My organization, IBM, adopts a contribution compensation philosophy. In particular, IBM considers the actual activities of the employees as the basis for payment, with the decision on pay mainly being owned by line managers. The total cash rewards to an IBM employee constitute two major components; the base pay and the additional pay (McCabe, 2013).
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Evaluation of the Philosophy
The contribution philosophy of compensation seeks to mainly attract, motivate, as well as retain employees through a reward system that targets the contributors who enable IBM to remain competitive (McCabe, 2013). The basis for determining pay at the company is mainly employee performance, where annual benchmarks are conducted to derive competitive pay.
The job family is relied upon to differentiate between the values of comparable skills. The approach by IBM includes relying on geographic data in order to value the market in terms of geography. A structured framework tracks and measures the performance by employees, giving managers the opportunity to assess relative input by all the employees before undertaking a strong differentiation (McCabe, 2013).
IBM conducts market surveys prior to determining its compensation levels. This practice, which is conducted in partnership with other third party consultants, basically analyzes the compensation rates paid by competitor firms before advising the company on the right rates. This is a good practice because it helps IBM to maintain a highly competitive pay structure that is in tandem with its objective of attracting and maintaining the best skills in the market.
Ways of Revamping IBM’s Compensation Philosophy
IBM has only established 10 bands upon which all the job classifications are entailed. Workers’ jobs and skills can only be included in one of the job bands already established. However, IBM is a huge multinational company that has an expansive role.
Fitting these skills and roles into 10 bands only does not effectively provide a chance for equitable compensation basing on the firm’s contribution philosophy of compensation. The bands should be further expanded to make them 15 or 20. This will make the roles grouped together to be close to each other in terms of activity and ensure a more equitable compensation philosophy is attained.
Key Factors within the Internal and External Environments
IBM is a technology company that relies heavily on its technological prowess to outwit its competitors in the highly competitive technology market. Thus, the contribution compensation helps in building greater innovation amongst its workforce in order to remain a market leader.
The company also has diverse business and it has to maintain greater competition across all the fronts in order to achieve success. This diversity in business also requires a diverse workforce that is highly qualified. Attracting such diversity of skill and maintaining it for longer durations can only be achieved with the company’s contribution compensation policy where individual employees also earn bonuses based on their additional contributions, apart from the basic salary (Wood, 2011).
IBM has succeeded to build a very strong global brand reputation that ensures that the company receives market priority ahead of its other competitors in the market.
Sustaining such strong brand position also requires that the company acquires the best human skills in the market through highly competitive compensation strategies. As the workers are paid highly and competitively, their input also provides the opportunity for more revenues through increased sales and high demand for the IBM brand.
With the growing demand for cloud-based services, which is one of IBM’s key areas of operation, the company requires more skills to build on its ability and capacity. Such skills in the market are also limited because other hi-tech companies are seeking to attract and employ the same workers (Wood, 2011).
Thus, IBM assures the skilled workers that they have an unlimited salary rate through the contribution compensation philosophy because the more they shall contribute to the company’s success and innovation the more they shall earn.
The services and software divisions are also experiencing an increase in demand as the IT capabilities are also growing enormously. These areas require great innovation in order for an IT company to manage leadership. Thus, through the contribution compensation philosophy, IBM has created an opening through which all interested developers of software and application services can practice their skills and earn greater returns.
The world economy has experienced slowed growth over the years, with many countries being affected by the crisis. This has seen the level of expenditure in IT drop as the little resources are being budgeted for other basic requirements. In essence, IT companies such as IBM are at a risk of losing business and revenue.
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However, the companies have to device new strategies that would enable them manufacture highly effective devices and develop software using fewer resources to maintain low prices in order to survive. IBM can still attract quality skills and manufacture competitive services and equipment at competitive prices through a contribution compensation philosophy (Wood, 2011).
The home-based system of pay provides that the employee operate within his home country where the assignment allowances are based on the home country payroll or the host country payroll. It supports the continuation of benefits, such as pension, through continuous payroll deductions. However, the tax equalization policy does not provide a chance for gaining significant income (Henderson & Spindler, 2005).
Headquarter-based pay establishes a base salary for third-country nationals, as well as expatriates similar to what the employees based at the headquarters location are paid. The administration of this system is much easier, but it becomes a challenge where experts are involved because of the increased costs especially where experts are required to transfer to lower salary countries.
On the other hand, the host country-based pay implies that an employee earns a salary amount that is comparable to what employees in the host location earn as their base salary. It promotes equity, thus leading to strengthening of relationships. However, it subjects employees to loss due to currency conversions (Henderson & Spindler, 2005).
Compensation in Other Countries
The law provides an entitlement of annual paid holidays for 8 to 9 holidays, with a paid vacation of up to 2 weeks. The vacation pay amount is equivalent to 2% of the employee’s pay during the preceding year for every vacation week (Martocchio, 2011). In contrast, the USA law lacks provisions on paid holidays, although employers offer and pay for vacation days.
Workers are entitled to compassionate care leave, which is not payable, in order to care for their family members who are seriously ill. This leave takes up to 8 weeks and does not extend to the military personnel. Family members include common law partner, spouse, children, and parents (Martocchio, 2011). The USA, on the other hand, equally provides unpaid compassionate care leave to allow employees the opportunity to look after their sick relatives.
Henderson, M. T., & Spindler, J. C. (2005). Corporate heroin: A defense of perks, executive loans, and conspicuous consumption. Georgetown Law Journal, 93(6), 1835-1883.
Martocchio, J. J. (2011). Strategic compensation: A human resource management approach (6th Edition). Upper Saddle River, NJ: Prentice Hall.
McCabe, M. (2013). IBM compensation. Web.
Wood, L. (2011). Research and markets: Company analysis – IBM. Reuters. Web.