What’s Compensation Plan and What’s Important in That Essay

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Introduction

Good compensation is one that is perceived as fair, flexible, and relevant. It must be non-discriminatory, and should incorporate the changing needs of the firm. The compensation plan should also reflect the value of the organization, its financial capability, as well as its corporate culture.

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Designing a good plan

In order to motivate workers properly, a good plan needs to have a base pay and an incentive. It needs to reward employees for their great performance; this will result in heightened productivity. The purpose of the base pay is to attract workers, while the incentive-based pay motivates workers. The plan should include a bonus payment for individuals who exceed their targets. This would apply to the technical and operational job functions. However, sales and marketing personnel ought to be paid on a commission basis. The latter group would have a base salary and would earn a five percent commission on the company’s profit margins. It has been shown that in order to motivate sales staff effectively, one must think about the sensitivity test. If the percentage commission is too low, workers will not be motivated enough to increase their sales revenues. However, if it is too high, then this can strain the company budget (Geier et al., 2007).

In order to compensate people effectively, it will be crucial to group them properly. This is because the subgroups have different work requirements, and hence compensation expectations. For instance, all sales employees can belong to one category as they directly affect company performance; their pay needs to reflect this state of immediacy. The managerial employees ought to be placed in another category. Since their work, training, and experience are more elaborate, then their base pay ought to reflect these aspects. The professional employees can be put in another category, and the same thing can be done for production and technical staff. Their categories ought to determine how their compensation is designed.

A good plan is always one that incorporates the needs of the stakeholders involved in a company. The main ones are staff members, shareholders, and clients. If the compensation plan rewards employees excessively without considering shareholders’ returns, then it will not be very effective. Furthermore, if the plan does not consider work output, then employees will be de-motivated, and the customers will suffer. A proper balance of all these needs must be implemented for the plan to work (Weaver, 2008).

If a company plans on getting a deep level of commitment from its employees concerning the payment system, it needs to get them involved in the planning process. Workers and business owners ought to sit down and come up with ideas on how they can make their compensation plan objective and fair.

It is vital to have certain targets or measures; otherwise, employees will not have something to work towards. One example would be to increase the number of clients by one percent per month. The achievement of this target would have to be tracked on a monthly basis, and ought to be reported to the employees.

Conclusion

The ultimate plan is one that has incentives and satisfiers. This will retain and motivate workers at the same time. It should reflect cooperation between stakeholders and must meet their needs. One should also ascertain that there are goals to be met, and mechanisms for measuring them. These qualities will ensure that employees are satisfied and motivated enough to increase their productivity.

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References

Geier, J., Bond, J., Boyer, H. & Lennartz, M. (2007). How to design an effective executive compensation program. Web.

Weaver, T. (2008). The number one incentive compensation plan design mistake. Web.

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IvyPanda. (2022, April 24). What’s Compensation Plan and What’s Important in That. https://ivypanda.com/essays/whats-compensation-plan-and-whats-important-in-that/

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"What’s Compensation Plan and What’s Important in That." IvyPanda, 24 Apr. 2022, ivypanda.com/essays/whats-compensation-plan-and-whats-important-in-that/.

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IvyPanda. (2022) 'What’s Compensation Plan and What’s Important in That'. 24 April.

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IvyPanda. 2022. "What’s Compensation Plan and What’s Important in That." April 24, 2022. https://ivypanda.com/essays/whats-compensation-plan-and-whats-important-in-that/.

1. IvyPanda. "What’s Compensation Plan and What’s Important in That." April 24, 2022. https://ivypanda.com/essays/whats-compensation-plan-and-whats-important-in-that/.


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IvyPanda. "What’s Compensation Plan and What’s Important in That." April 24, 2022. https://ivypanda.com/essays/whats-compensation-plan-and-whats-important-in-that/.

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