Employee Compensation
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ne of the most challenging tasks for any employer is to design appropriate employee compensation packages, benefits plans, and reward systems. Compensation includes various benefits plans for employees. It is more than just money paid in the form of wages, salaries, and bonuses. A competitive compensation and benefits program, including retirement plans, are keys to attracting and retaining employees – in particular highly skilled and management talent, but also rank and file. With the benefits programs dramatically shifting from employer-funded solutions to shared or completely employee-funded offerings, achieving the right mix for the specific needs of the employees and cost structures has become more complex. It’s a nasty choice to offer an attractive benefits package and forgo profits, or cut back on benefits and risk losing the best employees. To attract talent and compete effectively a health insurance and probably a retirement savings plan are the mandatory benefits a company should offer. Specialty benefits--like life insurance, disability insurance, vision and dental coverage--sweeten the pot but are of lesser importance. According to the Bureau of Labor Statistics’ 2006 National Compensation Survey, 60% of firms with less than 100 workers offered health benefits, while 47% set up retirement plans, such as 401(k)s. Just 38% offered life insurance, 27% provided short-term disability benefits and 19% granted a long-term disability cushion. Every employer needs to design a proper reward system for their employees. Rewards can act as the ‘catalyst’ for improved performance and better productivity. Certain basic criteria are essential for rewards to be effective. These include: • Reward should be quick. • Reward should be significant. • The goals and rewards must be known, understandable, and attainable. • Reward must be distinctly and directly related to performance. • Reward should be irrevocable. • Reward should be compatible with job measurement. If the reward plan is seen to be unfair and unrealistic, for example promotion on the basis of seniority or favoritism, it may have a definitely negative effect as a motivator. For rewards to be effective they have to be generous and significant as noted above, hence 20
- Dara Nagra MBA PMP ®
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