Compensation and Benefits Strategy of an Organization

Compensation and Benefits Strategy of an Organization Introduction Organizations often maintain their workforce depending on the quality and standards of their compensation plan. Workers are always attracted by good and reliable compensation and benefits strategies which promise them a secure future. According to a research compilation by Dulebohn & Werling (2007), the compensation offered by an organization is directly related to the degree of success in achieving desired goals in the planning of human resource, such as recruiting and attracting human capital. This paper seeks to explore in detail the existing relationship between compensation and general employee performance. In particular, the paper will make reference to the US Postal Service which has been encountering problems of late following its restructuring program that is meant to cut jobs and save running costs.

Compensation challenge at US Postal Service The USPC has encountered problems with its employee compensation and benefits scheme following the dwindling business prospects in mail revenue collected the recent years.

According to the United States Government Accountability Office, the USPS needed to be enlisted among high risk institutions that required Congress’ as well as the executive branch’s special attention in order to attain broad based transformation.

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The company’s diminishing financial situation is expected to increase its annual debt amount, a condition that is bound to limit even further its financial obligations for the near future. Part of GAO’s compensation recommendations for USPS included offering employees with the choice of retiring early on voluntary basis, speed up the retirement process of all workers who have attained the retirement age, and cut down on the benefit costs that USPS pays its employees, like the health benefit premiums and life insurance premiums.

Compensation strategies used by other companies faced with similar challenge An alternative strategy to USPS’s compensation challenge, which other companies facing similar challenges in the past have employed include reducing costs on the pension scheme, and also cutting contributions to the health insurance program. As part of the pension reduction restructuring program, USPS should make a contribution whose value should be equal to a revised percentage of the worker’s salary. This is a more defined contribution plan whose predictability is simple and possible. Additionally, assets realized as a result of defined contribution plan are more portable as compared to those realized from defined benefit plan.

Some other companies have employed a strategy where they reduce their workforce size as a way of saving on compensation costs to workers in the form of salaries and wages.

IBM restructured its pension policy by reducing the amount of pension contributions that its workers were expected to make as a way of altering its compensation strategy altogether. As a result, older employees who had previously been contributing comparatively larger amounts for their pension schemes became devalued in the company as they felt their future remained in jeopardy. The company, instead, attracted younger employees. Lifelong employment at IBM never became a priority for most employees. As such, voluntary severance package at the firm as

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well as early retirement was realized in all departments of IBM. Consequently, this strategy saw IBM considerably reduce the number of its workforce to manageable levels (Ghilarducci & Weller, 2007).

Recommendations for USPS USPS should consider reducing its pension contribution for each individual worker. This will discourage most of the older employees who have been with the firm for longer periods. As such, these workers will opt out of employment, through the voluntary retirement program, due to their dissatisfaction of the company’s decision. In essence, USPS will save quite a significant amount of finances which it would have otherwise spent on paying large salary amounts to a bloated workforce. Younger employees with good qualifications and who place little emphasis on pension contributions will also be attracted to the company to fill in vacancies that emerge as a result of older employees quitting the company. These young workers can also be employed on short term basis, further reducing USPS’s overall expenditure on compensation which often is higher with long term employment plans.

Impediments of this strategy Workers often consider their future in employments. With higher pension contributions, workers are assured of a more secure future than in cases where their pension contributions are relatively smaller. In this context, therefore, workers who get attracted to companies with comparatively small pension contributions often have only short term goals in their minds. Their service to the company is usually short lived as they seek to gain employment that offers a more secure retirement plan for their future safety. As such, USPS might not attract workers who have long term plans to work for the company. This may eventually affect the quality of work performance, particularly where a company has a huge employee turnover.

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The departure of long term experienced employees may also have negative consequences to the performance of USPS. As a result of the reduction in pension contributions, these long term employees, who often are about to attain the retirement age are discouraged by the change of events. The decision to tamper with the retirement benefit contributions, which often is the hope for the immediate future affects their resolve to stay with the company and subsequently leads to their voluntary retirement. However, the experience that this group of workers has amassed for their long service in the company could easily not be recaptured. Thus, although new and young workers would be attracted to USPS to fill the gap left by the vacated staff, their experience may not measure up to the expectation of the company.

Effectiveness of this strategy to USPS A reduced contribution on pension amount would imply that USPS will be spending less than it has previously been spending on employee pension. The amounts recovered, which would have otherwise been spent on making the contributions can, instead, be used in financing other viable projects with higher probabilities of improving business performance. On the other hand, older employees who have served USPS for long and who have been making more contributions to their pension fund will be demoralized by the move to cut down on the contributions. These workers often are about to attain their retirement age and thus, such a move appears to be a loss to them. In essence, the workers will opt out voluntarily, either to seek other employment with attractive pension contribution or simply retire and have their pension benefits. USPS will have realized a leaner workforce which it will be able to manage as a result of the voluntary retirement. However, USPS can maintain its health insurance at the current rates so as to retain young workers who will be attracted by a health scheme that promises a healthy future.

Conclusion

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USPS is experiencing challenging moments in the handling of its employee compensation following reduced revenues realized from use of mails. As such, the company has been unable to effectively pay up its workforce. As a solution to this problem, USPS should consider reducing the amount of contributions it makes in form of pension. This will enable the company to save funds which it would have otherwise spent in paying to the pension fund. Older workers will be discouraged by such a move and a majority of them will decide to retire on voluntary basis. These retirements will further help the organization to attain its objective of reducing compensation expenditure. However, such a move could affect performance at the organization due to the fact that most of the older employees also have the experience necessary to enable the organization attain its objectives.

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Dulebohn, J. H. & Werling, S. E. (2007). Compensation research past, present, and future.

Human Resource Management Review, 17(07), 191-207.

GAO, (2009). Restructuring the U.S. Postal Service to achieve sustainable financial viability (New). GAO. Retrieved June 14, 2012 from www.gao.gov/assets/210/203772.pdf Ghilarducci, T. & Weller, C. E. (2007). Employee pensions: Policies, problems, and possibilities. University of Illinois: Labor and Employment Relations Association.