role of compensation paper

8/3/2019 Role of Compensation Paper

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Role of Compensation Paper

Beverly L. Clanton

University of Phoenix

HRM 424

Will Dorrieu

05/27/09

Role of Compensation Paper

Explain the role compensation plays in the achievement of organizational goals.

To any successful organizations a solid compensation system is critical. In order to attract qualified

applicants to an organization and retain them, one must first provide mechanisms. Compensation plays

a very important role in attracting the best talent in the organization as well as retaining them for a long

time. It thus helps in creating a solid human resource responsibility in the organization which enhances

the productivity, efficiency as well overall quality in the organization. A sound human resource

infrastructure with the appropriate set of employees possessing the proper set of skills for the right job

is critical to the success of any organization, which is perfectly achieved via a suitable compensation

plan. Further, in order to avoid high attrition levels, compensation plays a key role in retaining the top

talent in the organization.

To maintain high standards of productivity and service, the organization must motivate employees. A

suitable compensation, incentives and rewards program is the key motivator in any organization today.

In order to motivate employees and boost their morale to achieve desired performance levels and goals,

compensation plays a key role as in order to achieve more incentives and compensation, employees

raise their performance levels. In the absence of compensation plans, employees will not be motivated

to perform efficiently and will always look for changing the current organization.

Organizations should reward employees for their specific contributions to the achievement of

organizational goals and objectives. In todays dynamic business environment where innovation end

efficiency is the key, compensation is a crucial tool to reward the best performing employees for their

important role in success of the organization..

T o implement change, changes are always resisted by employees, But a suitable compensation plan

reduces the task of the organization to bring about desired changes among the employees with respect

to new improved changes such as those related to technology, new processes such as Total Quality

Management (TQM). However, a conservative companys approach allows the overall strategic goals to

push forward any business plan which is well developed and maps out where the organization want to

go and how it will work toward its goal for the next one or two years is absolutely necessary. In doing so,

to maintain both strategic and financial goals the companys compensation plan must be well structured

to support those goals.

Analyze the impact of compensation decisions on external and internal stakeholders, including the

effectiveness of managers and employees.

Compensation decisions have a very major impact on the external stakeholders of the company, such

as the investors, and creditors. Since compensation related costs such as salary and bonuses

constitutes a significant portion of the total expenditure of the company; compensation decisions can

significantly alter the bottom line profits of the company and are thus closely reviewed and watched by

investors and other external stakeholders. For example, rising salary costs without an increase in top


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line revenues or profitability is a cause of concern for external stakeholders. Similarly, the salaries and

compensation packages of directors, management and other key employees also affect the outlook of

the external stakeholders towards the company and affect their decision making.

As mentioned previously, compensation plans lays a crucial role in the development and retention of the

most critical assets of the organization, i.e., human resources. Therefore, compensation is a critical

factor in terms of driving the organization and its employees towards the achievement of strategic goals

and objectives. Thus, all the internal stakeholders, be it top and middle managers or employees at other

levels, are directly affected by the compensation decisions. Managers and employees at all levels,

irrespective of their level or position in the organization, are by compensation plans at his or level of

efficiency, productivity and loyalty towards the organization is directly affected the compensation

policies of the organization. Compensation acts as the key driver in motivating the employees and

managers and enhancing their performance. Adverse compensation related decision could prove

detrimental for the organizations and can result in high attrition levels and lack of productivity.

References

George T. Milkovich, Cornell University. Jerry M. Newman, State University of New York.

Compensation, 8 e

Motivating Employees in Tough Times

Aug 1, 2009 12:00 PM, By Sandy Smith

Despite tough economic times, a new white paper indicates there are steps employers can take tosustain employee engagement.

Every employer and employee in the United States has been on an economic roller coaster ridefor the past 2 years. Business is up. Business is down. We're hiring. We're downsizing. Manyemployers who wanted nothing less than 10 percent growth every year are settling for not losing

money.

In this age of pay cuts and lean everything, employers need to remember that employees are

their biggest contributing factor for success or failure in the drive to do more with less.

According to a new white paper, Optimizing Human Capital Assets in Tough Times,No

matter what the business model, value propositions have become increasingly knowledge-basedand service driven. Smart executives know that, rather than any new technology or product

offering, it is the ability and attitudes of their people that's more likely to set a firm apart from itsrivals. People spur innovation, cultivate customer loyalty, drive productivity and ignite economic

growth.As today's executives wrestle with sustained economic uncertainty and frequentlychanging value propositions, they need to hold fast to the idea that engaged employees can set

their firm apart, says Karen Renk, CAE, executive director of the Incentive Marketing

Association (IMA). IMA's Performance Improvement Council (PIC) published Optimizing

Human Capital Assets in Tough Times.


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Even though raises and bonuses have all but disappeared from the economic landscape, we

wanted to help employers understand that non-cash recognition can still be a very powerful

employee motivator, adds Renk. The new white paper examines:

y How companies can sustain their corporate culture through employees;

y

How employees can drive much-needed innovation;y How employers can reinforce the right behaviors; and

y What it takes to keep the best performers.

SUSTAINING CORPORATE CULTURE

Employees might be an employer's largest cost, but they also can be the greatest resource.

Progressive business leaders are searching for effective ways to optimize their investment intheir employees.

While there certainly are costs associated with recruiting, hiring, training and providing benefits

for employees, direct compensation is how many companies

show their love

to employees.As employers tighten their belts, salaries are being frozen or cut, and traditional annual raises or

bonuses are becoming scarce. This means that managers have limited ways to show appreciationfor their employees.

The PIC white paper notes that with a shrinking compensation pool to draw from, many

employers and managers are left wondering how they can continue to motivate employees toreach goals that are crucial to the success of the business and to attract and retain good

employees while not offering the generous compensation and bonus packages that were standardin better economic times.

If increasing an employee's salary isn't an option, then employers need to find other ways tosustain culture and retain employees. It might not be as hard as you think.

In the article Employee Motivation: A Power New Model (Harvard Business Review, August

2008), the authors argue that people are guided by four basic emotional needs that are not

completely satisfied by traditional forms of compensation.

According to the article, compensation works for some of those needs. For example, employees

are motivated by their desire for more money to acquire tangible things such as homes and cars.Employees also are motivated by a desire to defend what they already have, ie., by being able to

make mortgage payments.

However, theHarvard Business Review paper also contends employees need to learn and bondwith others to feel fulfilled. This means that employees need to learn new skills and acquire new

knowledge in order to feel fulfilled and motivated to come to work. It also means that employeesseek connections with customers, managers and coworkers. They want to contribute to the

success of a group and feel part of that success.


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A smart employer wishing to show appreciation for workers fosters these human relationshipsand provides employees with stimulus to make their days at work interesting.

DRIVING INNOVATION:The PIC white paper declares, We need to feel needed, adding

that most people grow frustrated if they feel their efforts are not contributing to the good of the

business or are not being recognized.

Good sales people and customer-facing employees in particular have these traits at higher

levels than say an accountant. But all employees all people take pleasure in knowing they

are important parts of the groups they value, say the authors of the PIC white paper.

Dr. James Oakley from Purdue University examined the impact of compensation and the role itplays in fostering and sustaining culture in his study, The Road to An Engaged Workforce. In

Oakley's opinion, all forms of compensation must be leveraged to drive the culture that's right for

your business. According to Oakley, the effective use of recognition, such as using non-cashrewards that are distinct from ongoing compensation, is a powerful tool for sustaining culture,

driving innovation and rewarding the right behaviors across the corporation.

All employers acknowledge that the old way of running any business isn't effective in today's

economy, requiring a need to respond to the marketplace with true creativity. Research and

development departments traditionally have been tasked to create new products, services andprocesses. But according to a 2005 CEO survey conducted by IBM, over 40 percent of new ideas

are coming from employees across the business. By comparison, just 14 percent of new ideaswere attributed to R&D departments.It's the employees who are dealing directly with

customers and wrestling with business challenges who are best equipped to generate the nextgame-changing concept, say the authors ofOptimizing Human Capital Assets in Tough

Times.Recognition can be an important catalyst in sparking these innovations. Everyone

wants to know his/her contribution makes a difference, especially when the need is great.

In astudy done by a marketing company that explored the motivators for submitting business

improvement ideas, the No. 1 reason given was the pride of seeing my idea implemented.

Formal recognition is a way to tangibly recognize an employee's contribution.

role of compensation paper

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