Compensation is a systematic process of rewarding individuals after execution of certain functions that are delegated to them. It san important activity in any setting since it shows how well individuals are valued and recognized. As noted, compensation entails ensuring provision of fair and adequate remuneration to workers in an equitable manner. The process should be free from discrimination and it should be guided by well-laid parameters or key determinants that include academic level and experience. It ensures that employees receive what they deserve appropriately. Notably, every organization has a compensation strategy that enables them to pay workers fairly and adequately. The strategies also enable them to plan and reward employees based on their input levels in various business units.
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Most companies have well written compensation strategies while others operate under work/ life compensation systems. These strategies are instrumental since they provide essential incentives that foster equality. These paper discuses the imperativeness of compensation practices and how the strategies influence decision-making. Conversely, it covers the impact of the strategies on performance in institutions. It adopts Dell Corporation as the company whose compensation strategy is under scrutiny. The company is adopted due to its exemplary performance and effective management of employees. It is also adopted to aid this study since it has experienced few industrial go slows over the years that shows how satisfied its employees are as compared to other companies. Thus, the study is to ascertain how well its compensation strategy is executed and key challenges that the strategy poses.
Description of the company and its compensation strategy
Dell Company is a renowned corporation that started its operations in the year 1984. The company was founded with a core mission to produce quality computers and electronic gadgets to satisfy consumer needs (Owen, 2013). Since its inception, the company has been recording exemplary performance. This is evident as depicted with its income base that stands at $102billion, its strong asset base, and profitability levels. Similarly, its effective management of employees has seen it improve on its productivity.
This is because it does not experience the effects of employee turnovers that have been impeding performance in most institutions (Owen, 2013). This was evident in 2006, when the company was one of the institutions awarded for retaining and nurturing employees due to better terms of work. Notably, the company’s exemplary capacity to manage the resources at its disposal including human capital has enabled it to remain very competitive in the electronic industry. It has a large market share that it has achieved due to the quality of its products.
The exemplary performance that the company has been able to record over the years from its first year of business where it reported over $73million is attributable to a number of reasons. Firstly, the performance is attributable to its effective operating strategies that foster innovation and creativity. Secondly, the company’s compensation strategy has been a critical pillar behind its good performance. The activity based compensation strategy that it operates under, has ensued that employees are treated with immense decorum and that their welfare are taken care of properly. For instance, the strategy has enabled the management to pay employees well and subject them to fair terms of work (Owen, 2013).
This has been raising their satisfactory levels that in turn lead to high performance. Thirdly, flexible organizational structure and effective communication channels has enabled the company to execute its activities properly. They have ensured that quality is not compromised through systematic awareness creation on stakeholder needs in terms of product features (Owen, 2013). They have also promoted communication between stakeholders especially investors whose input is vital for capital mobilization. The company has also been able to expand its market share since it provides quality computers that enable users to get up to speed solutions at their convenience (Owen, 2013)..
As noted, the company has a good compensation strategy that fosters fairness to stakeholders. The strategy that is referred to as activity based compensation practice was adopted due to its ability in ensuring that remuneration of employees are adequate and are proportional to each employees work. The strategy is preferred in most settings since it provides well documented guidelines by which rewards are determined. Under the strategy, managers of the company are able to apply proper benchmarks that guide salary value or amount that each employee should get.
Best practices the company applies and compensation-related challenges that it faces
Imperatively, Dell Company applies best management practices that ensure its sustainable growth. The management practices facilitate accountability and effective utilization of resources. This enables stakeholders who include employees and suppliers to benefit more due to the large pool of proceeds that are realized when finances are properly utilized. In particular, the company’s best practices revolve around operations, financial management, resource allocation and management of employee welfare. Firstly, the company has put in place favorable compensation strategies as a best practice to retain employees and ensure that they are satisfied. The practice is set with an aim of providing proportional remuneration to the work that is done by each employee. The practice has seen the company rise to higher levels because it is able to retain highly proficient employees.
For instance, best compensation practices have enabled the company to improve on its productivity levels for the reason that employees are willing to inject more effort. Secondly, the company applies favorable terms of work as a best practice including adherence to labor laws. It operates under favorable terms that enable employees to feel that they are part of the organization. In particular, the company gives employees many fringe benefits that are meant to motivate them and boost their morale. They offer them leave allowances, register them to pension schemes, good amounts of bonuses and subject them to fair working hours (Owen, 2013).. The management of the company does this in recognition that the employees are the company’s basic asset. Their contribution is significant in attaining high level of performance. Therefore, they must be treated with care and dignity as human beings.
Despite the noble gains that employees have been able to attain including the company due to its best practices, the company is facing some challenges that it must address. The challenges include the risk of operating under financial deficits, the risk of reducing its future expansion programs and the risk of loosing money. These risks may make the company face many financial complications since high spending on wages is becoming detrimental especially in the current society. This may be a problem since the company spends a lot on wages as compared to its competitors. This happens because it pays good remuneration, bonuses, overtime dues and other allowances. Therefore, the management of the company must consider reviewing some of the company’s policies to facilitate sustainability (Srivastava, 2008).
How the company applies compensation practice to determine the positive or negative impact to the company and its stakeholders
Indeed, activity based compensation system is very important in ensuring that fairness is observed when resources are being distributed to stakeholders.
It is also important in determining whether an institution and its stakeholders are impacted positively or negatively with the listing initiatives. This explains why companies that aspire to attract, receive positive results and retain their employees must the strategy to ensure effective management of its compensation practices (Srivastava, 2008). This is essential in enabling them to calculate employees compensations based on standardized figures or percentage values that are well defined. Imperatively, the compensation strategy that Dell company has adopted has enabled it to mange its compensation activities very effectively. It has also enabled the company to address employees’ non-monetary issues objectively and appropriately without experiencing any challenges. This is because the company applies the strategy professionally to address salary needs of individuals. Remarkably, Dell officials use the strategy to calculate rewards based on the key parameters that are used as guidelines. The parameters that include work experience, nature of work, job group and others help HR officials to remunerate each person fairly (Srivastava, 2008).
Ways in which laws, labor unions, and market factors affect the company’s compensation practices
According to Hitzeman & Hammer (2010), various factors affect compensation policies in most settings. The factors that are instigated socially, politically, and economically normally influence performance negatively or positively in most companies. This is evident since effective adherence to various legal requirements by companies earns them credibility and goodwill from stakeholders. Adherence to the requirements also enables most companies to benefit from stakeholders loyalty since they would feel valued. However, the regulations may also drive some operators out of business especially if they are not favorable. For instance, high taxation rates may make many companies incapable to continue with their activities. Key factors that are discussed in this section are business laws, labor unions and market factors.
Firstly, laws are essential rules that guide operations in various settings. Laws are set to ensure that sanity is upheld and that best practices are adopted at all levels in an institution. The laws also give clear guidelines on how companies should treat their workers and what is expected from workers (Hitzeman & Hammer, 2010). Particularly, they define recommended working hours, terms of payment or minimum and maximum payment standards, conditions of work and ensure protection of rights. Indeed, Dell Company that has been adhering to labor laws has been able to benefit immensely. The laws have enabled it to treat its workers appropriately and in turn get quality services including high returns. The laws have also been able to facilitate the implementation and designing of its compensation practices. However, the laws are threatening to affect the implementation of its working times. This is evident since the laws especially in US requires one to work specific hours as opposed to long times as the company’s management would want.
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Second factor that has been affecting the company’s compensation plans is the labor unions. Indeed, the unions in US have been giving most companies including Dell sleepless nights. The unions in their clamor that they are protecting employees’ rights sometimes come up with demands that are considered unrealistic. This is apparent because they come up with demands that are unsustainable in most companies due to low economic capacity. For instance, in the 2012 labor unions were advocating for the minimum wage to be increased for all employees. The percentage increase that they were proposing of about 25% made many companies to start objecting their decisions. If such a move is adopted, then Dells compensation strategy and plan will have to be adjusted (Hitzeman & Hammer, 2010). This means that it will continue incurring a lot of wage burden in its already strained budged.
Evaluation of the effectiveness of traditional bases for pay at the company under study
The company has been using various payment bases for issuing rewards such as salary, bonuses, overtime payments, commissions and medical allowances to its employees who form its key stakeholders. Similarly, it uses various bases to pay its suppliers and settle its debts. The bases have been instrumental in promoting fairness to all stakeholders when payments are being made. Key bases that it has been using to compensate stakeholders include work experience, quality of work, output per day and level of professionalism. The techniques form the company’s traditional compensation bases that are relevant to date (Hitzeman & Hammer, 2010).
Notably, these techniques are effective since they take into cognizance all factors that affect performance. They ensure that the accrued benefits are divided in a systematic manner that enables stakeholders and the company to benefit. In particular, the company has been using output levels and position of individual including job group as bases for which employees’ salaries are being determined. The bases are fair and non-discriminatory since they ensure that every employee receives the right about of monetary and non-monetary rewards. Notably, these traditional bases have been used for along time and they facilitated fairness in most settings thus any institution that aspires to receive the best from employees or treat their employees well should adopt them.
Hitzeman, S. & Hammer, J. (2010). Marketing a Worker’s Compensation Practice —A Low Budget, Shotgun Approach. Web.
Srivastava, S. (2008). Compensation practices. Web.
Owen, K. (2013). Dell Inc.Company Information. Web.