Importance Of Compensation Management In Organizations

Compensation Management and Benefits for Development and Growth

Question:

Discuss about the Importance and Benefits of Compensation.

An organization can only remain strong if the members of that organization participate in their role behavior effectively and necessarily. To motivate the members to contribute effectively, an organization have to provide them with inducements. This transaction process is the heart of the employee-employer relationship. From the perspective of cost management, managing the compensation effectively is often a critical process for the managers (Edmans 2012).

Compensation can be referred to all the benefits, financial return and the services an employee receives from the management of the organization as a part of the employee-management relationship (Flood 2017). They might receive pay directly as cash wages and incentives, or they by indirect benefit from the services such as pensions, health insurance and paid time off. There are many programs, which distribute the compensation to the employees and one employer can use more than one program. Compensation can be regarded as one of the most complex disciplines in the talent management field or human resources. The manager who handles the compensation issues requires the knowledge of employment trends, job valuation and the adaptability of the job in various financial conditions (Bryant and Allen 2013).

In this critical analysis of the need of benefits and compensation for the development and growth of company and the employee both is going to be discussed. The aim of the report is to focus about the issues the mangers of any organization faces regarding the compensation of the employees. The discussion will include the role of managers to control and motivate the employees for their development and the efficiency of different wages will be discussed. further, the type of compensations and benefits provided to the employees in the context of the Singapore will be discussed in details.

Efficiency wages of the employees:

Pay level can be described as the average compensation paid by any firm, which is similar with their competitors. When an organization sets its pay level, the organization sets its cost to produce a certain level of output. There are many companies who pays their employees efficiency wages. There are four levels of mechanism by which the companies pays their employees the efficiency wages, namely, sorting, turnover, shrinking and gift exchange (Weiss 2014). Sorting is whenever a company pays higher rates to some higher ability employees. Turnover and shrinking are two identical processes, which say that the productivity of a worker is difficult to measure as it permits workers to shrink. The expected effect of shrinking is that, a worker would not risk losing the premium wage. Gift exchange is a process, which contrasts with shrinking. Some organization pays their workers excess wages and in return they expects their workers will give them more effort (Keynes 2016).

Challenges faced by managers in compensation management

Importance of compensation and benefits for both employers and employees

Compensating employees is an important part of work ethics as valuable and hardworking employees are assets of any company. However, the decision of compensation and benefits are important to attract and retain the right person for right place. The company should offer proper compensation to the employees as per the industry standards and similar to their co-workers. Otherwise, the employees feel neglected and starts looking for other options available in other companies. This situation is not preferable for any good employer wanted to grow their turnover (Sengupta et al. 2012). Nowadays, In Singapore, there are different array of trends for the compensation and benefits proposed for the employees. They are offered with free food, transport, healthcare, gym are among the common trends. However, the important one is offering senior employees company share, so that they can feel connected to the organization. Offering talented and hardworking employees with flexible working hour are one of the biggest trend in the workplace nowadays.

On the other hand, if the company fails to provide the hardworking, loyal and key workers with the compensation they demand for their contribution in the company, they start looking for jobs in the market. However, if their needs are met and they are values for being a part of the company, their job satisfaction increases and loyalty to the company grows as well. It increases their drive to work. Not only the monetary package, but the overall benefit package also enhances the caliber of the employee and through him/her that of the company as well (Odunlade 2012).

Role of the managers:

The managers are there to see that the systems are in such a way that no money of the organization is being wasted and the money is being used to secure the highest level of productivity. The ideal compensation management system pays the employees enough to keep them motivated, which will make them stay with the organization (Cherian and Jacob 2013). There are many psychological theories that say that good pay influences the behavior of the employees. The pay satisfaction is related to behaviors such as absenteeism, union activity and turnover. From the organization’s perspective, the organizational procedure cannot have the effect they desire unless the compensation system of that organization is good. The design of the compensation system affects the employee motivation and can be used to improve safety, creativity and quality of other outcomes, which are critical for the success of the organization. Either the compensation system would increase the payroll costs to raise the salaries of every one of the employees or the same level of money can be distributed amongst the employees in a variety of ways. All the employees can be paid with compensations based on skill, competency, seniority and so on (Shields et al. 2015).

Different Compensation Plans

The new talents can be drawn to the organizations based on the compensation. The managers of the company have to know how to attract good employees. The companies will also have to maintain a good benefits package to retain the employees (Mishra, Boynton and Mishra, 2014). To hire a new employee and to retain the good employee, the costs must be used to create a quality work environment. To be a good manager to the organization, the manager would have to listen to the employees in order to know about their motivation. This would further help the manager to modify and create the offer and benefits. To attract the quality applicants, the HR managers of the company have to be able to evaluate the company’s ability to offer the new applicants attractive wages and benefits, such as health benefits. The base amount of the wage mostly attracts the job seekers. The reputation of the company is also a determinant about whether the company would be the first choice of the jobseekers. The HR managers have to quote a fair wage while posting an advertisement for the job. The HR managers have to analysis the wages offered by the competitors, market trend and the employment level before posting for a job (Juhdi, Pa'wan and Hansaram 2013).

It is evident that compensation matters to every employee. There are many stories about the issues and benefits the companies give. This makes the compensation system more interesting. The managers have to learn to evaluate the pronouncements about the incentives, which generally come down from the high. The managers often faces problem while evaluating the pronouncements, as they have to report the higher authority about that. The managers often work as a link between the common workers and the authority. It is often their job to interview the workers and to know what actually keeps them motivated. It is also a manager’s job to evaluate if the compensation given by the organization is enough for the workers (Alfes et al. 2013).

Many companies offer incentive pay and annual bonuses based on the performance of the employees and the performance of that particular organization. The bonus and incentive offered by the company is very hard to budget far ahead if the company is new.

The common type of compensation plans the companies offer for the employees:

There are several types of compensation plans, which are used for the employees like pay for the working time, integrated benefit plans like medical care for the employees, which includes temporary disability benefit, survivor benefit, partial and permanent disability benefit, rehabilitation survivor benefit. Other benefits should include retirement plans and, nonretirement plans (Chung, Steenburgh and Sudhir 2013).

Trends of Compensation and Benefits in Singapore

Medical care:

Providing the employees with a good medical care option always helps them to remain attracted for the employees. The offered medical care should includes those plans which would really help the employees such as care for work related injuries, permanent and partial benefit, survivor benefit and rehabilitation. Offering a good, healthcare option always lures new employees to stick to the job (Baxter et al. 2014).

The state law covers these types of compensation plans. These laws are compulsory in 47 states and elective in three states. One of the laws, which cover the benefits of the common employees, is self-insurance coverage. This law is applicable in all 48 states and is compulsory for all the industrial employees, farm labors, housekeepers and casual employees. It is also compulsory for every public sector employees as well. Another law covers the occupational diseases the employees suffer from. This law covers only those diseases, which can arise out of the course of employment. This law does not cover the ordinary diseases such as influenza (Noe et al. 2014).

Retirement plans:

The employee stock ownership plans (ESOP) mainly transfer a part of company stock to a trust account for the benefit of the employees who are retiring. When an employee is retiring from his or her position from that organization, the company is bound to pay the employees the current value of the entire company stock purchased by the retiring employee during his or her tenure in that company. The organization also gives the employees the benefits of using the other retirement plans and profit sharing plans (Sonnega et al. 2014).

The HR managers of the company are there to help the retiring employees to choose the type of the retirement plan, which might be better for them. To do this, the managers should have a detailed knowledge about all the retirement plans and the laws regarding financial laws and regulation. One tough problem the managers follow regarding this is they have to assess the allover performance of that employee in the organization and report it to the authority. Over this assessment, the company implies the retirement plan of the employee. Generally, this issue puts the managers into dilemma (Wiatrowski 2012).

Non-Retirement plans:

The employee stock option plans (ESO) helps the current employees of one organization to buy the stocks of the company for a limited number of years, per say 5 years or 10 years. This also a type of the compensation plan offered by the company for a limited number of years as the employee would be gaining from the whole program after the end of the mentioned number of years. The company generally allows the employees to buy their stock at discount and give the employees an immediate ownership rights (Bova, Dou and Hope 2015).

The managers should have a detailed knowledge about ESO, and ESPP (employee stock purchase plan) options as they can help the employees to choose the right form of the plan. The managers should let the employees to know about the benefits of these plans, as it would provide the employees to have a large amount of money after a limited number of years (Spalt 2013).

The ethical issues faced by the managers regarding compensation:

The managers are responsible for the behaviors of the employee in that organization, be it ethical or unethical. The managers also have to make sure that, the staffs they hire are also ethical people who would contribute in the ethical workforce of that company. The managers will also have to ensure that, the people working there also receive training to be ethical. The ethics of an employee also depends on the manager as the manager trains the people to have ethical work culture. The good performance of an employee makes the company to motivate him or her to perform better. This leads the company to give the employee a good compensation as a reward (Berman et al. 2012).

Sometimes a manager does not conduct the appraisal process fairly. Some research shows that, sometimes the managers does not appraise those employees with whom they does not get along or wants them to leave the firm. These managers ignore the accuracy of the compensation system and are dishonest. This is important for a manager to set up a fair standard in order to compensate the employees.

A manager is also responsible for evaluating the performance of an employee and it is their task to reward the employee according to their performance. It is also the job of a manager to penalize the employees, who are conducting some unethical practices within the organization (Deresky 2017).

It is also a job for a manager to determine the pay rates of the employee working in the organization. Generally, the company pays an employee either directly (through wages, incentives and benefits) or indirectly (through vacations and insurance). The direct wages are for every employees and the company exclusively rewards an employee through the indirect pay. It is the job of the managers to evaluate which employee is eligible for the pay or not. An honest and unbiased view of the managers is necessary for an unbiased evaluation. Generally, the employees like to have a combination of timely pay and incentives (Johnson 2017).

The equity issues regarding compensation, which are faced by the managers:

There are many theories of equity, which are applicable in the compensation system of any organization. One of those theories is motivational theory of equity, which states that the people are like to stay motivated in order to do good work. The equity theory explains that, when somebody does not have equity, he tries to perceive it. In order to perceive the equity he deserves, he becomes motivated, eliminates the drive, and perceives equity. Four types of equity issues generally face the managers (McEvoy and Buller 2013).

External: This is regarding the equivalency of the pay rate in relation to the competitor organizations.

Internal: The equivalency of pay rates in relation to the earnings of the co-workers of the same company.

Individual: The equivalency of the pay rate to the other jobs of many competitor companies.

Procedural: It relates to the fairness of processes needed to make decisions related to the compensations.

The managers have to face all these issues regarding compensation and pay role. They can solve the issues by many different ways. Such as, the managers should monitor the salary structures of the other competitor companies in the market. The evaluation and analysis of the job techniques are the best way to maintain equity. The managers should follow the performance appraisal system to maintain the internal equity of the organization. The managers can ensure that the people working in the organization is ethical by taking to them and by conducting frequent surveys in the market which reflects the mindset of the employees about the pay plan. The managers need to find out about how satisfied the employees are with the pay plan by those surveys (Bell and Martin 2012).

Fig: A fishtail flow chart showing the relation of the employee compensation with the four issues faced by a manager ( Liu 2016)

Evaluation of the dysfunctional behavior of the employees:

The main issue about the motivational theory is that if this theory really changes the behavior. According to this theory, the compensation system is powerful in motivating the desired behavior. Some of the studies shows that good incentives and compensation system alters the desired behavior for the employees (Leary et al. 2013).

There is an argument, which shows that the incentive and compensation system sometimes is not effective. The position proposes that when money and the desired behavior of the employee is related, the employees sometimes behaves dysfunctionally in order to obtain the desired money. A paper described an incident of a school in Atlanta, which states that, in order to get the desired incentives, the teachers, and the principal of that school tried to improvise the performance of the student like erasing the incorrect answer in the page and then putting the correct answer, in order to get the incentives.

A paper offered a framework, which explains that the compensation system, which are given to enhance the performance of the employees, gives rise to a serious problem of workplace bullying (Boddy 2014).

This leads to an important issue that the managers have to follow, which is to evaluate the dysfunctional behavior of the employees within the workplace. The managers of the organization have to follow the behavior of the employees closely in order to identify any dis-functionality. The manager should also talk to the employees in the grass root level in order to see if any of the employees are being bullied from the other employees. It is the work of the manager to understand the issues around the whole compensation system (Greaves, Zibarras and Stride 2013).

Supporting the emotional stability of the employees:

The performance of any of the company is dependent on the emotional stability of the employees. Providing the employees with the wages and salaries are not enough for the employees in today’s world. It is amongst the task of the managers to see that if the people are satisfied with the wage or if they need anything else apart from the compensation to maintain their emotional stability (Kaplan et al. 2014).

The managers are also has to be able to be the communication system between the employees and the management authority. The management of any company needs loyalty, cooperation, profits and commitments from the employees. The employees also need healthy work environment, career development, safety, security, and compensation from the management. The managers needs to balance between both the systems in order to see if the work environment is maintained and whether the management have been showering compensation and efficiency wages to the right employee (Albrecht et al. 2015).

Conclusion:

When a company hires an employee, they are interested in that job offer as per the pay. They also do market research to see if their pay is below the company standards. If they find out their normal pay-level is far below the company standards, they would feel discriminated. The managers are there to see if the company is providing the workers with enough wages. As well as the human resource team of the company are been hired to monitor human rights for employees are being followed or not. Therefore, the compensation and benefits of employee is the responsibility of the company and failing to protect it, the employees are forced to leave the company and look for better market options available. This process is not only harmful for the employee, but the company also lost its reputation as the word of mouth is against them. Hence, the company should focus on the monetary compensation as well as benefits such as med claims, 

References:

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