Describe a Compensation Strategy for an Organization Paper Example

Compensation is the total rewards earned by an employee as payment for the labor or services offered in an organization. The compensation can be direct or indirect and even non-financial depending on the effectiveness of the rewarding system adopted by an organization. An effective compensation strategy is designed to deliver the desired outcomes and goals in any business organization. The philosophical establishment of a compensation strategy considers numerous factors to balance the direct and indirect reward system, employee responsibilities and contractual details as well as the internal versus the external equity aspects. A good compensation strategy should incorporate a hormonal balance between the internal equity and external competitiveness (Boxall & Purcell, 2016). This paper will describe a compensation strategy for an organization balancing the financial and non-financial factors that are applied to ensure a rewarding system that is inclusive of all compensation needs.

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Compensation and benefits schemes applied by any organization determine the employees' job satisfaction and productivity which is translated to effectiveness in realizing the organizational goals and objectives. Therefore, it is important to ensure that the compensation strategy applied in an organization should be knowledgeable and creative to ensure job security and motivation. The essential key component for creating a successful compensation system entails equity or fairness that includes the internal pay, workplace environment, and the external pay. Thus the primary step in ensuring g that compensation strategy is inclusive and satisfactory for all the workers it is essential to identify the financial and non-financial properties of the reward scheme (Torres & Adler, 2012). The financial elements of employees compensation include the direct and the indirect benefits where the direct financial compensation include equitable salaries or wages, competitive pay, merit recognition, and fair commissions. On the other hand, the indirect financial compensation includes insurance plans, social security benefits, and absence benefits, while, the non-financial compensation include the position or responsibility benefits, as well as the work environment benefits.

The organizational strategy needs to draw incorporative measures to develop the inclusive and informative compensation system working on the organizational culture, strategies, and objectives to improve job satisfaction and security. Development of the compensation philosophy designs the complexity of the rewarding programs considering the market competitiveness, employee attractiveness, and retention, as well as the external and internal equity levels. The development of the compensation strategy needs to understand the balance achievable between the direct and indirect reward programs in the overall total of the compensation approach. The compensation philosophy needs to be inclusive and considerate for the employee and the organization's welfare; hence, the compensation should be consistent with the organization's size and other related profile details (Lotich, 2017). Business organizations use compensation strategies for defining their perception and management of the employees through effective pay and benefits. Clear articulation of the compensation strategy helps to increase retention and attraction for the employees.

The effectiveness of the compensation strategy puts into consideration at least seven key factors that help improve and channel the rewards and benefit an individual receives in relation to the services rendered. Initially, the budgetary allocation for remuneration purposes as a way of determining the total compensation percent count for salaries, benefits, and other miscellaneous incentives. Thus, the amount of reimbursement puts into consideration the budget allocation provisions of an organization. The salaries should not take up the biggest fraction of an organization's financial ability to ensure profitability. It is also important to ensure that the amount of compensation derived at equates the market competition. Again, developing a salary range is important when developing a competitive compensation strategy to ensure that internal salary elements suit the external elements of the industry or job market (Bryman & Bell, 2011). When determining the salary range an organization is able to draw responsibility and competence jurisdictions that dictate employee's responsibilities in relation to the amount of compensation awarded for services offered.

On the other hand, it is important to audit the remuneration scheme so as to evaluate the compensation level in contrast with the market and industry trends. The external job market demands are met when an organization ensures that the employees are comfortable and promised the best available options in the market to ensure retention. Furthermore, considering the benefits package when developing a compensation strategy will help an organization identify the key elements that attract and retain employees. Employees' benefits package plays an essential role in increasing confidence in an organization making the employees to increase their performance which is translated into profitability and job satisfaction in an organization. The compensation strategy should also cover the performance management system to ensure that employees' performance /merits and achievements are recognized to motivate them in improved productivity (Teece, 2010).

Moreover, the development of an effective compensation strategy will incorporate the legal compliance where the organization abides by the business legislative rules and regulations with all federal and state laws. This consideration of legal compliance will incorporate state, labor, and organizational laws to ensure the employment scheme is constitutional and within proper legal provisions. Again, the compensation strategy should consider the structured administration factors when developing an effective pay-system. The business structure will incorporate responsibility recognition for comprehensively factoring all the important offices and designations in the organization to determine the salary scale.

Conclusion

Conclusively, a compensation strategy in an organization covers the total reward of benefits and remuneration offered to employees as equitable recompense for the services or work done. The organization needs to put into consideration various factors to determine the level of compensation they need to offer to the employees working for them. The salary or compensation ranges from one individual to the next based on the different elements that an organization employes to develop a compensation strategy or scheme. Logically, the level of compensation of employees within an organization structure differs because of their designation or responsibility properties, performance, market competition, and or budget allocation. Although different organizations are believed to draw their remuneration system independently they need to incorporate aspects like market or industry trend to ensure that they remain within the competitive clinch as well as ensure employee retention and attraction rates. Therefore, the amount as salary/wage, benefits, and reward systems directed to individual employees are determined by incorporative consideration of the financial and non-financial elements, as well as the direct and indirect benefits of the company. The effectiveness of the compensation strategy is evaluated with the level of employees' job satisfaction which translates to motivation and job security. Employees will want to work or remain working in organizations that reward their efforts competitively to increase their welfare and livelihood status. Therefore, the compensation strategy needs to an inclusive, creative, and elaborate for employees to be well knowledgeable of their benefits to make a comparative survey of the available market options.

References

Boxall, P., & Purcell, J. (2016). Strategy and human resource management. Palgrave: Macmillan.

Bryman, A., & Bell, E. (2011). Business research methods (3.rd ed.). Oxford: Oxford University Press.

Lotich, Patricia (March 29, 2017). 7 Keys to An Effective Compensation Strategy, Available at https://thethrivingsmallbusiness.com/compensation-strategy-7-things-to-consider-when-developing-a-compensation-strategy/#comments

Teece, D. J. (2010). Business models, business strategy and innovation. Long range planning, 43(2), 172-194.

Torres, E. & Adler, H. (2012). Hotel compensation strategies: Perceptions of top industry executives. Journal of Human Resources in Hospitality & Tourism, 11(1): 52-71.