Research Paper On Human Resource Management
There are various forms of compensation strategies that organizations can adopt. The decision on which compensation strategy to adopt lies with the top management who consider various factors as company profits, objectives, mission, and vision. The Human Resource department is mostly concerned with establishing the best way of ensuring high performance of employees. Given that the employees are the most important aspect of an organization and given the fact that they are usually manipulated by compensations, HR department is highly concerned with the compensation activities. Depending on the objectives of the organization, the management, in conjunction with the HR department, can choose the strategy that provides the best fit. This means that there is no specific compensation strategy that can be recommended to an organization. Organizations will, therefore, have chosen one or a mixture of strategies from myriad strategies available. Diversity in an organization which even include the increasing number of employees with diverse salaries have also complicated the compensation strategy selection process. The report puts emphasis on the assessment of various compensation strategies and their applicability to an organization with varied salary level individuals.
Compensation is probably the most important tool that the human resource team uses to get the employees, or the associates of an organization motivated. The greatest decision the top management will obviously have to make is on which compensation strategy they should adopt in their organization (Hernandez & O'Connor, 2010). By definition, compensation strategy has been described as the position of the particular organization on the job market. It is the strategy that has been passed by the top executive of the organization and bit describes that which the owners of the strategy is comfortable with and prefers most effective in attaining high standards of performance. However, in choosing the best strategy that satisfies all the needs of the human resource and the management, the top executives have myriad options and combinations to choose from (Hernandez & O'Connor, 2010). Therefore, it means that much focus should be directed towards choosing the most applicable compensation strategy or strategies to ensure human resource functions are sensitively attended to. Some of these functions that are derived from a competently selected compensation strategy are reduced employee's turnover, increase profit per employee, additional sales per employee and increased market value per employee (Deb, 2006).
Essentially, the top management decision on the compensation strategy to adopt should ensure money worth, motivate and retain employees into the business. With the increased number of employees and different classes of employees, the probability of adopting wrong decisions continues to increase. The management and HR department usually have to conduct the job analysis, job evaluation, and the job pricing (Deb, 2006). The report present some of the findings on the application of various compensation strategies in an organization with large number of employees who have varied salaries. I will analyze some of the most effective compensation strategies an organization can adopt to ensure quality and consistency in their performance. After the analysis of various compensation strategies, I will give the recommendations to the management on the most effective compensation strategy given the large number of employees and the varied employees’ salaries.
2.0. Research findings
2.1. Long-term incentive plan
The long-term incentive plan that is usually denoted as LTIPs are one of the recent most considered form of compensation strategy. This strategy was initially prevalent among publicly owned companies, but it has recently gained much recognition with the high employer private companies. Essentially, there are two types of LTIPs. One of which is stock-based while the other one is cash-based. By definition, LTIPs are performance driven compensation incentive programs covering a cycle of multiple fiscal year that provides a potentially significant award (Frederic, 2005). The award, in this case, is on the addition to the annual incentive or bonuses and the basis salary. This strategy involves the involvement of the employees and other key stakeholders of an organization in the long-term better performance of an organization. In this case, businesses formed to operate for long time provides long-term benefits to the employees and the stakeholders that include the top executives based on their extemporary performance in these organizations.
It has been found that continuous high performance and willingness to provide high services has been enhanced by the LTIPs. Some of the incentives that have been provided by the public companies that are mostly stock-based are restricted shares, stock appreciation rights, stock grants and stock options (Arthur, 2011). However, privately owned firms due to their individual interests have been quite reluctant to adopt this compensation strategy. Private firms have been observed to prefer the long-term incentive plans based on the cash. This is where they provide a considerably huge amount of money as compensation to a long serving employee. It has been established that 98 percent of the highly successful public companies use the long-term incentives that mainly have been stock-based. Private companies using the long-term incentive strategy has also increased from 27 percent to 63 percent. Almost all these privately owned organizations use cash-based incentives in their operations (Frederic, 2005).
There are two main categories that can be utilized by companies choosing to use long-term incentive strategy of payment and which are very reliable tools. These categories provide worth of the strategy and the basis of the compensation calculation (Arthur, 2011). Firstly, we have the multi-year plans that cover the fixed periods as well as rolling performance period of an employee. The performance is mainly evaluated over the period of three to five years. Secondly, career-based plan can be applied in which the benefits are said to accrue through the development of individuals working career. In this strategy, the benefits compensation are meant to be enjoyed/ paid on termination or retirement (Deb, 2006). It is worthwhile noting that long-term incentive strategy should be clearly stated in the organization's constitution and strategic plan for it to take effectiveness. It focuses beyond the immediate annual plans and timeframes. It is mostly based on the compounded growth, market share and operational effectiveness that are evident during the tenure of the employee.
The long-term incentive strategy of employee compensation takes different sides depending on whether the organization is private or public. For the public companies, there is no restriction of which kind of an incentive they can use. They, therefore, have the freedom to use either the cash-based strategy or the stock-based strategy. The company can, therefore, decide to use either non-tradable equity shares to the employees or stocks and the non-equity incentives (Arthur, 2011). However, with public companies, there are a myriad of government regulations that is associated with the strategy and, therefore, forces the public institutions to establish a highly organized strategy (Frederic, 2005). The government highly requires employers in the public companies to employ the use of non-equity LTIPs. The public sector, therefore, uses restricted and non-liquid strategies that act as fixed strategies to serve the employees with different salary and skill levels. Companies are able and allowed to design LTIPs strategies to meet or to be in line with the company philosophy, capabilities, existing systems, and objectives. The vision and the plan of an organization are the determinants of the performance period and the compensation measures, and this makes the strategy highly flexible (Arthur, 2011).
The long-term incentive compensation is however faced with various impediments that make it unattractive to be applied in some organizations that are not highly established. These impediments may also make the strategy fail to achieve its goal or reducing the employees’ turnover while increasing total productivity. It may also fail to create goodwill to the company due to such incidences as deal-breakers practices (Arthur, 2011). Non-compliance with the Internal Revenue Code Section 409A also makes the compensation strategy vague and untrustworthy by the employees. Some employees and beneficiaries of the strategy may fail to consider it as useful as the human resource department, and the top management may feel as they consider it as non-qualified deferred compensation.
On the other side, long-term compensation strategy can prove to be very efficient when applied by various highly organized and well-managed organizations (Frederic, 2005). These companies may on that note enjoy high long-term benefits and loyalty of employees and other stakeholders. The strategy is therefore highly used by those companies wishing to settle in the market for the long period. Firstly, there is employee retention where the long-term incentive strategy gives the substantial risk of forfeiture that is a legal requirement of the participant. It also requires that continued employment must be there along with the attainment of the performance metrics set in place. The LTIP will usually act as golden handcuff that protects the interest of the employees when he/she terminates the contract (Arthur, 2011). Secondly, there is focus on desired results that is obviously one of the main strength of this strategy. It is through the long-term goals focus that the strategy can connect with its employees towards their vision. Third, there is a balance between the short-term and the long-term decision-making strategy. One of the fundamental weaknesses of the compensation strategies is that the non-owners mostly focus on the attainment of the short-term goals. This compensation strategy, however, eliminates this through making the employees a part of the long-term success of the organization. This ensures high motivation of the employees and all the associates and stakeholders of the company (Arthur, 2011). Fourthly, there is the aspect of sharing in the company’s growth by the employees and the executive of the organization. This aspect is presented through the argument that improvement and development created is an increased investment by these stakeholders.
2.2. Tuition reimbursement compensation strategy
Paying the tuition fees for employees, be it job-skill related, or other development skills are usually considered very expensive. However, paying the tuition fees for the employees in your company is usually considered as a highly useful strategy of creating employee's loyalty. Reimbursement is usually provision of a benefit in the form of payment for an expense involved (Heneman, 2012). Human resource management adopts the tuition reimbursement strategy as a comprehensive compensation strategy. The adoption of this strategy by HR departments in the world has been quite slowly due to the critics involved with this strategy. Tuition reimbursement strategy involves the payment training n fees that may either be vocational training or professional training. More so, the tuition fee can either be training or mentoring program that involves some expense. The tuition reimbursement strategy can also take the form of vocational, technical or academic training (Dhar, 2008). All these categories of the tuition reimbursement strategies are most appropriate when they are directed towards ensuring increased productivity and improved motivation among the employees. Additionally, this strategy is concerned with reducing the employees’ turnover rates and the costs involved in selection and recruitment. The strategy is also concerned with reducing the inefficiencies in business operation caused by lack of appropriate skills. Additionally still, it is meant for personal development and career growth in the individual. Essentially, tuition reimbursement is a compensation strategy as well as a personal improvement strategy that is adopted by the HR department to improve the quality of organization’s employees and stakeholders (Singer & Francisco, 2009).
According to the research conducted by Spherion on the relationship between tuition reimbursement and employees turnover, it was clear that the compensation strategy can be highly effective. This was when it was applied to the right people, in the right proportion and the very best levels of employees. Out of the population that was interviewed, 62 percent expressed the likelihood of remaining with their current employees. 61 percent of the employees who were mentored also expressed the likelihood of remaining with their employees in the next five years. This indicates that the compensation strategy can ensure continuous high performance and the reduced turnover rates in an organization.
For any organization or company to attain effectiveness in their operations under the tuition reimbursement compensation strategy, there has to be a highly established system of considerations to ensure that the right person benefits. Various considerations will have to be done by the compensation experts who can calculate all the cost, benefits and risk with the strategies (Heneman, 2012). This means that the strategy requires apparently developed foresight and planning before the implementation. Firstly, one is supposed to the HR department is supposed to determine what it wishes to reimburse. Variation reimbursement options include the technical, vocational and academic classes (Dhar, 2008). Secondly, HR department and the top management are supposed to establish the amount they can reimburse the employees. In the above, the management can either set a particular fixed amount of money which they can use for tuition reimbursement annually. They can otherwise decide to pay 100 percent, 75 percent or even 50 percent of the employee’s tuition fee. Additionally, the HR department can decide to pay the fees or reimburse employees according to their employment level or grade in an organization. This is where they may decide the percentages reimburse of persons A, B and C should be different. Third, the HR department is supposed to establish the eligibility of the employees for the reimbursement program (Dhar, 2008). The management needs to create equality through clearly structured eligibility guidelines in an organization. For example, there can be a time span that an employee should serve before enjoying tuition reimbursement. Fourthly, there should be a decision on which type of classes that the management can reimburse which can either be job-related skill set or unrelated class. This is a very significant consideration that can affect the morale of the employees since some of the employees consider tuition and education for self-development while the organization considers that this should be based on company benefit. Lastly, there is a decision on how to support the employees learning efforts (Singer & Francisco, 2009). This involves considering the time the employee is attending the classes and the working hours.
With the above considerations taken its place; tuition reimbursement strategy becomes an important strategy that many organizations can consider adopting. This compensation strategy is highly valued by the employees as it is an illustration of the employers’ goodwill towards career development and continuous high performance of these individuals. Training the employees increase the quality of work and productivity increases (Heneman, 2012). This strategy may also create future development of the organization as the company has created competent employees who can take high leadership position. Ideally, it has become an important act to recruit the top management persons from within the organization. Tuition reimbursement, therefore, creates persons with sufficient qualification to fill the positions while motivating the employees. On the contrary, however, there are various criticisms on the effectiveness of this strategy as a compensation technique (Dhar, 2008). Many have argued that there are high costs involved with the sponsored tuition. They argue that there are high taxes that the employee is supposed to pay. The employee is also supposed to record the tuition reimbursement amount as benefits on his/her salary and that he is supposed to be deducted tax from. Moreover, some of the organizations incur high time and money costs with tuition reimbursement strategy.
2.3. Bonus plan compensation strategy
In considering the bonus plan compensation strategy, we are mainly concerned with the relationship between the rate productivity and the compensation gained by an employee (Karayan & Swenson, 2007). This means that the rate of productivity of an employee should be directly related to the pay increment enjoyed. When dealing with the bonus plan compensation strategy, we mainly deal with the discretionary bonus compensation plan where we deal with the bonuses that are issued on short-term basis where the high performance has been realized (Dhar, 2008). We, therefore, consider a highly established performance identification criteria and the basis of counting the rate of bonuses.
Some of the major steps that the HR department and the top management should consider are as explained. Firstly, it is importantly to determine the actual size of discretionary bonus pool that should determine the interest rates to be awarded (Karayan & Swenson, 2007). Secondly, the management should establish eligibility guidelines which state the type of employees to enjoy the bonuses and at which interest rates. Third, there should be established bonus award criteria that include internal organization considerations such as critical company programs, substantial savings, and the profits. Fifth, it is essential to consider the minimum and the maximum amounts in which bonuses are given (Singer & Francisco, 2009). Lastly, it is advisable that for efficiency, it is important to issue bonuses throughout the year.
However, bonus plan compensation strategy has various challenges that involve lack of support from the Board and other organization stakeholders. Also, the formula for bonus calculation can result proposed payout that the company may not afford. There are also unexpected surprises from employees that may give pressure to the management. On the employee's view, they may see the bonuses as just a part of the base pay and hence remain unmotivated (Dhar, 2008). The employees’ actions, as they focus on bonuses, may fail to align with the business strategy that the management may fail to focus on the set metrics due to the drive for bonuses consideration (Hernandez & O'Connor, 2010). However, this strategy remains one of the best motivation tools in organizations where quality is not highly upheld. The strategy is also highly considered among the service industries like marketing and distribution. The bonus plan compensation strategy is also one of the traditional methods concerned with rewarding performance.
The human resource department and the top management of the organization should take much consideration of employees's satisfaction and take note of the increasing number of employees that increases the complexity of the strategy to be used by the organization. Essentially, it is very important to take into consideration and the vision statement of the organization to ensure the efficiency of all the business operations (Karayan & Swenson, 2007). The HR department is supposed to ensure the long-term as well as the short-term effects of the compensation strategy adopted to ensure that any conflicting interest from either the employer or the employee should dominate. This will, therefore, ensure efficiency in the organization and ensure high organization productivity and profitability. It should be clear that this organization has a variety of employees with varied levels of salary.
I will, therefore, give the following recommendations:
The organization should establish a transparent template on the variety levels of the employees and also consider their ranking position in the organization.
Organization's management should consider creating pools based on the education levels and a metric where the measurement of the relevant basic payment will be on the basis of education. This will continuously reduce high paperwork costs involved in the calculation of the basic rates. This can be achieved through educating training the employees to suit in the same work level brackets.
Considering the long-term implications and efficiency, the compensation strategy adopted should ensure that employees can focus on the long-term productivity of the organization. Management should share the success of the organization with employees for them to feel like part of the organization. With this, I would advise the management to adopt the long-term incentive compensation strategy that compels the employees to work toward organization's success. This will also ensure that high inspection is reduced due to the self-drive created by the organization. This will also eliminate the extensive compensations done to the management. This will ultimately lead to stabilized salaries to the employees.
In my opinion, therefore, the organization should consider using the mix of both long-term incentives plan and the tuition imbursement strategies. The possible integration of the two strategies enables the management to achieve its ultimate goal of reducing the task of calculated varied salaries of employees.
Compensation strategies choice is the responsibility of the top most management that owns the strategy. Compensation strategies are and should be highly defined in any organization since they are the key determinant of the organization's performance. Compensation strategies adopted should be defined by the long-term and the short-term objectives of an organization (Hernandez & O'Connor, 2010). Therefore, compensation strategies should provide the best fit of all the human resource factors with the organization goals, vision, mission, and objectives. Any desired compensation strategy of an organization should also provide answers to the questions on the profitability desired by an organization (Hernandez & O'Connor, 2010). Regard to the legal matters and regulations should also be taken into place by any desired compensation strategy. It is very essential to understand that compensation strategies taken defines the pay market and should take consideration of the current market situation.
Arthur, D. (2011). The employee recruitment and retention handbook. New York: AMACOM.
Deb, T. (2006). Strategic approaches to HRM. Concept, tools, and application. New Delhi: Atlantic.
Dhar, R. L. (2008). Strategic human resource management. New Delhi, India: Excel Books.
Heneman, R. L. (2012). Strategic reward management: Design, implementation, and evaluation. Greenwich, Conn: Information Age Publ.
Hernandez, S. R., & O'Connor, S. J. (2010). Strategic HRM in health services organizations. Clifton Park, NY: Delmar Cengage Learning.
Karayan, J. E., & Swenson, C. W. (2007). Strategic Business Tax Planning. Hoboken: John Wiley & Sons, Inc.
Singer, P. M., & Francisco, L. L. (2009). Developing a compensation plan for your library. Chicago: American Library Association.Frederic W. Cook & Co. (2005). Long-term incentives compensational plans among the top 200. New York, N.Y: Frederic W. Cook & Co., 2005-.
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