Strategic Compensation Management

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Strategic Compensation Management:

Aligning Compensation with the Business Goals and Objectives of the Organization

Jasmine McCrary

Compensation Management, Fall Semester 2009
Professor: Dr. Debra Sherrill

Strayer University

September 4, 2009

Executive Summary

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. In traditional organizational structures, employees were expected to work and follow top-down orders of a boss or supervisor. These employees could expect job security, pay rate increases each year, and promotions based on seniority. Salary was determined on the basis of work performance and the years of experience the employee held. Additionally, some organizations provided pension and 401K plans. Money was considered the primary and only need of the worker. With the creation of labor and trade unions, employees began asking for their rights and facilitated a change in compensation systems. Behavioral Science Theories also contributed to the change in compensation systems. Abraham Maslow brought in the need hierarchy for the rights of the employees. He stated employees did not work only for money but there are other needs an employee must fulfill from their job, i.e. psychological needs, safety needs, needs of love, affection, and belongingness, needs for esteem, and need for self-actualization (Simons, Irwin, & Drinnien 1987). Employees were considered a valuable resource to the organization. Today’s compensation systems should be aligned to the business goals and strategies. Employees are expected to contribute individually to the organization and diversity is embraced. Companies expect employees to make decisions, accepted delegated authority, and understand their position in the overall organizational structure. Companies launch campaigns to ensure all employees are feeling secured and valued in their organizations. As all national and international industries labor to remain competitive in the various markets, it has become imperative that all companies operate strategically in all facets of its organization. Employees of an organization should be managed properly and motivated by providing the best compensation per the industry standards. In order to remain effective, compensation management should be aligned with the business strategy, goals and objectives of the organization.

Strategic Compensation Management:

Aligning Compensation with the Business Goals and Objectives of the Organization Compensation is an increasingly complex operation for today’s organizations. Compensation once involved only salary planning. In recent years it has expanded to include pay for performance, variable pay, and non-cash compensation programs. The resulting complexity can be overwhelming to both small and large enterprises. Some of the issues that affect compensation management are legislation, competition, and organization characteristics. Among the concerns of organization characteristics is the increased need to align compensation with the business goals and objectives of the organization. When Strategic Compensation Management is aligned with the business goals and objectives of the organization, the company will improve organization effectiveness by motivating employees, attract and retain employee talent, and generate productive and diverse work groups with all employees contributing to organizational output. From a strategic and tactical perspective, the quality and quantity of organizational output depend directly on the skill, interest, and effort of employees. (Henderson, 2006). Employees who are motivated and consider themselves a valued part of the organization will be effective in the position and roles that...
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