Free Essay Example. Effective Compensation

Published: 2023-04-09
Free Essay Example. Effective Compensation
Type of paper:  Essay
Categories:  Human resources Motivation Business management Organizational culture
Pages: 7
Wordcount: 1674 words
14 min read

Klonoski (2016) defined employee compensation as the benefits that staff members receive in exchange for their labour and other services they offer to their organization. Employee compensation is one of the leading costs or expenses that contemporary organizations cater to while trying to meet their goals, including the production of high-quality goods and services to meet the evolving needs of their customers. Therefore, proper compensation is one of the most critical tools that contemporary organizations can use to motivate their employees and attain higher performance. Failing to appropriately compensate workers has a far-reaching negative implication to the organization, including increased rates of turnover as seen in the case of Holland Enterprises (Mabaso & Dlamini, 2017). This paper provides a comprehensive proposal of a revised compensation and benefits strategy that the management of Holland Enterprises needs to use to achieve its desired organizational goals in the long-run. The plan includes a description of how an appropriate compensation and benefit system contributes to organizational effectiveness, an explanation of the critical components of the revised pay and benefits system, and a persuasive argument to the adamant management of the company to increase their compensation and benefits expenses.

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How an Effective Compensation and Benefit System Contributes to Organizational Effectiveness

Organizational effectiveness refers to the concept of how successful a typical organization is in attaining its desired outcomes (Klonoski, 2016). An appropriate compensation and benefits system is one of the most vital tools that modern companies use to achieve organizational effectiveness. This system contributes to organizational effectiveness in different ways. First, such policies usually outline the specific ranges of salaries and other benefits that every employee must receive at the end of a predetermined period, mainly one month, to minimize any form of confusion (Sudiardhita et al., 2018). It is also critical to understand that compensation goes beyond basic salaries received by employees from their organizations at the end of the month. The total cost of employee compensation entails every aspect of their benefits, such as the costs incurred in providing high-quality health services, retirement benefits, and reimbursements for tuition (Patnaik & Padhi, 2012). These benefits also include bonuses and any other forms of non-salary benefits, such as vacations and leaves, included in the company's compensation package.

Klonoski (2016) added that a proper compensation and benefits system helps the organization in ensuring that its employees receive their payments at the predetermined and agreed time to help them fulfil their expenses. For instance, a plethora of Holland Enterprises employees depends on the salaries receive from their company to cater to their expenditures, including rent, food, transport, clothing, and educating their children. Therefore, having an appropriate compensation and benefits system will help in ensuring that employees do not bypass their responsibilities when needed by their families and relatives (Patnaik & Padhi, 2012). Secondly, an effective compensation and benefits system serves as a source of motivation and inspiration to workers. A proper compensation system ensures that every employee receives their right share of compensation in terms of salaries and remunerations and at the right time. Such employees usually feel that the organization places more value on them and want them to perform exemplarily (Sudiardhita et al., 2018). As a result, employees tend to have an increased level of commitment to their organization, which, in turn, culminates in improved organizational performance.

Thirdly, having appropriate employee compensation and benefits system allows the management of an organization to revise its payment systems upon the need to ensure that they align with the current economic conditions (Mabaso & Dlamini, 2017). Therefore, such effective compensation systems can be crucial in making appropriate changes in terms of salaries received by every employee to ensure that the organization adequately caters to their needs. Employees who receive a pay increase after salaries reviews recommended in the company's appropriate compensation and salaries systems can double their performance at work and lead to higher levels of organizational effectiveness in terms of improved productivity (Park, 2018). Lastly, having an effective employee compensation and benefits system is a critical tool towards increasing the retention levels of an organization, such as Holland Enterprises. Such systems are crucial in defining how an organization not only views but also manages employee pay and benefits. The system also serves as a critical guide to every employee by outlining the company's plan to provide compensation that aligns with their performance (Patnaik & Padhi, 2012). Therefore, organizations with appropriate employee compensation and benefits systems tend to modify their salaries and other benefits upon the need to ensure that their employees do not leave to other companies.

Components of the Revised Compensation and Benefit System and Recommendations

According to Patnaik and Padhi (2012), having an appropriate compensation and benefit system of a large-scale organization, such as Holland Enterprises, must have various principle components to work exemplarily towards meeting its desired goals and objectives in the long-run. The failure to have such systems and effectively cater to the needs of employees leads to low staff morale and culminates in increases turnover rates as seen in the case of Holland Enterprises, which lost 25% of its staff since 2010. These critical components include a compensation and benefits philosophy, external equity or internal equity, base pay to incentive pay, pay structure, and principal types of benefits, which include vacation, sick leave, and health insurance (Mabaso & Dlamini, 2017), as discussed below.

Compensation and Benefit System Philosophy

The management of Holland Enterprises should recognize the compensation and benefit system philosophy as one the most critical elements of an effective compensation and benefit system of a large-scale organization of its calibre. According to Park (2018), compensation and benefits philosophy refers to a conceptual statement developed by an organization to demonstrate its feeling toward the most valuable level of reward and benefits it intends to give to its employees after attaining some predetermined milestones. However, it is highly critical to underscore the fact that the performance of employees in specific tasks depends exclusively on their satisfaction with the company's goals and mission (Patnaik & Padhi, 2012). The objectives of a typical reward system, which include attracting, motivating, engaging, and retaining explicitly performing workers, also influence employees' performance and commitment to achieving organizational goals.

The total rewards strategy used by the organization influences the attainment of its goals. This reward system entails critical components, such as compensation, employee benefits, recognition, work-life effectiveness, talent development, and performance management (Kelechi et al., 2016). Therefore, Holland Enterprises must ensure that its programs are not only equitable but also stay within their estimated employee compensation budget as large-scale company seeking to achieve organizational effectiveness. The company's management should also communicate its expectations to employees while ensuring that it practices fairness and remains competitive in its compensation approach to attain its desired organizational success in the long run. Holland Enterprises needs to revise its compensation and benefits system as well as strategy and collect adequate information from employees to understand their views and perceptions on how to improve the company's fairness (Sudiardhita et al., 2018). Therefore, the company's compensation strategy must align with its general strategic vision and mission to solve the issue of increasing employee turnover rates.

Pay Structure

Nemeckova (2017) defined a pay structure as a typical organizational system that stipulates the payment for every individual and job role depending on their effectiveness in accomplishing their assigned tasks and the value that they deliver to the organization. Having a proper pay structure is, therefore, crucial in ensuring that the organization exercises fairness and equity in its compensation and benefits approach, which, in turn, leads to attaining operational effectiveness (Park, 2018). It is recommendable for the management of Holland Enterprises to benchmark every position in their organization to reach an appropriate pay structure. Benchmarking is a critical strategy that can help contemporary organizational management to correspond their internal and external jobs basing on their relationship in terms of content (Feraro-Banta & Shaikh, 2017). This approach prohibits the performance of two posts that are similar in terms of content by two employees with the same levels of qualifications in terms of motivational levels, attitude, skills, and competence.

Conversely, it is critical to execute a job evaluation exercise by taking all the information from a typical job analysis and putting it into a format that enables valid comparison (Al-Nasser, 2016). This evaluation is crucial in determining the specific compensation and benefits that employees must receive concerning their jobs. The use of a point system can be essential in providing a detailed view of determining the value of different positions after grouping them and assigning them specific wages. The management of Holland Enterprises should also analyze data on market rate to have a comprehensive comparison of how their rivals compensate their employees in similar positions to remain competitive in terms of payment (Odunlami & Matthew, 2014). Also, the company's management has a critical task to execute in determining whether their pay is below the market value following the rising cases of employee turnover rates. Ascertaining whether the organization can beat the salary ranges offered by its competitors in the industry can also be a critical approach towards increasing its capacity and probability to not only retain the existing employees but also attract new talents (Hameed et al., 2014). Lastly, the company should assess its financial resources to ascertain whether it can effectively cater to the compensation and benefits needs of its existing workforce above the market level to develop an appropriate pay structure.

According to Nemeckova (2017), conducting external surveys is crucial when designing the compensation structures of large scale organizations, such as Holland Enterprises. Such reviews give the company's management the information that they require to set an acceptable pay scale that is not only beneficial to the organization but also its employees. Therefore, Holland Enterprises' management should design their pay structure and pay scale in a way that best fits their organizational goals and ability to pay. The consideration of compensation and benefit system philosophy of an organization yearning to attain operational sustainability in the long-run such as Holland Enterprises is also crucial when setting its pay structure (Kelechi et al., 2016). Therefore, it is recommendable for the organization to use the equity method as the best pay structure approach.

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