Over the past two decades, the number of companies has doubled. Together with them doubled the competition for quality and talented employees (Clark, 2021). Companies began to develop compensation strategies: a suitable tool that would allow them to achieve high motivation, fair wages, and attract qualified employees. An effective strategy is crucial for a company and can help to manage costs and improve employee quality.
Impact of Equal Employment Opportunity Laws
The compensation strategy of companies can be varied but should always follow Equal Employment Opportunity Laws that make it illegal to discriminate against a job applicant or an employee. According to the Law, the person of any race, color, religion, sex (including pregnancy, transgender status, and sexual orientation), national origin, age, disability, or genetic information has an equal right to get a job and compensation (U.S. Equal Employment Opportunity Commission). The impact of this Law on compensation strategy is manifested in using only non-discriminatory factors, such as education or experience, to account for pay differentials in compensation practices. It is important that equally situated individuals who do similar jobs are not receiving disparate compensation. For the company, this has positive aspects: it improves the climate within the team and also allows previously underestimated employees to show their talents more.
Pay-for-Performance and Competency-Based Pay
The most common strategies are pay-for-performance and competency-based pay. Each of them has its own advantages and disadvantages. Pay-for-performance provides cash incentives to workers who reach or surpass performance goals set for the company. Employees usually anticipate raises in their monthly income, even if their position at the company has remained the same. The advantage of pay-for-performance is that it allows companies to raise their employees’ salaries annually in conjunction with the performance review process (Kang & Lee, 2021). This approach may bring development and success to the company.
Pay-for-performance is not a universal path to success and has essential problems. Measurement of performance is frequently up to interpretation. For some workers, their jobs are very quantifiable and measurable. While many professionals, particularly those working in administrative positions may find it challenging to benefit from a pay-for-performance scheme. Before adopting a pay-for-performance plan, it is essential first to analyze the rules about human resources and get legal counsel.
An alternative to pay-for-performance may be a competency-based plan. With this method, employee’s remuneration depends on the nature and scope of the acquired abilities utilized on the job. The benefit of competency-based compensation is that it is simple to implement and utilizes readily available salary tables (Morrell & Abston, 2018). But this strategy is also not perfect: the key disadvantage of the compensation-based system is that it may be challenging to modify in the event of a recession. This plan may lead to a lack of innovation and a lack of fresh perspectives.
I would recommend choosing a pay-for-performance strategy. It motivates employees to exert more effort and contribute more to the organization’s success. Since they are compensated fairly, employees acquire a strong sense of loyalty toward their employer. Employees feel that they can earn more money based on their skill level and are motivated to leave their comfort zone.
Motivational Theories in Multi-Generational Compensation Package
Motivation theories are the study of understanding what drives a person to work towards a particular goal or outcome. Reinforcement theory in the development of a multi-generational compensation package has a main role. Based on the fact that behavior that is rewarded tends to be repeated I use extrinsic factors to motivate employees with external factors: a bonus for hard work or a sanction if targets are not met. The older generation of employees will be motivated by this theory more than the younger ones. I also use equity theory to emphasize the relationship between outcomes from the job (such as pay, job satisfaction, recognition, and promotion) and inputs (such as educational experience, skill, and effort). I use intrinsic factors: personal relationships, overall satisfaction, matching the ambitions and future. The younger generation will be more motivated by this model. It is important to note that there are exceptions in both cases.
Proposed Compensation Package
My compensation package is designed to hire the most qualified employees and keep them engaged and productive. It includes direct (salaries in the form of money, incentives in the form of special bonuses and awards for exceptional performance, sick leave, vacation leave, transportation, and food reimbursement, dental benefits, free parking, fitness benefits, and educational sponsorship) and indirect benefits (recreational programs, seminars, disability, pension, paid for holidays). Pay-for-Performance strategy with limits will help to support intrinsic and extrinsic factors of motivation.
According to ZipRecruiter, the middle management salary is $5,171/month, the low pay range is $1,833/month, while the high is $10,083. The salary in my compensation package is $5,250. Including incentives in the form of special bonuses and awards for exceptional performance, the total income of mid-level managers will be $6,213-6,400/month. For comparison, Federal Minimum Wage for 2021 and 2022 is $1,256/month.
Assessing the Effectiveness of the Compensation Strategy
Measuring effectiveness should be an annual part of a successful compensation strategy. To evaluate the effectiveness, I will collect data from strategy participants to find out the motivational and directional aspects of the strategy. I will ask what has worked well and what has not worked. I will also talk to the leadership team to find out the degree to which leadership perceives the plan as having helped the group meet the desired end results. I will analyze data obtained from payout at each participant level. This data will help identify gaps in data collection, including performance or other anomalies, such as the plan paid out at a very high level, yet the financial or qualitative performance reflects performance at a much lower level.
Compensation Strategy
References
Clark D. (2021). Estimated number of companies worldwide from 2000 to 2020, by region. Statista.
Kang, E., & Lee, H. (2021). Employee compensation strategy as sustainable competitive advantage for HR Education Practitioners.Sustainability, 13(3), 1049. Web.
Middle Management Salary. ZipRecruiter. Web.
Morrell, D. L., & Abston, K. A. (2018). Millennial motivation issues related to compensation and benefits: Suggestions for improved retention.Compensation & Benefits Review, 50(2), 107–113. Web.
U.S. Equal Employment Opportunity Commission. EEOC. Web.