Strategic Compensation: Plans and Management Report (Assessment)

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Compensation plans that employees and employers might favor

Employees are more likely to favor defined contribution plans over defined benefit plans. A defined contribution plan involves contributions by both an employee and employer toward an employee’s pension plan.

In a defined contribution plan, an employer pays a monthly amount of money toward an employee’s retirement benefits (Martocchio, 2011a, 2011b). Defined contribution plans give employees some assurance that they would benefit from their pension plans because they would control the amount they would be contributing, as well as what their employers would be contributing on a monthly basis.

Through defined contribution plans, employees are able to earn interest on the retirement savings because they are invested in many forms of investments, for example, stock markets and real estates, among others. Once an employee retires, his or her account is utilized to offer retirement benefits, which could sometimes be used to buy an annuity that provides a regular source of income (Martocchio, 2011b).

Plans that employers might favor

On the other hand, employers might favor defined benefit plans over defined contribution plans. Employers use predetermined formula to calculate what they contribute toward an employee’s retirement plan. Rather than giving contributions based on the amount of money that employees contribute, employers use parameters such as an employee’s age, salary history, period of service, and age to calculate the actual amounts (Martocchio, 2011b).

The inclusion of the factors in the calculation results in different amounts of contributions made by an employer to different workers within an organization. In addition, employers would calculate and be aware of the amount of retirements that they would pay to workers (Martocchio, 2011a).

Choices to control healthcare costs

Employers can control the amount of costs they incur in providing healthcare to their workers by several ways. First, they can promote healthcare consumerism by enhancing cost transparency and consumer buying behavior.

Consumerism would enable employees to become better shoppers with regard to healthcare services (Martocchio, 2011b). Second, they can select providers who are characterized by competitive healthcare rates or costs. By so doing, they would make considerable savings on the costs they would pay for their employees’ healthcare.

Third, employers can invest in personal health coaches who would work to ensure that employees do not engage in lifestyle activities that would lead to poor health. This could involve advising workers to stop smoking and eating healthy food. Fourth, they can encourage their workers to be more proactive with regard to their healthcare matters (Martocchio, 2011a, 2011b). This would help employees get better coinsurance percentages, deductible amounts and health savings account contributions.

Pros and cons of top-down versus bottom-up budgeting in compensation

Top-down budgeting is a cost effective budgeting approach used in compensation because it does not involve many persons (Martocchio, 2011b). Employers or managers are in control of the funds that are budgeted through top-down approach. However, the budgeting method makes it difficult to engage workers who are the beneficiaries of compensation plans (Martocchio, 2011a). Also, it is difficult to change top-down budgeting because it is controlled by the top management.

With bottom-up budgeting, employees are engaged in financial estimation process. Also, the needs of workers are considered because they give their views during the budgeting process. However, bottom-up budgeting is characterized by high costs due to a high number of persons involved in the process. The budgeting approach is difficult to evaluate and legitimate with regard to attracting more funds for compensation (Martocchio, 2013).

Controlling labor costs

Many organizations spend a significant amount of their income on labor. Although labor is an essential component in realizing excellent and sustained growth, organizations should aim to control labor costs (Martocchio, 2013). Reducing overtime and implementing measures to avoid overtime in the future would be a good way to control labor costs. Cost management objectives should be achieved by a proper analysis of labor budget. In addition, the number of workers should be reduced based on census fluctuations.

References

Martocchio, J. J. (2011a). Employee Benefits: A primer for Human Resources Professionals. New York, NY: McGraw-Hill/Irwin.

Martocchio, J. J (2011b). Strategic Compensation: A human Resource Management Approach (6th ed.). Upper Saddle Valley, NJ: Prentice Hall.

Martocchio, J. J (2013). Employee benefits. New York, NY: McGraw-Hill Higher Education.

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