Introduction
Employee compensation is a sub-division of human resource that encompasses automatic or guaranteed pay, variable pay, equity-based compensation, and benefits. Compensation involves tangible and intangible products that employers award their workers (Reh par. 1). Employers pay employees for their contributions within the business enterprise to enticing them to continue working for the firm.
Types of compensation
Under guaranteed pay, there is the basic salary that is a fixed reward, which employers give their employees. This monetary reward can be on a daily, weekly, monthly, or hourly basis. On the other hand, variable pay is the rewards that employees receive due to their performance within the firm. Notably, it is not obligatory that an employee will get this pay like the guaranteed pay.
For example, an employer can set goals for all employees and whoever surpasses the target receives a bonus for the hard work. Employers usually use variable pay plans such as bonuses to motivate the employees towards attaining the strategic objectives and goals of the company. Benefits in employee compensation are always set up to address specific needs, which are not in monetary form (Reh par. 3).
Vacations and insurance are some of the essential plans that handle employee benefits, as they do are not tangible like wages and salary. Lastly, equity-based compensation involves compensating employees using their shares in the firm; they have to commit part of their earnings on shares of the firm.
Here, employers use different channels like stock options, restricted stock, and employee stock purchase plans to obtain funds for the company, which the employees will earn inform of dividends. In this plan, employees partially gain the stake in the organization thus enabling employees to increase their total level of compensation through cashing out of the stock options.
Determinants of pay rates
There are factors that determine the compensation pay rates among different countries. The first parameter is individual skills and level of experience that workers command towards their jobs. Some jobs require skilled personnel; for instance, only a computer programmer will perform the computer programming activities and not any other employee who has done other course like business administration.
Again, some jobs like packaging of products in a company do not require specialized skills. These groups of people will receive different compensations in appreciation of skills and experience. In addition, demand and supply of labour affects determines the salary rates. If the supply of certain skills is higher than the market demand, the earning for these skills will go down.
On the other hand, if the market demands a scarce skill, it will force organizations to adjust their compensation plans upwards to get and maintain the few skilled personnel in their departments. Clearly, the market forces of demand and supply affect the prevailing pay that jobs will attract. The profitability or the pay-ability of an organization also determines the wage and salary levels (“Factors Involved in Determining Salary” par. 6).
Organizations that run at a loss or obtain low profits will design low pay for their employees across their departments. This is practically evident during the economic recession of 2008 to 2009 where most firms had to use wage cuts as a means of survival during the economic crisis. Again, non-profit making organizations such as educational institutions tend to offer low salaries due to their non-profit making nature.
Moreover, the cost of living can be a determinant of salary and wage rates in companies worldwide. Countries that experience high cost of living will have to pay higher wages to their employees than those that experience low cost of living (“Factors Involved in Determining Salary” par. 3).
For example, an employee who expects to relocate from Texarkana to Honolulu will have to receive $87,880- if he/she is earning $40,000 in Texarkana in order to remain at the initial standard of living. This shows over 100% difference in earnings. Obviously, business organizations in Honolulu will have to pay high wages due to the high living standard in the region.
Some firms do commit to pay their workers above the expected standards so that they can attract and maintain the skilled personnel. This is evident in organizations that desire to control the entire market and influence them to consume their products.
Additionally, labour unions can influence the rate of pay for employees; they can engage the management of their organizations through collective bargaining to ensure that employees receive favourable earnings.
Benefits of comprehensive benefit plans
When engaging in job designs, employers always try to provide the various job categories with a comprehensive benefit plans. The current global and competitive market has made it necessary for the HRM to be more creative and innovative in their management than before.
Further, the present diverse working generations such as baby boomers, generation X and Y have posed immense challenges to managers in designing an inclusive benefit plans. Organizations that have a comprehensive benefit plan will be able to recruit and retain qualified personnel across all generations.
This increases productivity of the firm as the job assures employees of their security at the workplace (“Compensation & Benefits” par. 2). In addition, the plan assists the companies to manage high-risk coverage costs; this approach eases the financial problem of the companies.
On the other aspect, employees will work towards achieving the firms’ objectives in unison since compensation such as life insurance gives them confidence of income continuity in case of illness that results to hospitalization. Other employee benefits are the retirement benefits and pension plans. These are guaranteed-payments to an employee after formally terminating his/her services with the employer.
The employer and the employees keep part of their funds so that they can receive it upon retirement. Organizations that have a well-organized retirement plans for their employees will receive many people who would like to work for them due to the future assurance that such plans offer the employees. Under employee compensation, there is also health and dental designs.
For example, in Canada, majority of employees who absent themselves from work cite the above as the cause of the absenteeism. Firms that meet the above expenses on behalf of their employees will improve their global image hence attract and maintain their top performing employees. Small firms can include coverage of these extended healthcare plans in the insurance policies.
Organization Obligations
Companies also have to adhere to the legal obligations when compensating their employees. In Canada, employers provide their employees with the minimum wage for all the groups of workers. In addition, employers have to stipulate the hours of work, the nature of Leaves, termination of employment procedures and grievances handling procedures.
These legislations assist in avoiding situations where an employer may cut the wages of employees below the minimum wage limit. People will prefer to work for organizations that can offer them Leaves in case of sickness, caring for newborns or advancing skills.
Organizations can also accommodate the needs of all their employees. For instance, generation Y that always value professional development and trainings (“Compensation & Benefits” par. 7). Employees will be satisfied in their workplaces if their company can organize training programmes that enhance employees’ life skills and future performance.
In such programmes, employees will be able to exchange their ideas and receive immediate feedbacks that may assist them in altering their performance levels in the companies. Moreover, workplace flexibility in this digital era acts as a source of employee satisfaction. The present generation prefers to work from any location and at their own times.
Organizations that have a distinct schedule that allows employees to work at their own time will retain their productive workforce (Lister par. 3). Employees will receive this indirect benefit from an innovative, creative, and flexible management.
Conclusion
The current competitive market has forced employers to be more pro-active at managing their employees than ever. From this report, it is evident that employee satisfaction does not only rely on direct benefits but also on the indirect benefits. Employers have to initiate comprehensive strategic plans that will guide them on the qualities of workers that they should hire and the rate of pay that they will accord the employees (Lister par. 4).
The success of most companies depends on their decision of offering benefits to the employees. For instance, a company can opt to combine vacation time with the health insurance to attract more skilled employees than their competitors.
Companies can also initiate rewards to experienced workers that have maintained loyalty. The initiative will improve the employees’ commitments to the companies and will not leave abruptly if new jobs come across them.
Works Cited
Compensation & Benefits. hrcouncil.ca. HR Council for the Nonprofit Sector, n.d. Web.
Factors Involved in Determining Salary. American Speech-Language-Hearing Association| ASHA. American Speech-Language-Hearing Association, n.d. Web.
Lister, Jonathan. “Strategic Plan for Employee Compensation and Benefits.” Small Business – Chron.com. Hearst Communications, Inc, n.d. Web.
Reh, John. “Compensation Planning for your Employees.” About Management. About.com, n.d. Web.