Introduction
There is no denying that the human capital in any organization is central to how well it is able to compete in the market. A well motivated work force will no doubt perform better hence enhancing the organization’s competitiveness.
According to Encyclopedia of Business (2010), employee compensation is extremely important to an organization’s competitiveness since employees always compare their pay to what employees in other organizations receive.
Ideally, firms willing to achieve external competitiveness through their employee must match the pay offered to their employees to what is offered in a competing firm (Encyclopedia of Business, 2010). In a cash-strapped firm however, this may not be easy since the money to compensate the employee may simply not be available.
Pay vs. compensation
The Encyclopedia of Business (2010) observes that while most employers believe that pay and compensation are similar, there is a major difference between the two. While employee pay is tied to the monetary earnings that the employee receives for work done in the organization, compensation include different financial returns availed to the employee either as benefits or tangible services. Such things include the base salary, employee incentives, sick days, leave days, employee discounts, pension plans and paid vacations.
Regardless of the pay that an employee receives from an organization, Henderson (2003) notes that the compensation program adopted by an organization must support the strategic actions and plans therein.
Since the cost of labor represents a significant percentage of any organizations operating cost, Henderson (2003) suggests that any cash-strapped firm should devise an effective strategy of controlling the labor costs. This must however be done without too much pay cuts on the employee because in the competitive global market place today, employees can always get other better compensating jobs in the industry.
Most importantly, an organization must acknowledge that most employees are motivated by the benefits and pay they receive for their work. With adequate compensation, organizations not only provide their employees with sustenance, but also serve their self esteem needs in addition to allowing them to meet recreational and materialistic needs they may have.
If employees perceive the compensation offered by their employer as inadequate, then chances are that a good number of them will leave the organization for better prospects somewhere else, while potential employees will reject any job offers from the organizations based on the poor compensation system.
Employees who remain with the organization may become unproductive by becoming less cooperative, helpful or less motivated. At an age where most organizations’ competitiveness is determined by the skills and efficiency of the human capital, such a reaction from employees would drastically reduce the firm’s competitiveness.
Steps to follow
According to Encyclopedia of Business (2010), most employees’ attitudes on their pat and compensation affect how they will behave at work. As such, employees have an obligation to instill positive attitudes in their employees towards the same. One of the ideal ways through which employers can do this according to Henderson (2003) is by ensuring that there is fairness and equity in the compensation practices.
As Adams (1965) found out employees judge how equitable or fair their compensation is, based on their input at work and the compensation they receive for the same. More to this, they also compare what the amount of compensation that other people in the same job category within the organization receive. To ensure that all employees perceive compensation as equitable and fair, an organization entrench fairness and equity in its compensation schemes.
The second step for an organization that wants to remain competitive despite its inability to compensate its employees competitively would be to achieve internal consistency whereby, the pay rate on each employee must reflect the importance of the employee’s contribution to the organization.
Heneman (2002) suggests that in some cases, an organization may have to shift from job-based pay and instead adopt a person-based approach whereby every employee is rewarded for their competency, knowledge and skills. Alternatively, the organization can adopt a pay-for-performance approach where work teams or units are rewarded collectively according to their performance.
The third step would be to scrap the employee benefits that apply to every employee regardless of their contribution on the job. According to Heneman (2002), a cafeteria-style benefit plan would be more fitting to a cash-strapped organization since such would only reward employees based on their contribution to the job. Since the scrapping of benefits will most likely be met by opposition from employees, Henderson (2003) suggests that employers must always discuss any changes in remuneration with the employee.
By making them understand the financial situation in the company, the employees will be more understanding and more tolerant towards the changes. In most cases employees will agree to a system that rewards them for their contribution to the job as long as they perceive the compensation as fair.
Conclusion
A cash-strapped organization does not always have many options in employee compensation. It can either choose to downsize its human resource and remain with an employee number that it can compensate adequately, or institute compensation cuts on all employees while choosing to retain them in the workforce. While the latter is the best option for an organization that relies on its employees to remain competitive, the changes in employee compensation should be communicated clearly and in good time to the employees.
References
Adams, J.S. (1965). Injustices in social Exchange, In Advances in Experimental Social psychology. (Eds.) New York: Academic Press.
Encyclopedia of Business. (2010). Employee Compensation. Web.
Henderson, R. I. (2003). Compensation Management in a Knowledge-based World. New Jersey: Prentice hall.
Heneman, R. L. (2002). Strategic reward management: design, implementation, and evaluation. New York: IAP.