Professional Documents
Culture Documents
Compensation strategy
Employee compensation refers to the benefits (cash, vacation, etc.) that an employee receives in
exchange for the service they provide to their employer. Employee compensation is generally one
of the largest costs or expenses for any organization. Approximately 92% of the working
population in the United States is made of employees earning compensation from their employer.
Compensation describes the cash rewards paid to employees in exchange for the services they
provide. It may include base salary, wages, incentives and/or commission. Total compensation
Employees receive compensation from a company in return for work performed. While most
people think compensation and pay are the same, the fact is that compensation is much more than
just the monetary rewards provided by an employer. According to Milkovitch and Newman
in Compensation, it is "all forms of financial returns and tangible services and benefits employees
individual's base salary, as well as short- and long-term incentives. "Tangible services and
benefits" are such things as insurance, paid vacation and sick days, pension plans, and employee
discounts.
advantage in a global economy, the compensation program of the organization must support totally
the strategic plans and actions of the organization." Labor costs greatly affect competitive
advantage because they represent a large portion of a company's operating budget. By effectively
controlling these costs, a firm can achieve cost leadership. The impact of labor costs on competitive
advantage is particularly strong in service and other labor-intensive organizations, where
employers spend between 40 and 80 cents of each revenue dollar on such costs. This means that
for each dollar of revenue generated, as much as 80 cents may go to employee pay and benefits.
Compensation costs have risen sharply in recent years, primarily because of escalating benefit
costs. Employers now spend more than $1 trillion on employee benefits. In 2003 the Society for
Human Resource Management reported that benefit costs averaged 39 percent of total payroll in
2001, up from 37.5 percent in 2000. This means that, on average, employers provide about $18,000
in benefits to each employee annually. The biggest cost increases have been in health benefits,
which have been rising at an average of 12 percent annually for the past several years.
An organization must contain these spiraling costs if it is to get a proper return on its human
resource investment, and thus gain a competitive advantage. When compensation-related costs
escalate, the organization must find a way to offset them. In the past, companies passed along these
increases in costs to the customer in the form of higher prices. However, most U.S. companies
now find it very difficult to raise prices. Thus, to remain competitive in light of fierce domestic
and foreign competition, unfavorable exchange rates, and cheaper foreign labor costs, it is
imperative that companies find ways to control labor costs. Unless this can be done, organizations
may be forced to implement such adverse actions as pay freezes, outsourcing/offshoring, and/or
massive layoffs.
A host of laws such as the Equal Pay Act, Fair Labor Standards Act, and the Employment
Retirement Income Security Act, regulate corporate compensation practices. Some pertain to pay
issues such as discrimination, minimum wages, and overtime pay; others pertain to benefits, such
Organizations must understand and fully follow these laws in order to avoid costly lawsuits and/or
government fines. Pay and benefits are extremely important to both new applicants and existing
employees. The compensation received from work is a major reason that most people seek
employment. Compensation not only provides a means of sustenance and allows people to satisfy
their materialistic and recreational needs, it also serves their ego or self-esteem needs.
Consequently, if a firm's compensation system is viewed as inadequate, top applicants may reject
that company's employment offers, and current employees may choose to leave the organization.
With the aging of the U.S. workforce and the impending retirement of the "baby boomers,"
employers must be more concerned than ever before about retaining skilled, productive workers.
Moreover, disgruntled employees choosing to remain with the organization may begin to behave
Compensation Trend
In the early 20th century, the America government took a significant role and began to introduce
several changes in many aspects of workers’ pay and remuneration. This brought about Acts such
as the fair Labour Standards Acts of 1938, which dictated equal pay for equal work. However,
recessions dotted the following twenty years but later on the economy boomed and government
played an increasingly important role in America's workplace by ratifying the equal pay Act
Executive order 11246, Title 7 of the Civil Rights Acts in 1963 (Noe, Hollenbeck, Gerhart and
Wright 2003; Switzer, 2004). In the early 20th For example in Nigeria, in line with the workmen's
compensation Decree of 1987, all organizations and businesses are to provide workers'
compensation coverage for the benefit of their employees who may be injured or incapacitated
while on the job. This is followed by pensions Reform Act of 2003 which requires every
employment to maintain a life insurance policy in favour of an employee for a minimum of 3 times
staged the famous 45 days general strike for a Cost Of Living Allowance (COLA). In 2007,
Nigerian workers demanded for a 25% increase in general wage through the Ernest Shonekan wage
consolidation committee and this was arbitrarily cut down to 15% by Obasanjo government in
2009. Nigerian workers have struggled for fifteen times to have wages improved and a national
minimum wage legislated upon. However, the struggles produced notable victories for workers
and the Nigerian Labour Congress (NLC), and it was usually the case.
Compensation as it were is a complex topic that has significant impact on organizational success
(Dessler, 2005), and for any organization to succeed, it must not look up to capital investment but
to its employees as the fundamental source of improvement with the understanding that the human
element and the organization are synonymous (Tella. Ayeni, and Popoola, 2007). According to
Cascio (2003), the objective of the design of compensation program is divided into two, which
are, direct and indirect forms of compensation. Direct compensation has to do with wage and / or
salary aspect while indirect compensation is the fringe benefits a worker enjoys as a result of
working in an organization. Integrating the two into a package that will encourage the achievement
In the words of McNamara (2006), compensation includes issues regarding wage and/ or salary
programs and structures accruing from job descriptions, merit-based programs, bonus-based
programs, commission based programs and so on, while benefits typically refers to retirement
plans, health life insurance, disability insurance, vacation, employee stock ownership plan and so
on. Gomez – Mejia, Balkin and Cardy (2006) view employee compensation as comprising of base
pay and fringe benefits. Base pay or cash pay is the direct pay provided by employers for work
performed and these include salary, overtime pay, shift allowance, uniform allowances and pay
contingent on performance like merit awards, incentive pay, bonuses and gain sharing while fringe
compensating include required programs such as social security, health benefits, pension plans,
paid time off, tuition reimbursement, foreign service premiums and so on.
However, skill based pay also pose some risks in the area of employee paying higher compensation
that are not offset by organizations productivity. Also, employee may become "rusty" unless there
is opportunity to use all the skills acquired; and thirdly, when employee hits the top of the pay
structure, he may become frustrated and leave the firm just because there is no further opportunity
to receive pay raise. Employee benefits, though a part of total compensation embraces non-
monetary form of compensation ranging from health care plans, to pension or retirement plans,
social security, insurance, family and medical leave (Bernadin, 2007), severance pay, payments
for time not worked (vacations, sabbatical, holidays), workers compensation, that is, those injured
on the job (Cascio, 2003), foreign service premiums, child care, tuition reimbursement and on
Other emerging trends in employee benefits embrace flexibility or what is known as cafeteria
approach to benefits. This allows an employee to choose from array of benefits in lieu of pay. An
employee who is a bachelor may choose money in lieu of child care (Miner and Crane, 2005). This
is a welcoming idea though it could be more expensive for employers. By and large, employee
Benefits
From library and information specialists point of view, monetary compensation is an essential
component in recruitment and retention process; but benefits are equally important and can often
be the deciding factor in whether an individual accepts an offer or even stays. Switzer (2004)
concludes that as the competition increases for library employees with the skills and knowledge
that most academic libraries need, many libraries rely on their benefit packages to give them the
leading edge. It is pertinent therefore that present day human resource specialists are well informed
about the various benefits available so that they can adequately manage recruitment and
employment.
Academic institution typically offer a wide range of benefits to their employees; and as university
employees, academic librarians are afforded the same institutional benefits as other university
employee. These include retirement plans, medical care, sick and annual leave, sabbatical leave,
study leave, maternity leave, child care, pension benefit, sponsorship to conferences and
workshops, leave bonuses, on campus accommodation, and so on, which are referred to as
university supported benefits. Libraries, in addition to these can also make some benefits available
to its employees. The onus is on the human resource specialist who must be aware of benefits
offered by other libraries to ensure that his library is not left behind. Some library supported
Job satisfaction
The happier people are within their job, the more satisfied they are said to be. Most times, job
design aims to enhance job satisfaction and performance and this could be achieved via job
rotation, job enlargement and job enrichment. Other influences on job satisfaction include the
management style and culture, employee involvement, empowerment and autonomous work
organizations and the most common way of measurement is the use of rating scales where
employees report their reactions to their jobs (Judge, T. A., Thoresen, C. J., Bono, J. E., & Patton,
G. K.2001).
Job satisfaction is defined as an individual's reaction to the job experience (Berry, 1997) and in
order for There are various components that are considered to be vital to job satisfaction and they
include the following: pay, promotion, benefits, supervisor, co-workers, work conditions,
communication, safety, productivity, and the work itself. These variables are important because
they all influence the way a person feels about his job though each of these figures into an
individual's job satisfaction differently. Meanwhile, one might think that pay is considered to be
the most important component in job satisfaction especially as it has been affirmed that money
motivates people; and in job situations, money motivates behaviour when it rewards people in
relation to their performance and when it is perceived to be fair, equitable, and providing rewards
that employee truly value (Bernadin, 2007; Katz In Tella, Ayeni and Popoola, 2007).
However, this has not been found to be true. Employees are more concerned with working in an
environment they enjoy. This is a pointer to the fact that compensation and benefit issues are not
to be taken for granted by employers because not only pay but also fringe benefits influences the
kind of employees who are attracted to, and remain with an organization. Defining a compensation
strategy is an important activity for all companies, including startups. The compensation strategy
must be affordable, structured and reasonably competitive. There are many different types of
compensation paid to employees. The following are a few examples of the compensation paid to
employees:
As a startup, you may not be able to compete with large companies on salary. Therefore, you
should consider a combination of options to attract and retain key employees. Do not underestimate
the value of the advantages or perquisites that your company has to offer that may not be readily
available in larger companies’ opportunities for interesting work, lack of hierarchy, flexible
environment, and so on. Some people are motivated by the desire to be on the leading edge of
scientific or technological advances. They may take less pay to work for a startup if they believe
A salary (or wage) is a fixed amount paid in exchange for an employee’s services. Ontario
exchange for the work they complete for a company. For full-time employees, salary is generally
generally described as an hourly amount. To determine an appropriate salary and/or salary range
Compensation can be divided into salary, benefits and incentives. While salary and benefits must
be competitive, incentives are the most likely drivers of attracting and retaining the best employees
in startups. There are three key types of incentives: bonuses, profit sharing and stock options.
1. Bonuses
o Goals must be realistic and closely matched to the business and people involved.
o Bonuses can be set up to directly drive and support the company’s needs (for example,
milestones).
2. Profit sharing
o Profit-sharing bonuses are generally paid out once a year in the form of cash or on a
deferred basis.
3. Stock options
o An individual receives the option to buy company shares for a set price during a
o Option can be exercised by the individual at any time during the agreed-upon term and
offered to key employees in lieu of a higher salary—especially where the business is not
o If the business does well and the company’s stock rises, the holders of the options share
o In general, if the company permits a long period from the date of issue to the last date
for exercising the option, it will encourage the employee to stay with the company and
4. Employee Benefits
Employee benefits typically refers to retirement plans, health life insurance, life insurance,
disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly
expensive for businesses to provide to employees, so the range and options of benefits are changing
Benefits are forms of value, other than payment, that are provided to the employee in return for
their contribution to the organization, that is, for doing their job. Some benefits, such as
Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and
worker's compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement
(pension pay), profit sharing, stock options, and bonuses. (Some people would consider profit
You might think of benefits as being tangible or intangible. The benefits listed previously are
tangible benefits. Intangible benefits are less direct, for example, appreciation from a boss,
likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually
referring to tangible benefits, but sometimes meaning both kinds of benefits. You might also think
of benefits as company-paid and employee-paid. While the company usually pays for most types
of benefits (holiday pay, vacation pay, etc.), some benefits, such as medical insurance, are often
paid, at least in part, by employees because of the high costs of medical insurance.
5. Employee Compensation
Compensation includes topics in regard to wage and/or salary programs and structures, for
example, salary ranges for job descriptions, merit-based programs, and bonus-based programs,
commission-based programs, etc. (Also see the Related Info (including Benefits). Compensation
is payment to an employee in return for their contribution to the organization, that is, for doing
their job. The most common forms of compensation are wages, salaries and tips.
Compensation is usually provided as base pay and/or variable pay. Base pay is based on the role
in the organization and the market for the expertise required to conduct that role. Variable pay is
based on the performance of the person in that role, for example, for how well that person achieved
his or her goals for the year. Incentive plans, for example, bonus plans, are a form of variable pay.
(Some people might consider bonuses as a benefit, rather than a form of compensation.) Some
organization. The ranges include the minimum and the maximum amount of money that can be
earned per year in that role. Employees have certain monies withheld from their payroll checks,
usually including federal income tax, state income tax, FICA (social security) contributions, and
employee contributions to the costs of certain benefits (often medical insurance and retirement).
Exempt and Non-Exempt
Professional, management and other types of skilled jobs are classified as exempt. Exempt jobs
get a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month.
It's not uncommon for exempt positions to receive higher compensation and benefits than non-
exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply by
Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobs usually get a
wage, or an amount of money per hour. Non-exempt jobs also get paid over-time, that is, extra pay
for hours worked over 40 hours a week or on certain days of the week or on holidays.
Each job must have the same pay range for anyone performing that job, that is, one person can't
have a higher maximum pay than someone else doing that same job.
Job evaluation is another technique that can be used to establish an equitable wage rate. This
method is a more systematic and rational approach to internal equity because it evaluates workers
Skill-based pay is an approach that bases the doing the job, rather than on the job itself. Employees
with similar skills are grouped together, regardless of job title, to form skill classes or grades.
These classes determine pay level. This technique can be applied to agricultural enterprises rather
easily.
Broadbanding was used in a Cornell University study. Five competency levels were developed to
classify employees according to their decision making authority, skill level, and supervisory
capacity. Every employee was classified as being in one of the following five competency levels.
Level one: •
Employees who are either very new to the farm or have no advanced skills.
Level two: •
Very specialized individuals who perform from one to many specific tasks that require training.
Level three:
Employees who are very skilled in at least one specified area and have supervisory capacity and
Level four:
Employees with exception skill levels, who make decisions that affect entire areas of the operation.
These people have potential for broad supervisory and decision- making authority.
Level five:
These are the most skilled and qualified full time employees. They have complete supervisory
authority and the most decision-making authority given to any fulltime employee. By using a
competency scale, each employee can be cross-referenced by job title and competency level or
studied solely within either category. Employees with similar skill levels, or competency, are taken
together in compensation “bands,” regardless of job title. These bands then compensate similar
employees at similar rates across the entire organization and maintain both internal.
Commissions
Commissions are a common way to remunerate employees (salespeople) for securing the sale of a
product or service. The intent is to create a strong incentive for the individual to invest the
maximum effort into their work. Commissions are usually calculated as a percentage of the sale of
the product or service (for example, 5% of a computer component’s retail selling price). Payment
may be either straight commission (no base salary) or a combination of base salary and
commission. In general, the commission structure is based on reaching specific targets or quotas
that have been previously agreed upon by management and the employee. These targets or quotas
are typically tied to sales revenue, unit sales or some other volume-based metric.
Compensation plays an important role in the recruitment and retention of librarians. Though
librarians in academic libraries these days enjoy significant increase in their salaries and benefits
that are generally provided by their parent institutions, there is still room for improvement. This
study has revealed that in some universities, this group of people is denied some benefits that are
being enjoyed by their counterparts in the faculty which may be as a result of the library being
seen as a support unit of the university. There may be need for university policy makers to review
this concept and see university libraries and librarians as integral part of the educational institution.
The academic library human resource specialist should therefore set in motion strategies to address
especially benefits packages available to library employers across board; as well as creating a work
environment that is appreciative of its employees and conducive to professional growth. The
concept of work life balance (Switzer, 2004) which is valued by today's library employee should
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