Strategic Compensations is a major component of the human resources system. There are many aspects within strategic compensation. The current literature in business strategy and human resource management has focused increasing attention on the need for a stronger link between management compensation and business strategy (Hufnagel). There are strategic and contextual factors within strategic compensation. Compensation represents both intrinsic and extrinsic rewards employees receive for performing their jobs. Consulting and assisting in management of a compensation program with the correct executive benefits is a dynamic process. There are many different aspects that are a part of strategic compensations system.
Strategic Compensation relates to as a component of the human resources system in many ways. Developing strategically-oriented reward systems is a complicated undertaking, however, as little empirical work has focused on either the structural or procession aspects of reward systems in practice, or the strategic implications of reward system designs (Von Glinow, 1985). Compensation is part of the recruitment and selection process, sometimes people choose to work for a certain company for compensation reasons. As a method to recruiting certain high quality job candidates a company might offer a one-time signing bonus. According to the textbook, “Accurate performance appraisals are integral to effective merit pay programs” (Martochio pg.19). When administering successful merit programs there has to be good performance appraisal practices as it relates to compensation professional skill in designing and implementing such plans. The attention given to person- and performance-based pay challenges traditional reliance upon job-based pay (Mahoney). Compensation is part of training when comes to developing and implementing pay for knowledge plans as training programs.
Companies that adopt pay for knowledge systems must accordingly ensure that all employees have equal access to the training needed to acquire higher-level (Martocho pg.20). When it comes to compensation and career development, an employee advances in their career then the employee compensations changes. Compensation is also a key topic when it comes to collective bargaining. According to the textbook, “Unions have fought hard for general pay increases and regular COLAs to promote their members’ standard of living” (Martochio pg. 20). Compensation relates to employment termination in several ways. Some companies award severance pay when involuntary termination takes place. But sometimes when employees initiate voluntary termination for retirement or to go work for another company. Using early retirement programs are used by some companies to reduce workforce size and compensation expenditures. Federal laws that apply to compensation practices are grouped accordingly to four themes such as income continuity, safety, work hours, pay discrimination, accommodating of disabilities, family needs, and prevailing wage laws. ( Martocho pg21). According to the textbook, “The federal government enacted income continuity, safety, and work hours laws to stabilize individuals’’ incomes when they became unemployed because of poor business conditions or workplace injuries, as well as to set pay minimums and hour limits for children (Martocho pg.21).
There are many things involved with setting the stage for compensation. Pay must relate to the accomplishment of goals, the company mission, and vision (Landsberg). When it comes to setting the compensation some organizations have seniority and merit pay. According to the textbook, “The object of seniority pay is to reward job tenure or employees’ time as members of a company explicitly through permanent increases in base pay” (Martocchio, pg. 60). Seniority pay can eliminate a company showing favoritism to a certain group of employees. With seniority pay it allows employees to see the pay schedule in advance. The disadvantages of seniority pay are employees will see the same pay for their work in spite of the fact that the employee may be doing typical work or exceptional work. There are also merit pay programs that companies may use for compensation. Merit pay programs are the most commonly used in the United States; it popularity comes from the fact that US culture believes that we should reward individual achievement (Martocchio, pg52). Merit Pay programs help employees to know that their hard work and dedication could lead to a pay raise. Inflation and cost of living should always be a priority before granting merit pay increases. Merit pay systems involve certain performance appraisal approaches to be effective. The categories of the performance appraisal methods include trait, comparison, behavioral, and goal-oriented systems. Trait system appraisal is usually scored from poorly to outstanding.
Trait systems are very easy to use and can be applied to wide variety of jobs. But some drawbacks can be that they are highly subjective based on the fact that every supervisor’s perception is the same. Comparison systems use forced distribution and paired comparisons for comparative techniques. Comparative systems are good for small group who have similar jobs. According to the textbook, “Comparison systems tend to encourage subjective judgments, which increases the chance for rater errors and biases” (Martocchio, pg.67). There are many disadvantages to merit pay programs which include poor performance measures, supervisors biased ratings of employee job performance, lack of communication between management and employees, undesirable competition and failure to differentiate among performers. Job analysis is systemic process for gathering, documenting, and analyzing information in order to describe the jobs. The job analysis process has five main activities.
The first step is to determine a job analysis program. The most common methods for collecting job analysis information are questionnaires, interviews, observation, and participation. The second step is select and train analyst. Job analysts generally must be able to collect job related information through various methods (Martocchio 126). The most specific information is a job element, and the broadest element is an occupation. The third step is direct job analyst orientation. Before analyst start a specific job analysis techniques, they must analyze the context in which employees perform their work to better understand influencing factors (Martocchio 127). The fourth step is to conduct the study such as data collection methods and sources of data. After analyst have gathered and made sense of these preliminary data, they can begin gathering and recording information for each job in the company. The most common methods are questionnaires and observation. The final step is to summarize the results by writing job descriptions. Job descriptions usually contain four sections: job title, job summary, job duties, and worker specifications. Job evaluation is the key to casting internally consistent compensation systems as strategic tools (Martocchio 125). The job evaluation process has six steps. The first step is determining single versus multiple job evaluation techniques. Compensation professional must determine whether a single job evaluation technique is sufficiently broad to asses a diverse set of jobs (Martocchio 139).
The second step is choosing the job evaluation committee. Human resource professionals put together a committee of rank and file employees, supervisors, managers, and if relevant union representatives to design, oversee, and evaluate job evaluation results ( Martocchio 139). The third step is training employees to conduct job evaluations. Evaluators should not only know company objectives but they should also practice using the chosen job evaluation criteria before applying them to actual jobs. The fourth step is documenting the job evaluation plan. It can be useful to document the job evaluation plan for training and legal purposes. The fifth step is communicating with employees. Companies must formally communicate with employees throughout the job analysis and evaluation process to ensure the employees’ understanding and acceptance of the process and results (Martocchio 140). The sixth step is setting up the appeals process. Setting up appeals can reduce charges of illegal discrimination. Illustrative of the dominant influence of job evaluation in the determination of pay is the often cited practice of seeking job reclassification as a means of obtaining increases in pay not otherwise possible(Mahoney).
Market-competitive pay systems represent companies’ compensation policies that fit the imperatives of competitive advantage (Martocchio 150). When it comes to attracting and retaining qualified employees market competitive pay systems play a major part. Compensation professionals create market-competitive pay systems based on four activities such as conducting strategic analyses, assessing competitors’ pay practices with compensation surveys, integrating the internal job structures with external market pay rates, and determining compensation policies. The first step is conducting strategic analysis which entails an examination of a company’s external market context and internal factors. The second step is compensation surveys which involve the collection and subsequent analysis of competitors’’ compensation data. Survey information provides the reference points for establishing pay level policies (Martocchio 154). Third step involves compensation professionals integrate the internal job structure with the external market pay rates identified through compensation surveys. The final step is when compensation professionals recommend pay policies that fit with the companies’ standing and competitive strategies. According to the textbook, “Careful thought about the meaning underlying the facts and statistics is the key to successfully building market-competitive pay systems” (Martocchio 167).
Hufnagel, Ellen M. “Developing Strategic Compensation Plans.” Human Resource Management 26.1 (1987): 93-108. Business Source Complete. Web. 8 Sept. 2013. Landsberg, Richard D. “Executive Benefit Planning And Compensation Management.” Journal Of Financial Service Professionals 66.2 (2012): 19-20. Business Source Complete. Web. 8 Sept. 2013 Mahoney, Thomas A. “Multiple Pay Contingencies: Strategic Design Of Compensation.” Human Resource Management 28.3 (1989): 337-347. Business Source Complete. Web. 8 Sept. 2013. Martocchio, Joseph J. Strategic Compensation: A Human Resource Management Approach. Publisher: Pearson. Edition: 7th, 2013
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