Compensation System Plan Essay Example

defining job responsibilities and duties.

The dimensions of job content-based appraisal include knowledge of job, quality of work, quantity of work, organizational skills, cooperation and flexibility, judgment, employee/public relations, and attendance and punctuality (Henderson, pg.332). The distribution of individual-based bonuses and awards improves employee behavior and organizational performance. Optimizing performance requires finding the right balance between salary and bonus, with a common market practice being a maximum base salary vs. bonus ratio of 70%:30% (Pearson, 2007, pg 2). If the bonus exceeds 30% of the annual base salary, employees may try to obtain the bonus without meeting performance requirements.There are different incentive plans created to motivate certain employee behaviors.

According to Henderson (pg. 354), there are several examples of employee awards that can be used to incentivize and recognize contributions, such as attendee bonuses to improve attendance, length-of-service and seniority awards for long service, patent awards for tapping into intellectual capabilities, suggestion plans for profitable innovations, a Government Employee’s Incentive Award for new inventions, special achievement awards for outstanding contributions, and contest bonuses for stimulating extra effort.

External equity, as defined by Henderson (pg. 178), refers to the pay relationships among organizations. To attract and retain qualified employees, an organization's pay must be market competitive. The market price approach is used to determine the value of jobs in relation to the labor market.

To maximize the ability to attract and retain the best talent, it is recommended by Florida Gulf Coast University (2011, pg. 6) to set pay above the average market rate.

The Richard Smyth and Matthew Murphy guideline method for market pricing, as explained by Henderson (pg. 179), surpasses the pure market pricing approach by allowing internal equity

to influence pay rates alongside existing market rates when determining job pay rates.The Smith-Murphy guide line method involves several steps. Firstly, a guide line scale is created, which consists of salary ranges, salary grades, and minimum, midpoint, and maximum rates of pay. It is recommended to have a 5 percent differentiation in midpoints between grades to allow flexibility in job placement without causing feelings of inequity and to create precise distinctions between jobs. It is important for the spread from the midpoint to the maximum and minimum pay rates of each grade to be uniform for ease in explaining and justifying the fairness of the structure design.

The second element of the method involves researching job descriptions that contain scope data, which identifies and defines job importance. Realistic job descriptions should include scope data to identify benchmark or key jobs for which it is possible to determine the competitive market pay rates offered by other employers.

Lastly, a compensation survey is conducted to gather market pricing information.

Smith and Murphy state that approximately 40 to 60 percent of the jobs in the organization are considered benchmark jobs. These benchmark jobs are assigned to a specific pay grade based on the midpoint of the pay range that is closest to the average salary offered by other employers for similar positions (Henderson, pg. 179). Non-benchmark jobs are then plotted on the vertical guide line scale, alongside the already identified benchmark jobs. The final step is to create a horizontal guide line display that establishes a relationship between jobs across different departments, ensuring fairness and equity in the organization's pay structure. This process also helps to ensure legal compliance.

The development of

a pay structure must take into account the need to limit liability. The Fair Labor Standards Act (FLSA) governs various aspects, including minimum wage, overtime, equal pay, recordkeeping, and child labor. These regulations apply to employees of enterprises engaged in interstate or foreign commerce, as well as employees of state and local governments (Business and Legal Resources, 2011, p. 1).

Currently, the federal minimum wage set by FLSA is $7.25. It is important to note that the FLSA does not supersede any state or local laws that offer better conditions for employees. Therefore, if a state has a higher minimum wage than the federal minimum, employers within that state must comply with the state's minimum wage law by paying their employees at the higher rate (BLR., pg. 1).

The FLSA (Fair Labor Standards Act) requires that any hours worked beyond 40 in a workweek (or the maximum allowed for a specific job) must be compensated at 1.5 times the regular rate of pay. The purpose of child labor laws is to protect the education and well-being of young individuals. Individuals under 16 years old have limited working hours and are not allowed to work in hazardous conditions. Nonexempt employees refer to those who fall within the FLSA's regulations concerning minimum wage and overtime pay. Regardless of their hourly rate, individuals who receive payment on an hourly basis are typically classified as nonexempt employees.

Nonexempt employees refer to workers who do not qualify for any of the "white-collar" exemptions. This group encompasses clerical, blue-collar, maintenance, construction, semiskilled workers, technicians, and laborers (Business and Legal Resources, pg. 2). In order to be exempt from minimum wage and overtime regulations as

outlined by the FLSA, white-collar positions must fulfill specific job duties, responsibilities, and meet minimum salary criteria (BLR, pg. 2). Executive, administrative, and professional employees are commonly recognized as examples of these exempt individuals.

The FLSA offers exemptions for outside sales personnel, certain specialized computer personnel, certain highly compensated employees, certain retail sales employees, and employees covered by the Motor Carrier Act (MCA). (Business and Legal Resources, pg. 2).

Internal Equity: A compensation system must demonstrate fairness and equity both internally and externally. It should be designed in a manner that is justifiable. Employees should be able to observe consistency and equality when comparing their salaries to those of colleagues with similar assignments. They should also recognize opportunities for career advancement within the organization.

According to Henderson (2006, pg. 51), employees must acknowledge the importance of "fairness in all personnel decisions". Job evaluation is essential in determining the pay and total compensation for employees. It helps determine the value of different jobs and ensures equitable pay relationships through the creation of a hierarchy. Compensation plan designers also need to consider the design of pay grades and their alignment with internal worth and market value. Pay grades are convenient groupings of similar jobs or classes that share work difficulty and complexity requirements but may otherwise differ.

The number of pay grades within a pay structure may vary between organizations, but it is important for the pay structure to have enough pay grades to acknowledge the differences in difficulty, responsibility, or knowledge requirements among jobs and classes (Henderson, pg. 276). In summary, employee compensation includes various economic benefits given to employees in exchange for their commitment and contributions to an organization's

performance (Mayer, pg. 1). Developing a comprehensive compensation package is vital in attracting and retaining highly skilled employees as it significantly impacts the long-term success of the organization.

Creating an efficient compensation system involves addressing various challenges, such as linking strategy to performance, aligning strategy with the labor market, ensuring legal compliance in pay structure development, and resolving pay-related issues. This concludes the discussion on the cognitive and effective aspects associated with the establishment of an effective compensation system. In the case study of Holland Enterprises, it is essential for the company to implement a total compensation philosophy to support its business strategy. The organization should begin by designing compensation structures and strategies that are responsive to and supportive of organizational priorities, changes, and needs (University of Richmond, pg. 2).

The compensation strategy should be adjusted to include a balance of short- and long-term incentives, considering internal and external equity (Mayer, 2004, pg.1). It is important for the organization's compensation strategy to cover direct and indirect compensation, immediate and deferred compensation, as well as economic incentives and benefits. However, after thoroughly analyzing Holland Enterprises' strategic compensation system it was found that important components like deferred compensation match and adequate health insurance are missing. Additionally, the pay rates are not competitive enough in the targeted labor markets. To align employee and organizational long-term goals, the compensation system now needs to require employee contributions that contribute to the organization's long-term objectives. These contributions should be recognized by providing rewards based on the organization's long-term success (Henderson, 2011, pg.377). Deferred plans such as pension, retirement plans (including 457s and 401(k)s), profit sharing,and stock option plans benefit both employees and organizations

by ensuring financial stability and retirement income for employees while promoting long-term employment with the same employer.In addition, the text explores Holland Enterprises' strategies to manage healthcare expenses. This includes adjusting healthcare coverage by increasing employee co-pays and premiums contributions, as well as removing healthcare benefits for retired employees. Ultimately, the text emphasizes that incorporating comprehensive insurance into a compensation package is crucial for attracting and retaining valuable staff members.

Your current health care plan is not recognized as a tax-deductible expense, but if your organization implements a health plan that meets certain eligibility and nondiscriminatory requirements, the amount you pay toward employee premiums will be tax-deductible (Henderson, pg.439). Employees are the most valuable assets of your organization. Adding a deferred compensation plan can provide supplemental retirement savings for employees who plan on staying with your organization. Competitive compensation and benefits programs help make employees feel valued and rewarded for their contributions to the company. Employees consistently rate benefits, especially health care benefits, as a crucial factor in job satisfaction (Bray, 2011, pg.3). Offering adequate coverage not only keeps your workers healthy but also attracts and retains top talent to your company. Your firm should set base salary within the market range of pay to remain competitive. To attract, retain, and reward a highly qualified workforce, the organization needs to implement and maintain a total compensation philosophy (University of Richmond, 2011, pg.1). To achieve these objectives, Holland Enterprises will need to increase compensation and benefits expenses.The text recommends linking the company's philosophy to its compensation plan. It suggests that base salary increases should be determined based on recognizing performance, retaining the best employees, maintaining market alignment,

and supporting internal equity. Additionally, it proposes creating and administering a deferred compensation plan and implementing a cost-effective, highly customized group health plan that qualifies as a tax-deductible expense. The text also emphasizes the importance of maintaining external competitiveness through a salary structure that is based on the competitive markets for benchmarked positions (University of Richmond, pg.2). The reference for this information can be found in an article titled "Benefits from A to Z" by J.D. Bray on the Employee Benefit News website (http://ebn.benefitnews.com/news/employee-benefits-data-costs-plan-compliance-reform-2714876-1.html?).

ET=ebnbenefitnews:e1886:2185272a:;st=email Business and Legal Resources.(2011)."Compliance: Simplified." Retrieved from BLR website: http://www.blr.com/compensationtips/FLSA Florida Gulf Coast University."External Equity: Building Market Competitive Compensation Systems." PowerPoint retrieved from:http://ruby.fgcu.edu/.../teaching/compensation/8external.ppt Henderson, R. (2006)."Compensation Management in a Knowledge-based World." (10th ed.).Upper Saddle River: Pearson Prentice Hall.Mayer, S. (2004)."Strategic Compensation Systems Analysis." Retrieved from Oregon State University website:http://classes.bus.oregonstate.edu Nixon, L. (2011)."Deferred Compensation." Retrieved from eHow archives:http://www.ehow.com/about_5499747_deferred-compensation.html Pearson, C. (2007)."HR Guide: Right Ratio between Base Salary and Bonus." Retrieved from HR Guide website:< a href="hrguide.applezoom.com / 2007 / 09 / right-ratio-between-base-salary-and-bonus/"> hrguide.applezoom.com 2007 / 09 / right-ratio-between-base-salary-and-bonus /
University of Richmond.Human Resource Department: Compensation Administration Plan.
ET=ebnbenefitnews:e1886:2185272a:;st=email Business and Legal Resources.(2011)."Compliance: Simplified." Retrieved from BLR website: http://www.blr.com/compensationtips/FLSA Florida Gulf Coast University."External Equity: Building Market Competitive Compensation Systems." PowerPoint retrieved from: http://ruby.fgcu.edu/.../teaching/compensation/8external.ppt Henderson, R. (2006)."Compensation Management in a Knowledge-based World." (10th ed.).Upper Saddle River: Pearson Prentice Hall.Mayer, S. (2004)."Strategic Compensation Systems Analysis." Retrieved from Oregon State University website: http://classes.bus.oregonstate.edu Nixon, L. (2011)."Deferred Compensation." Retrieved from eHow archives: http://www.ehow.com/about_5499747_deferred-compensation.html Pearson, C. (2007)."HR Guide: Right Ratio between Base Salary and Bonus." Retrieved from HR Guide website:< a href="hrguide.applezoom.com / 2007 / 09 / right-ratio-between-base-salary-and-bonus/"> hrguide.applezoom.com 2007 / 09

/ right-ratio-between-base-salary-and-bonus / University of Richmond.Human Resource Department: Compensation Administration Plan.

Unified Text with :

ET=ebnbenefitnews:e1886:2185272a:;st=email Business and Legal Resources.(2011)."Compliance: Simplified." Retrieved from BLR website: http://www.blr.com/compensationtips/FLSA Florida Gulf Coast University."External Equity: Building Market Competitive Compensation Systems." PowerPoint retrieved from: http://ruby.fgcu.edu/.../teaching/compensation/8external.ppt Henderson, R. (2006)."Compensation Management in a Knowledge-based World." (10th ed.).Upper Saddle River: Pearson Prentice Hall.Mayer, S. (2004)."Strategic Compensation Systems Analysis." Retrieved from Oregon State University website: http://classes.bus.oregonstate.edu Nixon, L. (2011)."Deferred Compensation." Retrieved from eHow archives: http://www.ehow.com/about_5499747_deferred-compensation.html Pearson, C. (2007)."HR Guide: Right Ratio between Base Salary and Bonus." Retrieved from HR Guide website:< a href="hrguide.applezoom.com / 2007 / 09 / right-ratio-between-base-salary-and-bonus/"> hrguide.applezoom.com 2007 / 09 / right-ratio-between-base-salary-and-bonus / University of Richmond.Human Resource Department: Compensation Administration Plan.
ET=ebnbenefitnews:e1886:2185272a:;st=email Business and Legal Resources.(2011)."Compliance: Simplified." Retrieved from BLR website: http://www.blr.com/compensationtips/FLSA

Florida Gulf Coast University."External Equity: Building Market Competitive Compensation Systems." PowerPoint retrieved from: http://ruby.fgcu.edu/.../teaching/compensation/8external.ppt

Henderson, R. (2006)."Compensation Management in a Knowledge-based World." (10th ed.).Upper Saddle River: Pearson Prentice Hall.

Mayer, S. (2004)."Strategic Compensation Systems Analysis." Retrieved from Oregon State University website: http://classes.bus.oregonstate.edu

Nixon, L. (2011)."Deferred Compensation." Retrieved from eHow archives:http://www.ehow.com/about_5499747_deferred-compensation.html

Pearson, C. (2007)."HR Guide: Right Ratio between Base Salary and Bonus." Retrieved from HR Guide website:< a href="hrguide.applezoom.com / 2007 / 09 / right-ratio-between-base-salary-and-bonus/"> hrguide.applezoom.com 2007 / 09 / right-ratio-between-base-salary-and-bonus /

University of Richmond.Human Resource Department: Compensation Administration Plan.The information about compensation can be found on the University of Richmond HR website at http://hr.richmond.edu/employees/benefits/compensation/plan.html.The HR Guide website offers a comprehensive resource for compensation information. Specifically, it provides an HR guide to the internet on compensation. This resource can be accessed at http://www.hr-guide.com/data/G400.htm (Web-based HR Guide, 2011).