How do incentive pay plans motivate employees and groups to achieve high levels of performance? Identify potential weaknesses of these plans and suggest steps that can be taken to make these plans highly effective. Choose one industry that either an individual or group incentive pay plan would work best.
Weekly Discussions
Lori Caldwell
BUS 681 Compensation and Benefits
Richard Thompson
Weekly Discussions
Post Your Introduction
Hello everyone, my name is Lori. I live in a small southern town in Arkansas. I have two grown children that have families of their own. My daughter is also a student at Ashford. My son lives here in Osceola where I live. He works for the City of Osceola. I work for a chemical company that produces acrylic molding compounds and acrylic sheet. I enjoy traveling to places I have never seen. I like spending time with my grandchildren and my sister. I live alone but have my fur baby named Gizmo. He is a Shih Tzu that thinks he is human. I leave the TV on when I go to work for him because he is a TV junkie. I look forward to learning with all of you.
Week 1 Discussion 1
| Compensation Strategy |
Discuss the general goals of an organization’s compensation system, including
how a compensation strategy works to support the organization’s business
strategy.
The goals of an organization’s compensation system is to maintain competitive advantage. When the employees are more productive and skilled then the company can gain a competitive advantage. A company can keep these highly trained employees by offering good compensation packages (Martocchio, 2011).
Human resource strategies are another form of compensation other than money. These strategies are in the form of flexible hours, trading days with other employees, and offering daycare onsite for employees children. These benefits can go a long way in keeping experienced workers as in the competitive strategies. There is also the offering of medical and dental insurance for employees and their families (Martocchio, 2011).
Compensation strategy is used to support both competitive and human resource strategies. These strategies are in the form of base pay, bonus awards, merit increases, and stock options. Employees are a human asset for any company and can affect the profit margin. The compensation strategy can help keep the most important asset of the company, human capitol, by offering competitive compensation to its workers (Martocchio, 2011).
Competitive advantage, human resource strategies, and compensation strategies all work together to help a company meet the organizations business strategies. By keeping the best performing employees a company can meet the company production goals to make the company profitable (Martocchio, 2011).
Reference: Martocchio J J 2011 Strategic Compensation: A Human Resource Management ApproachMartocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall. 20151123191847796492815
Week 1 Discussion 2
| Compensation Practices |
Discuss the various factors that influence a company’s competitive strategies
and compensation practices. Assess how a company can mitigate these
factors using effective compensation practices.
There are laws in place to protect both the employee and employer as far as compensation is concerned. Some of the laws are minimum wage, equal opportunity, and overtime pay. These laws ensure that employees are paid fair and not discriminated against because of age, race, or religion (Martocchio, 2011).
The employees’ goals, employers’ goals, and government’s goals all influence a company’s competitive strategies. The employee wants to make a good wage, health insurance, and safe working conditions. The employer wants high profit margins and high return on investments. The government wants social good with little involvement in the private sector (Martocchio, 2011).
The ideal scenario is when a company has highly qualified employees that stay loyal to the company. The profit margin for the company is high and cost is low. The benefits and compensation are high enough to allow the employees to contribute to the local economy (Martocchio, 2011).
Reference: Martocchio J J 2011 Strategic Compensation: A Human Resource Management ApproachMartocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall. 20151123191847796492815
Week 2 Discussion 1
| Seniority and Merit Pay |
Define the concept of seniority and merit pay plans, including the strengths
and limitations of such plans within an organization. Discuss the job,
organizational and/or other factors that should be considered when deciding
between the two.
Seniority pay is a form of pay that is paid to an employee for their length of time on the job. This is added to the base pay of the employee. The increase is a percentage of the base pay. An example of that would be if 20 employees making different base pay all get a 5% increase they would not all receive the same amount of money, it would be 5% of their base pay. The strength of seniority is that everyone will get an increase in pay but at different increments. The problem with the plan is that no matter what the performance of the employee they will still get an increase in pay for staying with the company. There will be some that work hard to contribute to the company goals but there are always those few that do little but still get a pay increase (Martocchio, 2011).
Merit pay is another form of pay added to the base pay but in a different way. A merit raise is dependent on the performance of the employee. If the employee works hard and does a good job they will receive an increase in pay equal to their performance. On the other hand if they perform poorly they will not get an increase in pay. This form of raise motivates the employees to work better and helps the company keep experienced workers. The problem with merit pay systems can be in the form of favoritism. Many times managers will have favorites among their employees maybe without even realizing. It could be a long time employee that is older and more experienced so the manager feels they deserve the raise even if their work is less than some of the newer employees (Martocchio, 2011).
Pay-for-knowledge pay programs are just what it says. The employer will pay an employee for learning new tasks or jobs in the company. This makes that employee more versatile within the company. This form of pay is a type of reward system where the employee is rewarded with an increase in pay for learning task above their normal activity level (Martocchio, 2011).
I know this pay for knowledge system well. My employer uses this system to motivate employees to learn new skills so they can fill in when someone has to be off work. The way it works is if you learn the job the next level up from your base pay position then you will get an increase in pay. For every level you go up you earn more. I have worked my way up from a material handler to a KP operator. This is the highest position in the company other than management.
When trying to decide between seniority pay and merit pay it is best to look at the business and the employees and decide which one will most motivate them. Will one improve performance more than the other or could it cause ill will among the employees causing production to fall. No two companies are the same and what works for one may not work for the other so each one can be a good choice (Martocchio, 2011).
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 2 Discussion 2
| Incentive Pay Plans |
Discuss how incentive pay plans – both individual and group – motivate
employees to achieve high levels of performance. Identify potential
weaknesses of these plans and suggest steps that can be taken to make these
plans highly effective. Then, choose one industry that either an
individual or group incentive pay plan would work best providing support for
your reasoning (using personal examples to illustrate your point if
possible).
How do incentive pay plans motivate employees and groups to achieve high levels of performance?
Identify potential weaknesses of these plans and suggest steps that can be taken to make these plans highly effective.
Choose one industry that either an individual or group incentive pay plan would work best.
“Incentive pay or variable pay is defined as compensation other than base wages or salaries that fluctuates according to employees’ attainment of some standard” (Martocchio, 2011, p. 386). The way this program works is that employees are motivated to perform well is that the incentive pay is non-recurring form of pay. This means that the employee has to work to earn this pay every period that the pay covers. For example a company pays incentive payments each quarter so the employees have to perform each quarter to earn the extra pay (Martocchio, 2011).
One problem with using this form of pay is that there is always those people that let others do all the work while they still get credit for meeting goals. This can cause bad feelings between workers and create high turnover rate. This is not good for a company because it causes the skill level to be low also causing production to be low. There is also those doing the majority of the work feel that the loafers are affecting their pay. This can cause those who work hard to look for work elsewhere. This then causes the company to be left with less than desirable work force (Martocchio, 2011).
I work for a company called Evonik, which uses the variable pay plan as a companywide incentive. Each year there are goals for each department, safety, and company projects. Points are awarded for meeting the goal, and partial point for meeting half the goal. Then at the end of the year all the points are totaled up and there is a formula used to determine what percentage the bonus will be. The overall performance of the company will determine if there is a multiplier. This is paid out in March each year and most of the time it ends up equaling two weeks’ pay.
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Wek 3 Discussion 1
| Building Blocks |
Discuss the basic building blocks of developing a market competitive pay
system, including the relationship between internal and external equity.
Basics of developing a competitive market pay system.
There are four activities used by compensation professionals to develop a competitive market pay system. 1.) Strategic analysis: to gather data on competitors and determine the possible growth of the company long-term. Examine the company’s finances and functional capacity. 2.) Compensation surveys: again gathering data on the competition about compensation. This data will cover wages, salaries, and employee benefits. The benefits have become the most important element in creating a market-competitive pay system. 3.) Integrating the internal job structure: This is done by using the data collected about the competitors pay rates. Then the information from outside firms and inside the company are combined to come up with competitive pay for the employees. 4.) Compensation policies: These policies are put together using internal company data and the strategies of the competitor. They also have to balance a good pay policy and managing cost (Martocchio, 2011).
Definition and relationship between Internal and External Equity.
Pay rates are set by using market pay rates as a reference point. A regression analysis is used to set pay rates for jobs that are comparable to jobs in the external job market. The pay is also compared to the jobs within the company. The use of the compensation survey data and job analysis help the compensation professionals design an internal consistent job structure (Martocchio, 2011).
In 2001 my company added a new line that can make many forms of acrylic. This is different than any other line in the plant. The company uses the Hay Group to perform job analysis and set pay scales. The operators of the line feel that they are not paid what they should because they have as much responsibility as a FF operator but only make technician pay. The reason given to the operators is that the FF operator has two people under them and the PC operator only has one. Everyone except the HR manager feels the same about the pay scale for this line but he will not budge on the matter.
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 3 Discussion 2
| Job Analysis |
Provide a brief overview of the job evaluation process, including the
importance of compensable factors. Detail the compensable factors of a
position you are familiar with and their impact on that position’s salary, and
you may want to reference the job analysis and job description process, which
form the foundation of job evaluation. Identify at least four pitfalls that
exist for organizations that do not follow this process.
Job evaluation allows the determination of differences of a group of jobs. This allows them to set a value and priorities scale for the work. Once the scale is established management can set a pay scale for most jobs in the company (Martocchio, 2011).
Compensable factors are used by companies to establish a relative pay scale. Characteristics considered are skill, effort, responsibility, and working conditions. The use of these four characteristics can help decide pay for jobs that are not alike can be equal when it comes to pay (Martocchio, 2011).
I will use the same example from my first discussion post. The job is Post Color Operator (PC) operator. Working requirements: must be able to weigh ingredients to exact amount in grams. Some computer skills are necessary. Must be able to multi-task.
Working conditions: hot, dusty, working with chemicals, dyes, and oil. Working around hot equipment and water. Also lifting up to fifty pounds. Monitoring feed stock, driving fork truck, and electric pallet jack. Must be able to input settings into the computer and make adjustments to settings to get product in spec. Perform testing on product and document results.
If a company fails to follow the job evaluation process they could end up over paying or under look at the paying their employees because they failed to look at the market pay rate. The pay incentives may not be enough to draw the quality of employee they need. Individual pay rates if they are low then it can cause high turnover of workers. Collective bargaining can bring trouble to a company through the unions that speak for the employees about compensation (Martocchio, 2011).
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 4 Discussion 1
| Benefits |
Discuss the role of benefits in compensation. Review the primary reasons
an organization provides benefits to its employees; predict future trends in
relation to employee benefits, including national healthcare; identify factors
that should be considered when creating a benefits plan.
There are many forms of benefits when considering compensation. There are voluntary benefits like paid time off, protection programs, and services. Then there are the government mandated benefits like social security, worker’s compensation and the most recent addition is the family and medical leave act of 1993 (FMLA). These benefits are an alternative form of pay for employees other than their base pay (Martocchio, 2011).
The reasons organizations provide benefits to its employees is to enhance both work and life experience. Benefits are also offered to employees and candidates to keep the company competitive. It also helps retain the experienced workers making for less turn over (Martocchio, 2011).
Looking at the future of employee benefits there are changes in the way of retirement funds are being done. There were set retirement plans in the past but now the retirement plans are going more toward a 401(k) plan. Companies and employees are looking at the new consumer focused health plans to try and control benefits cost. Most companies are global today making the total cost of compensation and benefits are outside the U.S. This will play a huge part in the benefits workers in the U.S. receive. “We are now fully into an age when events outside the U.S. labor market and economy are the primary driver of benefits and compensation trends within our boarders” (Salisbury, 2008). The future of healthcare and retirement plans will still be backed by employers. This is due to the fact that employees trust their employer more than they do the government with their health care and retirement plans (Martocchio, 2011).
There are many things to consider when creating a benefits plan. The incentives and bonus plans are based on performance of the employee, group, or company. Understanding the cost of the benefit plan before it is presented to the employees. This will prevent people from expecting something then it turns out the company cannot afford the benefit at the time. The payroll taxes must be added into the payroll budget. Then there is the issue of hourly paid employees and those on salary and what benefits are offered to each employee. Then there is the payroll budgeting. There is only so much money allocated for payroll so there has to be different percentages allotted for different parts of the compensation package. Then when it is all put together present it for compensating employees (Newman, 2007).
References: Martocchio J J 2011 Strategic Compensation: A Human Resource Management ApproachMartocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall. 20151123191847796492815
Newman P 20070831 Determining Employee Compensation.Newman, P. (2007, August 31). Determining Employee Compensation. Entrepreneur, , . 201512170653331513900042
Salisbury D L 2008 Benefit Trends: Change is now constanSalisbury, D. L. (2008). Benefit Trends: Change is now constant. Retrieved December 17, 2015, from http://online.wsj.com/ad/employeebenefits-benefit_trends.html 20151217062441863792777
Week 4 Discussion 2
| Employer-sponsored Retirement Plans |
Discuss the origins of employer-sponsored retirement plans. Then, discuss
the 2-3 most prominent trends in retirement plans including its impact for both
the employee and the organization.
There are several types of retirement plans; employer sponsored retirement plans, social security old age, survivor, and disability insurance (OASDI), IRA’s and Roth IRA’s. Retirement plans before WWII were mostly utilized by people in the rail road, banking, and public utility industries. The revenue act of 1921 stopped wage increases so companies started offering pension plans that did not fall under the restriction of wage increases. The companies could put the money into a pension plan for the employees so they would have it in the future. Today the companies and employees both get tax breaks on money put into any type of retirement plan (Martocchio, 2011).
There are fewer people participating in retirement plans because of eligibility. Most companies only offer retirement plans as a benefit for full time workers. The thing is that with cut backs there are more part time workers making them ineligible to participate. There are areas of industries where the employees feel that they do not make enough money to save for retirement(Martocchio, 2011).
There are many different kinds of retirement plans but most organizations have a defined benefit plan or a defined contribution plan. The defined benefit plan is expensive for the employer to fund. The pension fund is insured by the pension benefit guaranty corporation (PBGC). A company pays a premium to the PBGC so that in the event they are not able to honor their financial obligation to the retirees the pension plan is insured (Martocchio, 2011).
Defined contribution plan is a plan where both the employee and employer make contribution toward the retirement plan. Each put a percentage of the employees’ wages into accounts where the finds are invested for the employee. This plan has rules about how much a contribution can be. This plan does not guaranteed a set amount to be paid. Because the money is invested there is the chance of loss of funds and gains on investments (Martocchio, 2011).
When I worked for American Greetings they had both a 401(k) and profit sharing. These monies were kept separate and you never saw how much you had in the profit sharing account. The 401(k) account you could see what was in there but the investments were made for you. Where I work now when I first started they had the defined benefit plan but a few years later they changed over to the defined contribution plan. The employees that were vested in the defined benefit plan would keep that plan and those that were not yet vested changed over to the defined contribution plan. There is the 401(k) plan as well but we have the option of choosing how to invest the money. The company also matches the employees contribution up to six percent. About a year ago they blended the plans so that the employee also has a say about the investment of the companies contribution into the defined contribution plan.
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 5 Discussion 1
Executive vs. Non-executive Pay
Contrast the principle difference between executive pay and non-executive pay, including a discussion on controversies associated with the growing disparity between executive and non-executive compensation packages.
Executives are paid a large salary for the knowledge they hold. There is a great amount of responsibility that goes along with the executive positions they hold. Non-executives are not paid as much because they have less responsibilities. Both groups are paid discretionary benefits. The difference is executives get extra perks that go along with those benefits (Martocchio, 2011).
When you look at the difference between what executives are paid and what non-executives are paid the difference is astonishing. The executive may have responsibilities and knowledge but is it worth millions of dollars. It is said that executives are paid 24% more than non-executives when it should only be 20 times what a non-executive is paid. An example of this is a non-executive that makes $100,000 a year would mean the CEO would only make $2 million a year not the $22 million the CEO of Starbucks makes (Bloxham, 2011).
References: Bloxham E 20110413 How can we address excessive CEO pay? [Supplemental material].Bloxham, E. (2011, April 13). How can we address excessive CEO pay? [Supplemental material]. Fortune, , . Retrieved January 7, 2016, from http://management.fortune.cnn.com/2011/04/13/how-can-we-address-excessive-ceo-pay/ 20160107220415808891654
Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 5 Discussion 2
Contingent Workers
Contingent workers are assuming a greater role in today’s organization. With that as a background, discuss compensation and benefit issues associated with the following workers: part-time, temporary, independent workers, and flexible/telecommuting. What impact may these changes have on an organization’s compensation plan?
Part time workers are paid less than full time workers and most of the time companies do not give discretionary benefits to part time workers. Temporary workers work for many different companies. Because of the moving around from place to place some workers do good work while some do not try to work hard at all. They feel that it is not worth the time and trouble. Some temporary workers may have ill feelings toward full time workers because they do the same work but are paid less. Independent workers do not receive any benefits from companies they perform services for. They are employees of an outside company. Flexible/telecommuting workers can make adjustments to their work schedule to meet their needs and the company’s needs. This lets the employee take care of company business and still have time for home (Martocchio, 2011).
With all these different types of workers inside an organization it makes keeping the compensation and benefits budget in check a complicated process. Some of the workers could be assigned to a certain department so their pay will come from that budget while others are there to perform a specific service so they would be paid from a project budget. Where the money comes from depends on who is being paid and for what reason (Martocchio, 2011).
Where I work they use temporary workers hired through a temp service. There are also contractors that come in to do specialty work. The temp service takes a certain amount from each temporary worker as a fee so Evonik pays them extra so that after the fee is taken out of their check they are still making the same as the full time workers. The temporary workers used for entry level work try to do good work so that they may be asked to be made full time if there is an opening. The contractors are used for jobs that are a special task jobs. These are usually jobs that are only done once a year and it would cost more to train people to do the job and buy the equipment needed to perform the job.
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 6 Discussion 1
Expatriate Pay
Evaluate the following methods for establishing base pay in international assignments: home country-based pay, headquarters-based pay, and host country-based pay. Include within your discussion the strengths and weaknesses of each method and factors that should be considered when determining the appropriate international pay strategy. How should organizations balance host-country income tax differentials? How do compensation plans affect employees’ willingness to accept foreign assignments?
Evaluate the following methods for establishing base pay in international assignments:
Home Country-Based Pay Method: The home country-based pay method will pay the expatriates the same as if they were working in the U.S. Job evaluations are used to ensure the two positions are comparable. This method of pay works well for expatriate work because the hob is usually short term. The down side to this method is when the expatriates home country’s pay is larger than what the local people are paid for doing the same work (Martocchio, 2011).
Host Country-Based Method: The host country-based method pays the expatriates using the same pay scale as the local workers. This method of pay is normally used when the expatriate will work at a location for a long term. This benefits a company when the cost of living is lower in that area. The same thing can be a burden to a company when the cost of living is higher than normal (Martocchio, 2011).
Headquarters-Based Method: The headquarters-based method pays all employees by the same pay scale that is used at headquarters. This method is used for expatriates that work in one country for a while then move to another. This method makes it easier to pay the employees by the standard of one country regardless of where they work(Martocchio, 2011).
How should organizations balance host-country income tax differentials?
The host-country organization choose between two choices for tax protection regarding expatriates. The choices are tax protection and tax equalization for these traveling workers. For both of these methods employers use a hypothetical tax based on the taxes that would be paid if they had worked in the U.S. When using the tax protection method the employer will pay the employee back for any income tax that occurs above the hypothetical tax that was calculated. When using the tax equalization the employer calculates the hypothetical tax and takes the taxes out during the year. The employer pays all the taxes due both foreign and domestic that exceed what was held out of their pay (Martocchio, 2011).
How do compensation plans affect employees’ willingness to accept foreign assignments?
Everyone works to make all the money they can to provide for their family. The compensation plans offered to employees for travel look good because of all the extras offered. This is sometimes misleading because they think they will have all this money left over but find out later that it takes that extra money to get by. Then there is the issue of being away from the family. If the job is not for at least 6 months then thy are away from home until the job is done. If it is more than 6 months they get time off to visit their family (Martocchio, 2011).
Here at Evonik there was a guy that had to go to China for a year to help setup a new plant. The company paid for all his expenses while there, his pass port, and shots. He was paid his normal pay plus the agreed upon incentive pay which was never made public. Then the next year we had a guy go to Taiwan to set up a plant but had to go for 6 months. Bothe of these guys came home for a two week visit once and the guy that went to Taiwan had his family visit him there all at the companies expense.
Reference: Martocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall.
Week 6 Discussion 2
Compensation in Other Countries
Select one country whose pay and benefits practices are discussed in chapter 15 and compare them to pay and benefits practices used in the United States. Include in your discussion how these practices are similar and how they are different.
In Canada the law states that employees are entitled to paid holidays and two weeks paid vacation. In the United States there is no such entitlement. Employers have the option to offer paid holidays and paid vacation (Martocchio, 2011).
In the event of having a baby both countries offer maternity and paternity leave. Canada offers 17 weeks leave total where the United States offers 14 weeks leave (Martocchio, 2011).
Canada recently started offering compassionate care leave that consist of up to 8 weeks of unpaid leave to care for a family member. In the United States this is referred to as family and medical leave act (FMLA). This provides up to 12 weeks of unpaid leave to care for a family member or yourself (Martocchio, 2011).
Canada does not give time off for military service. In the United States if an employee is in the reserves they are allowed time off to meet their military requirements. An employer will hold a military persons position usually for 6 months of deployment. After that time they will be reinstated in a comparable position (Martocchio, 2011).
Both countries offer similar pension and retirement plans. The plan in Canada is very much like the 401(k) plan in the United States. Basic medical care is paid for by the provincial medical insurance plan. This plan is funded through federal and provincial taxes. Major medical, prescription, dental and vision are available through employers (Martocchio, 2011).
Reference: Martocchio, J.
J. (2011). Strategic Compensation: A
Human Resource Management Approach (6 ed.). Upper Saddle River, NJ:
Prentice Hall.
References
Martocchio J J 2011 Strategic Compensation: A Human Resource Management ApproachMartocchio, J. J. (2011). Strategic Compensation: A Human Resource Management Approach (6 ed.). Upper Saddle River, NJ: Prentice Hall. 20151123191847796492815
Newman P 20070831 Determining Employee Compensation.Newman, P. (2007, August 31). Determining Employee Compensation. Entrepreneur, , . 201512170653331513900042
Salisbury D L 2008 Benefit Trends: Change is
now constanSalisbury, D. L. (2008). Benefit
Trends: Change is now constan. Retrieved December 17, 2015, from
http://online.wsj.com/ad/employeebenefits-benefit_trends.html 20151217062441863792777
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