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Compensation and Labor

In: Business and Management

Submitted By pachecoic
Words 1721
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Topic is in any area of compensation and benefits
Compensation and benefits are a set programs established by organizations that reward employees for the services they have rendered for the benefit of the organization. These programs are usually designed with several objectives in mind. Organizations establish these programs to motivate the employees into increasing their performance to their sheer best, attract the best employees to work for the organization, and extend the period which the employees will continue to offer their services, hence, help in retaining employees in the organization for a longer period.
The employee benefits programs provided by organizations include life insurance, stock ownership plans, health insurance, vacation, leave, contributions to retirement plans and disability insurance. Benefits add value to the returns an employee receives for their contributions to an organization. Benefits are an addition to an employee’s payment. Benefits can be both intangible and tangible, benefits such health insurance, vacation, stock ownership plans, leave, and contributions to retirement plans are tangible. However, having a well-furnished and conducive office, getting appreciations from the boss, and receiving a promotion can be considered to be intangible benefits.
Profit sharing or stock options are also considered as compensation in some instances. These types of compensations are usually provided in the form of executive compensation. Executive compensation is compensation that is given to the executives of an organization for their contributions to the success of the organization. Traditionally compensation is provided as base pay or/and variable pay. Compensation is provided as payment to an employee for their contributions to an organization.
Common forms of compensation include wages, salaries and tips. Organizations have developed salary and wage programs to determine compensations for employees. These programs provide ranges for salaries for job various descriptions such programs include, commission based programs, bonus based programs and merit based programs. Base pay is based on the market for the expertise that is needed for a certain role and also the responsibilities and the role for the position in the organization. Variable pay is based on the performance on an individual.
Most organizations have adopted the use of both base and variable pay to get the best of their employees. However, the compensation received by the employees is associated to a compensation ranges that are determined for the job descriptions. These ranges include a minimum and a maximum which an employee can earn in a year for a certain role in an organization. The form of compensation that an organization gives to its employees symbolizes the values of an organization and can also indicate to the employees what activities the organization encourages.
Compensation and benefits are crucial for the performance of an organization. Therefore, it is of strategic significance for an organization to determine how much is paid for to different roles in the organization. In the recent years, benefits have become increasingly expensive for organizations to provide to employees. This has resulted in a rapid change of ranges and options provided by employees.
Most of the changes in the benefits and compensation are mostly influenced by the global business environment. However, the changes made by the human resource managers are not best practices that are complementary to the business environment. This leads to a situation where organization fails. This is a result of mismanagement of people derived by failure to implement best practices in compensation and benefits.
The total compensation package that an employee receives includes the base compensation, pay incentives and indirect compensation. Base compensation is fixed and can be received weekly or monthly inform of a salary or hourly inform of wages. Incentives are provided to employees in various forms including profit sharing and bonuses. Incentives are designed to reward employees for outstanding performance. Indirect compensations are benefits which includes a wide variety of programs including health insurance, vacations among other programs.
Designing an effective compensation system is critical for an organization. How much money an employee earns is a critical indicator of their power and is tied to how they perceive themselves to be worth. Money earned certainly gives an employee the necessary purchasing power. The compensation received by individuals affects them psychologically, economically, and socially. The effects that compensation has on an employee can be translated into the performance of the organization. Therefore, if employees are well compensated, it will lead to increased satisfaction and result into increased performance. While poorly compensated employees are likely to perform their roles poorly leading to the poor performance of the organization.
There is a wide variety of policies and procedures that are available to organizations which assist in designing effective compensation systems. Most of these policies provide organizations with a two pronged approach for designing a compensations system. The approaches enable an organization to develop systems that will enable it achieve its strategic objectives. It will also a system that is molded to fit into the environment and unique characteristic of the organization.
Most companies can use one of the following models in designing their compensation system. These models include distributive justice model and labor market model. Both of these models are critical influenced by internal or external equity. Internal equity refers to the perceived fairness of the structure of pay within an organization. External equity is the perceived fairness of how an organization pays for labor in comparison to other employers in the labor market.
Through the use of distributive justice model, employees can exchange their inputs for outcomes. This model emphasizes that employees feel that they are fairly paid if their compensation is equal to their inputs. They pay employees receive in such an organization is part of the outcome of the inputs such time, skills and effort. Using this system employees and employers constantly monitor the inputs and outputs so that they ensure that they are equivalent to each other. However, some employees use external equity to determine to the amount and form of compensation to give to its employees. The employer can compare the input/outcome ratio to that of employees in other organizations.
The labor market model emphasizes on the need of paying employees according to the “going rate” of the market. This model shows that if an organization is unable to pay its employees according to the “going rate” in the market, the company will be unable to retain or attract qualified workers. The labor market model shows that for external equity to be met, an organization must pay its employees at the market rate for the job they are doing.
In order for an organization, to establish itself strategically, it should establish a system that addresses both internal and external equity. Most organizations still struggle between choosing external market rates and maintaining internal payment structures. Fortunately, most type of jobs are similar in the job market. An organizations can simply compare their compensation plans to ensure that they are strategically placed in the market.
Organizations should have in place compensation management systems which assist in the management of compensation for its employees. The purpose of this system will be to ensure that the organization apply best practices for compensation and benefits. This ensures that the company has an effective system for compensation. This will enable the organization to compare its compensation plans with those of other organizations in the industry or benchmarks that have been published. This will ensure that compensation received by employees is fair.
An effective compensation package should include both direct and indirect compensation. It is recommendable to review the ranges for compensation. Most organizations review their compensation packages on an annual basis. This ensures that the organization’s compensation programs are updated and applicable to the current market conditions. It is recommendable for an organization to let its employees know the total compensation package available to them and what it entails. This will allow employees to give feedback to the organization on the different compensation programs.
Despite of the importance of having fair compensation for employees, most employers do not give adequate considerations into developing effective compensation programs. The Fair Labor Standards Act of 1938 clearly defines groups that are covered under salaries and wages. These groups commonly referred to as exempt and nonexempt require different compensation packages. Regardless of the difference of the compensation package emphasis is on ensuring that each employee is compensated fairly.
The Fair Labor Standards Act of 1938, purposes to ensure better working conditions that will ensure that employee’s rights and interests are secure. In the recent past, these laws have been amended to include changes in the labor market such as the Equal pay act of 1963. Equally the government has also passed numerous other laws that govern the compensation of employees. This provides a benchmark that organizations can use to compare and ensure that an organization provides the required compensation to its workers.
While developing compensation programs organization need to consider legal requirements laid down by existing laws. However, these are just the basic requirements that the law requires an organization to adhere to when developing a compensation program. The most suitable approach in developing a compensation program is to ensure that an organization implements best practices. In the long run, it is the organization that is going to benefit from an effective compensation program.
Effective compensation assures that the employees are well compensated for their efforts or inputs. This also increase the satisfaction employees have, which in turn takes care of their economical, psychological and social needs. Satisfied employees perform better and give a better result to their organization. This also results to a generally increased performance for the whole organization.

Cited works
The Worldatwork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for Hr Professionals. Hoboken, N.J: John Wiley & Sons, 2007. Print.
Reilly, David J. Employee Benefits and Executive Compensation: Proceedings of the New York University 59th Annual Conference on Labor. Alphen aan den Rijn: Kluwer Law International, 2010. Print.
Mitchell, Olivia S. Benefits for the Workplace of the Future. Philadelphia, [Pa.: University of Pennsylvania Press, 2003. Print.
Thomason, Terry, Timothy P. Schmidle, and John F. Burton. Workers' Compensation: Benefits, Costs, and Safety Under Alternative Insurance Arrangements. Kalamazoo, Mich: W.E. Upjohn Institute for Employment Research, 2001. Print.
Rothwell, William J, and H C. Kazanas. Planning and Managing Human Resources: Strategic Planning for Human Resources Management. Amherst, Mass: HRD Press, 2003. Internet resource.…...

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