Developing Compensation Strategy

Demetrius Williams GA0800129 19616 Fairport St Detroit, MI 48205 [email protected] com Cell (313) 282-5661 MS 637 Compensation Management Assignment 7/ Stand-Alone Project 12/17/2010 Part A 1 Your Text Will Be Arranged Quickly! – click “>  Your Text Will Be Available Quickly! – click over here  . Inadequate communication, poor leadership, inappropriate corporate structures and misaligned internal pay system are a few things among factors that have affected the morale and high turnover at Lynchburg Symphony. What the numbers don’t show It is important to remember that the numbers shown do not always convey a complete compensation system.

For example, a violin concertmaster may have had a large increase in salary due to leaving a position and per terms of the employment contract, may have received a sizeable severance or deferred compensation package. As such, the cumulative compensation may artificially inflate annual earnings. Furthermore, these figures may not reflect bonuses or other incentive payments. Also missing from the figures are expense accounts and other perks; as such, the cumulative compensation for the musicians. Developing Compensation Strategy

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According to (Milkovich & Newman, 2004) the first step includes an understanding of the industry in which the organization operates and how it plans to compete. To cope with the turbulent competitive dynamics, focus on what factors in the business environment are important today. Reality is more complex and chaotic. Organizations are not necessarily innovators or cost cutters or customer-centered. Instead, they are some of each and more (p. 38). A pay system reflects the values that guide an employer’s behaviors and underlie its treatment of its employees.

A great pay system reflects the company’s image and reputation. A compensation strategy reflects the value by including work/life balance programs for security, incentitives, and stock options to share the company’s success. Because governments are major stakeholders in determing compensation, lobbying to influence laws and regulations may also be part of a strategy. So, from a strategic perspective, managers of compensation may try to form the political environment as well as be shaped by it. The simple fact that employees differ is overlooked in formulating a compensation strategy.

Lynchburg Symphony has created a person-based structure which focuses on the employee: skills, knowledge, or comprehension the employee presents whether or not they are used in the employee’s particular job. This type of structure has created internal problems for Lynchburg Symphony staffing. Factors that misshape pay structure The basic opinion of a strategic perspective is that pay structures that are not aligned with the organization strategy may hinder progress to the organization’s success. A significance factor affecting the internal pay structure is its acceptability to the employees involved.

Employees form an opinion about the honesty of their pay through comparing with the compensation paid for work related in some fashion to their own. Incorrectly aligned structures become obstacles, they may still be able to motivate employee behavior but it may be unwanted behavior. According to (Milkovich & Newman, 2004) equal treatment can mean that the more knowledgeable employees the more they will feel underpaid if compensation is not met (p. 77). Milkovich & Newman also indicates several behaviors that could result to employee dissatisfaction. . They may quit or simply tune out and refuse to do anything that is not specifically required of them. Their change in behavior will lower overall performance (p. 77). 2. The challenge is to design the structures so that they engage employees to help achieve organizations objectives. An internally aligned pay structure is more likely to be judge fair if it is based on the work and the skills required to perform the work and if employees have an opportunity to be involved in some way in determining the pay structure (pp. 62-63).

The best type of pay structure that fits Lynchburg Symphony is an egalitarian structure, which is related to greater accomplishment when close cooperation, equal and helpful knowledge is require. The competition fostered in the “winner take all” tournament hierarchies appears to have negative effects on performance when the work flow and organization design require teamwork. Having content and value affects the pay structure in an organization. Content refers to the work fulfilled in a job and how it gets completed. Value refers to the quality of the work and its relation contributed to the companies’ objectives.

In contrast Lynchburg Symphony would needed value, a value to focus on the structure of work contribution of the skills, tasks, and responsibilities of a job to the organization’s goal. Researchers report that employees’ perceptions of procedural fairness significantly influence their acceptance of the organization’s goal. According to (Milkovich & Newman, 2004) two sources of fairness are important: the procedures for determining the pay structure, called procedural justice and the results of those procedures, the pay structure itself, called distributive justice.

Employees and managers are more willing to accept low pay if they believe that the way this result was obtained was fair. This research also suggests that pay procedures are more likely to be perceived as fair (1) if they are consistently applied to all employees, (2) if employees participated in the process, (3) if appeals procedures are included, and (4) if the data used accurate (p. 63). Applied to internal structures, procedural justice addresses how design and administration decisions are made and whether procedures are applied in a consistent manner.

Distributive justice addresses whether the actual internal pay differences among employees are reasonable. The first thing Lynchburg should consider when developing their compensation packages is fairness. It is absolutely vital that businesses maintain internal and external equity. Internal equity refers to fairness between employees in the same business while external equity refers to relative wage fairness compared to wages with other orchestras.

No matter the compensation level, if either internal or external equity is violated, a business will most likely experience employee dissatisfaction and employees will begin to balance their performance through a variety of ways ranging from decreased productivity to absenteeism and eventually to leaving the business. So, what constitutes fair wages? One approach to determining a fair wage is a market survey. These are typically fast and easy ways to establish compensation guidelines for many businesses. A few phone calls to other businesses in similar business can determine the “market” value for specific job.

The human resource department can do informal surveys of other orchestras to determine the “going rate” for labor or compare employees not by job title but by skill sets. A competency scale could identify certain criteria’s: authority to make decisions, skill-level and supervisory capacity. By using a competency scale, each employee can be cross-referenced by job tile and competency level or studied solely within either category. Employees of similar skill levels or competency are taken together in compensation “bands” regardless of job title.

These bands then compensate like-employees at like-rates across the entire organization and serve to maintain both internal and external equity. Pay structures Lynchburg Symphony needs a job description for all its positions so that the employees know where they fall within the orchestra. A pay structure helps answer questions about who’s who, what each person’s role is and why the employees are compensated differently. It helps the company administer the pay philosophy. For example, Lynchburg might want to pay everyone at market or pay some employees at market and some above it.

The incentives also can be dealt within the pay structure. Fro example, people with strategic roles will likely have opportunities for higher incentives Start with a payroll budget When setting up a pay structure, most companies start with a payroll budget. If turnover is high, then Lynchburg may have to move some employee’s salaries more quickly than if turnover is low and there is more time to implement the pay structure. Benchmark the value of each job Now that Lynchburg knows how many jobs are to be priced and the total amount allocated to spend, they should benchmark as many of their jobs as possible.

Making sure that they are benchmarking job content, rather than job title. In order for Lynchburg to make the best use of their resources, it would be really important for them to acquire a survey data from similar companies. Tips for benchmarking jobs • Select surveys that are appropriate for the positions being surveyed: right job, right geographic and right company size. • Select job descriptors based on content, rather than job title. • Match closely. Match the job function and not the person. • Involves employees much as possible. Outsource if necessary

Lynchburg needs a compensation consultant who can set up a pay structure consistent with the company’s pay philosophy. Without the resource to hire a compensation consultant Lynchburg can either train someone in how to set up a pay philosophy or outsource this service. Conclusion Lynchburg orchestra faces many decisions every day. Finding the time to build and implement an equitable wage structure can be difficult. To make the process easier, consider the following checklist: 1. They should decide what they want their compensation package to do. • Recruit new employees • Motivate current employees Reward well-performing employees • Minimize risk of violating federal laws • Build employee loyalty • Any of the combination above 2. Determine the internal wage structure. • Evaluate the jobs • Evaluate the employees 3. Talk to the employees about their indirect compensation needs. • Health insurance • Paid vacation • Child care • Retirement planning 4. Structure a total reward system. • Indirect compensation based on the employee’s needs and their compensation objectives • Direct compensation based on labor market information and their compensation objectives 5. Implement the new system, remembering to: Communicate with the employees about their needs • Review the compensation package regularly. Making sure it is fair, equitable and competitive • Be flexible and innovative to maintain a competitive advantage • Maintain internal and external equity The success of Lynchburg orchestra relies on common sense when it comes to management decisions. Employee compensation should be no different and if they want employees to be innovative and reward them for new ideas. If you they want employees to stay for a long time instead of training new employees every season.

They should offer bonuses or tie their wages to their tenure. If they need employees that show up on time, work hard, and can be trusted with the most challenging of tasks. Then they should recruit those people; reward those people and promote those people. The future of Lynchburg could truly depend on this. Part B According to (Milkovich & Newman, 2004) a company may pay more because it believes its higher-paid engineers are more productive than those at other companies. They maybe more trained, they maybe more innovative in dreaming up new applications, and they are less likely to quit.

To shape the external competitiveness there are certain factors. 1. Competition in the labor market for people with various skills; 2. Competition in the product and service markets, which affects the financial condition of the organization; and 3. Characteristics unique to each organization and its employees, such as its business strategy, technology, and the productivity and experience of its work force. These main factors act in concert to influence pay-level and pay-mix decisions (p. 187-189). Analysis As a consultant from Germans Intel-Human Services, I have observed that Smith & Johnson have numerous of employee concerns.

First, they have an extreme amount of employee turnovers. This has affected their productivity, morale and quality of work. Second, the distribution of 2% raise to all employees without utilizing an annual evaluation has created controversy within the corporation. Third, their pay scale has an effect on the employee performances and it needs to be reflecting on the employee performance and external markets. Finally, litigation from numerous of males employees could drastically hinder the future of Smith & Johnson corporation. Smith & Johnson is not creating a sufficient compensation strategy. Compensation Strategy and Concepts

Milkovich & Newman (2004) stated that the most common policy is to match rates by competitors. Managers historically justify this policy by saying that matching competitor’s rates would prevent murmuring among present employees and help the organization’s ability to recruit. Many non-union companies tend to match. Milkovich & Newman (2004) also indicates that a pay with competition policy tries to ensure that organization’s wage costs are approximately equal to those of its product competitors and that its ability to attract applicants will be approximately equal to its labor market competitors (p. 06). A job –based structure depend on the work content, tasks, behaviors, responsibilities. A person-based structure would transfer the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee’s particular job. This would be an excellent policy to help create stability for Smith & Johnson Corporation. The major factors that shape internal structures are external and organization factors. Internal labor markets combine both external and organizational factors.

Internal labor markets relate to the rules and procedures that (1) decide the salary for the various jobs within a single company and (2) assign employees among those various jobs. External factors are major influences on pay for entry jobs, but the dissimilarity for non-entry jobs tended to mirror the image of the organization’s internal factors. Employees judge the fairness of their pay by comparing the work, qualifications, and pay for jobs similar to theirs. However definite factors influence employees’ beliefs of the equity or fairness of the pay structure, as opposed to the equity or fairness of the amount of pay.

There are several major factors that shape internal structures economic pressure, government policies, external stakeholders and cultures/customs. Economic pressure relates to letting the economic market forces influence pay structures. Milkovich & Newman (2004) stated that a countering theory put forth in the last half of the 19th century, marginal productivity, says that employees do in fact pay use value. Unless an employee can produce a value equal to the value received in wages, it will not be worthwhile to hire that worker.

Pay differences among the job levels reflect differences in use value associated with different jobs (p. 68). Several of jobs are paid at different values than another due to the differences in the amount of production of the job and/or differences in how much a consumer values the output. Milkovich & Newman (2004) stated that the differences in productivity provide a rationale for the internal pay structure. In addition to supply and demand for labor, supply and demand for products and services also affect internal structures (p. 68).

Government policies, laws and regulations Milkovich & Newman (2004) stated that in the United States, equal employment legislation forbids pay systems that discriminate on the basis of gender, race, religion, or national origin. An internal structure may contain any number of levels, with differentials of any size, as long as the criteria for setting them are not gender, race, religion, or national origin (p. 69). There are several discriminatory practices that should be prohibited within an organization: harassment basis on race, color sex, religion or disability.

At any organization retaliation against an individual for filing charges for discrimination should be prohibited. Smith & Johnson should post notices to all employees advising them of their rights under the laws EEOC enforces and their right to be free from retaliation. External stakeholders Milkovich & Newman (2004) stated that unions, stockholders and even political groups have a stake in how much internal pay structures are determined. Unions are the most obvious case. Most unions seek smaller pay structures are determined.

Unions are the most obvious case. Most unions seek smaller pay differences among jobs and seniority-based promotions as a way to promote solidarity among members. At the minimum, unions want the interest of their members represented. Stockholders pay attention to the gap between executive and employee pay. Shareholders of several companies ranging from General Electric to Glaxo Smith Kline are beginning to pressure companies to control or at least better justify executive pay (pp. 69-70). Cultures and customs continue to shape pay structures.

Milkovich & Newman (2004) stated that many traditional Japanese employers place heavy emphasis on seniority in their internal pay structures. But pressures from global competitors plus an aging work force have made age-based pay structures very expensive (pp. 70-71). Creating workplace diversity training will help Smith & Johnson and employees in understanding how cultural differences in the workplace can affect work performance and overall morale. Living in our society is huge on nationality, gender and religion.

Many workplaces are not immune to the conflicts that arise as a result of cultural diversity. We all have our own biases but are often unaware of how our biases can lead to serious problems at work. Proactive communication is the key to resolving and preventing conflict at Smith & Johnson and in a diverse work force, the ability to resolve conflict in a timely and effective manner is very critical. Milkovich & Newman (2004) stated that many organizations ignore the question of strategy altogether. Instead, they simply copy what others are doing.

By extension, internal pay structures are sometimes adopted because they have been called a “best practice. ” It is still common for managers to bring back “the answer” at their latest conference. Recent examples of such behavior include the rush to delayer, to emphasize teams, to deemphasize individual contributions, and to shift a competency-based pay system, often with little regard to whether any of these practices make sense (fit) for the particular organization or its employees (pp. 79-80). There are several causes for paying attention to internal structures.

The first is unique jobs that create an image of the company structural characteristics. The second reason for concentrating on the internal alignment is that, as we have already noted, different job structures must come into agreement during possession and mergers. Several writers argue that employees’ attitudes about fairness of the pay structure affect their work behaviors. According to Milkovich & Newman (2004) writers have along agreed that departures from an acceptable wage structure will occasion turnover, grievances, and diminished motivation.

Others, including labor unions, argue for only small differentials, in the belief that more egalitarian structures support team cooperation, commitment to the organization, and improved performance (p. 82). The Equal Pay Act and the Civil Rights Act require “equal pay for equal work,” with work considered equal if it requires equal skill, equal effort, and equal responsibility and if it is performed under equal working conditions (p. 69). The basic opinion of a strategic view is that pay structures that are not aligned with the Smith & Johnson strategy may hinder progress to the organization’s success.

The stronger the link between the skills and experience a person has an attribute and an organization’s objectives; the more pay those skills will command. Smith & Johnson other human resource policies also influence internal pay structures. Remember the goal is always to design the structure so that they engage employees to help achieve the organization objectives and goals. There is no lawsuit that could be generated if the employer wishes to pay each employee their wages due to the job description and its pay is not set by gender, race, religion, or national origin.

Smith & Johnson is not unionized and there is no contract signed between Smith & Johnson and their employees, each employee were hired under the at-will provision. Recommendation Training Training is the key to operating a sufficient corporation. It removes the chances of workplace lawsuits and provides protection from sexual harassment claims. But not only is this a legal obligation, it also makes good business sense; Sexual harassment destroys the work environment. The anxiety and frustration experienced by employees can impact not only their quality of life but also of their work.

Smith and Johnson will pay the high price associated with poor employee morale, low productivity, and the cost of litigation. Versus fees being spent on training all employees are substantially less than the costs associated with sexual harassment claims and law suits. Cross Training Cross training all employees at Smith & Johnson is critical when you think of not having employees available to be present or using the employee in a valuable way. Yes, people do get sick or emergencies do occur at work or way from work. An employee who is trained in multiple positions is a highly valued asset to the organization.

Cross training allows your employees to build their professional, technical and soft skills. The employees also benefits from a better sense of their worth to Smith & Johnson. By building their skill sets they feel more confident and therefore more productive. The added skills will also make them excellent candidates for positions that open up within the organization. Cross training shows the employee not only is the organization investing in them, but through internal promotions they have a career with Smith & Johnson. This gives the employee a sense of job security with during times like these is a big moral booster.

Rewarding employees and motivating them does not always have to have a high risk of financial cost. Smith & Johnson Foods doesn’t have an incentive rewards program and preparing the first stage of implementing is going to help. The very first step that needs to take place is to identify the activity that needs to be rewarded. This can include job performance, exceptional team work, and leadership and production developmental goals. This rewarding will reinforce positive performance so that employees will strive to succeed.

At Smith & Johnson Foods we want to see to it that employees are fairly compensated. We want to than our employees for a job well done. We want the employees to feel important as much as possible. Asking them to sit on a panel discussion on behalf of the human resource department, mentoring/educational opportunities and being sent to an industrial conference. A simple incentive for employees could produce job longevity. A cash reward of $50. 00, 2 tickets for dinner and invitation to a seminar out of state on, “employee expectation,” included with paid hotel stay.

Even though employees are likely to inform other employees about their rewards anyway, the force of the comparison is reduced when these rewards are given privately. Their must be no envy or favoritism from employees and creating a system where the employees can nominate for incentive rewards is just another way to overcome the barriers of misunderstanding. The election procedure should be kept simple. Recognition coming from fellow employees is unlikely to cause resentment and is one of the most sincere forms of praise. According to (Milkovich & Newman, 2004) the basic premise underlying the strategic approach is that “fit” matters.

Aligned pay structures support the way the work gets done, fit the organization’s business strategy, and are fair to employees. Greater internal alignment fit is more likely to lead to success and misaligned structures can become obstacles. They may motivate employee behavior, but it may be undesirable behavior (p. 74). To advance employees through a structure there must be a certain criteria: the organization’s strategic intent, organization design and work flow, human capital, the external conditions, regulations and customs it faces.

Also aligning the pay structure to fit the organization and surrounding conditions is more likely to lead to competitive advantage for the organization and a sense of fair treatment for employees (p. 82). Smith & Johnson structure is best fit with an egalitarian structure that has less levels and a smaller difference between the highest and lowest paid workers. An egalitarian structure sends the message that all employees are appreciated. It involves fair and equal treatment will enhance employee satisfaction, support cooperation, and therefore it will change the employee performance.

More egalitarian structures are connected to greater performance when close working relation and sharing of knowledge are required. There should be several types of performance-based rewards such as commissions, bonuses, share options, profit sharing and the list goes on. Performance-based pay seems to be an attractive way to improve the employee performances at Smith & Johnson Foods. The performance-based reward system could influence the employee to be motivated to leave or not be motivated to produce quality work, but these are not the only factors.

Other issues play an important role when an employee lacks the performance on the job. When Smith & Johnson Foods demonstrates to their employees that they have plenty of opportunities for growth, learning, and advancement it has the potential to make the difference in the lives of others and the corporation. However, we all can observe, from our own experiences and those of others. That simply having a paycheck for the work that we do from our employer is not enough to keep us going back each day, and certainly not enough to keep our interest and our productivity maintained.

There is always more needs to be present than that of the money for pay, which begins to become routine, after the first few pay periods. Being fair to all employees of Smith & Johnson Foods should be a number one priority. Milkovich & Newman (2004) indicated that employee’s attitudes about fairness of the pay structure affect their work behaviors and performance (p. 82). Yes, the hard working employees should have a positive working environment and be treated as though they already possess these qualities.

When an employee sees their coworkers slacking it’s a strong possibility they will adapt and drop down to the same level. Even though employees know what is expected for their employer; do good, honest, and hard work, it is not encouraging to be the only employee in the room striving towards excellence. It’s not alright for some employees at work to slack off, but others not, this can lead to employee resenting his/her coworkers and management for the less than special treatment. Many employees at Smith & Johnson Foods could be great workers in a better environment but find it hard to perform if they feel slighted.

Supervisors are to look for employees who are excelling, yield some control, and trust the employee to prove himself. The employees are all to be treated as a guru in his/her field, and if they are treated like that than they will have the chance to perform at this peak. Management has to commit to being friendly and fair with their employees, treating them with respect, and this will give them the opportunity to live up to Smith & Johnson Foods standards so that they can become the employees that we desire. Tapping into a motivating schema is necessary for the workplace.

Even though the pay is the factor of the job it becomes less attractive when the job becomes routine. There should be a variety of things that should be offer to the employees work task. Offering competitive salaries and bonuses will help motivate employees. Smith & Johnson Foods should recognize their employees for a job well done is also sufficient for motivation. Increasing benefits, more vacation time, company cars, stock options, child care and other perks is great also. Supporting employees that want to continue their education and rewarding them of their educational accomplishments.

A casual dress code for the employees to be able to express comfort and create for themselves a relax work environment. Definitely there will have to be a dress code clearly defines so that employees don’t abuse the casual dress code policy and promote a lack of professional image of the corporation. Still there are many things that Smith & Johnson Foods can implement that are cost effective measures. ? They could feature an employee of the month. This could be used to reward an employee for a job well done and encourages others to perform at their best. Design a company news bulletin. This can be used to mention employee news and provide information on employees. Create sum polls and ask employees to participate. ? Complimenting employees of a job well done. ? Writing personal thank you notes as a reward. ? Placing personal letters of recommendation to be added to the employee file for impressive contributions. ? Provide flexible scheduling. Allowing the employees to come in earlier and leave earlier on the shift required. Giving early leave on Fridays or the last day of work before a holiday. Creating an employee recognition board. Featuring employee pictures and other announcements. ? Provide a comment or suggestion box and offer a reward to employees for coming up with methods that save the companies time and resources. ? Having employee appreciation days. Provide free small gifts, food, games, music, and opportunities for employees to interact with management. ? Providing free coffee and snacks are much appreciated perks. ? Giving an employee a new responsibility. ? Creating a personal sign of appreciation.

Managers must be trained on the guidelines and that will be outlined on distributing the rewards fairly and equally to avoid legal and moral issues. There is a right way and a wrong way when applying rewards to employees. Jackson (2010) indicated that Alfie Kohn in his groundbreaking book Punished by Rewards [pic]quotes study after study which show that rewards actually inhibit things such as creativity, risk-taking, information sharing, quick problem-solving and encourages directive command and control type behavior from supervisors (Ways to Reward Employees, 2010).

The one thing that should be recognized about the reward program by Smith & Johnson Foods is that we are trying too build and create a team environment, stimulating employee interest and creating positive conduct. This degree of loyalty from the employer towards the employee could influence the employee to repay the employer with the same loyalty of their own. When we treat employees the way they are, we make them worse. If we treat them how they ought to be, we can help them to become what they are capable of becoming in the present and future.

The corporation should gain a reputation as a family friendly environment making it self attractive to current and future potential employees. References Jackson, S. (2010). Ways to Reward Employees – The Top 10 Watchouts. Retrieved October 11, 2010, from http://www. leadership-and-motivation-training. com/ways-to-reward employees. html Milkovich, G. T. , & Newman, J. M. (with Milkovich, C. ). (2004). Compensation (8th ed. ). Boston: McGraw-Hill Irwin. Ch. 2; 3; & 7 pp. 38; 62-63; 68-74; 77-80; 187-189; & 206.



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