that links company strategy to performance, ties the strategy to the labor market, is within legal compliance, and provides a sound salary structure. The combined, collaborative interdependency between these elements must be designed in such a way that will support the firm’s business strategy and stand the test of time. This paper serves to identify and discuss the key components and considerations associated with the creation of an efficient compensation system. A case study which reflects a compensation plan proposal for Holland Enterprises is included.
Components of a Strategic Compensation Plan:
Individual Equity The strategic criteria associated with strengthening performance places a focus on individual equity. If an organization intends to see a ROI for their most valuable asset, they will need to design a compensation system that rewards employees for their constructive efforts. (Henderson, 2006, p. 360). To keep employees engaged and committed to the organization, a short term incentive plan must be incorporated in the compensation system design. Organization wide short-term incentives include everyone in the organization. Indicators such as profit, costs, sales, ROI, ROA, or the change in any of these indicators from one year to the next can be used to gage performance. (Henderson, pg. 358). “Over the years, a variety of productivity improvement programs have focused on increasing products and reducing costs. These plans enable the employee to share with the employer any benefits gained from improved profits or a reduction in costs”. (Henderson, pg. 358).
References: Bray, J. D. (2011). Benefits from A to Z. Retrieved from Employee Benefit News website: http://ebn.benefitnews.com/news/employee-benefits-data-costs-plan-compliance-reform-2714876-1.html?ET=ebnbenefitnews:e1886:2185272a:&st=email Business and Legal Resources. (2011). Compliance: Simplified. Retrieved from BLR website: http://www.blr.com/compensationtips/FLSA Florida Gulf Coast University. External Equity: Building Market Competitive Compensation Systems. PowerPoint retrieved from: http://ruby.fgcu.edu/.../teaching/compensation/8external.ppt Henderson, R. (2006). Compensation Management in a Knowledge-based World. (10th ed.). Upper Saddle River: Pearson Prentice Hall. Mayer, S. (2004). Strategic Compensation Systems Analysis. Retrieved from Oregon State University website: http://classes.bus.oregonstate.edu Nixon, L. (2011). Deferred Compensation. Retrieved from eHow archives: http://www.ehow.com/about_5499747_deferred-compensation.html Pearson, C. (2007). HR Guide: Right Ratio between Base Salary and Bonus. Retrieved from HR Guide website: http://hrguide.applezoom.com/2007/09/right-ratio-between-base-salary-and-bonus/ University of Richmond. Human Resource Department: Compensation Administration Plan. Retrieved from University of Richmond HR Website: http://hr.richmond.edu/employees/benefits/compensation/plan.html Web-based HR Guide. (2011). HR Guide to the Internet: Compensation. Retrieved from hr-guide website: http://www.hr-guide.com/data/G400.htm