Fair and Equitable Compensation Systems

Construct a comprehensive research paper on a compensation system that you consider fair and equitable.

Financial compensation

Compensation is a benefit, financial or non-financial, that an employee receives in exchange for their services to an organization, expertise, and time. Financial compensation is in monetary form. Various types of financial compensation include salaries, bonuses, wages, and commissions. Compensation plays a critical role in ensuring that client retains their morale. Various aspects, including labor laws such as the Fair Labor Standards Act, and the Equal Pay Act of 1963, market rates, hours worked, and the company’s pay system affect financial compensation (HR-Guide, LLC, 2015). A fair compensation system is determined using job descriptions, analysis, and evaluations, as well as pay structures. Fair compensation is important because it can be useful in ensuring the retention and attraction of the best talents. It also motivates employees to increase their productivity (Resource Management, Inc., 2016). Fair compensation also avoids litigations or unwanted attention from the various agencies that are concerned with ensuring that all employees are paid equitably.

Use critical thinking to discuss issues from two perspectives, employee’s and employer’s.

Salary

A salary is a fixed wage that is paid on a monthly, weekly, or hourly basis. It does not factor in extra hours that an employee works. Employers arrive at a salary by analyzing the employee’s qualifications, experience, capabilities, and current market rates. This analysis places employees in different job group categories. The different labor laws are reviewed frequently to accommodate salary increments. This occurs when the economy changes in a manner that influences the value of an employee’s salary. Increments can also be negotiated into existence when the job description changes to include more responsibilities. In other cases, employees pursue higher education to qualify for higher pay grades, which means that their base wage increases as well. Therefore, this aspect of financial compensation acts as a retainer for employees because it is constant throughout the months.

Profit Sharing Plan

A profit-sharing plan allows employees to gain an agreed percentage of the profits that an organization earns annually. This bonus motivates employees to put more effort into their work leading to more revenue. The organization’s financial goals include making more profits. Thus, all other non-financial goals are expected to lead toward increased and sustained profitability. An employee tends to be motivated if they benefit further from an organization’s success. The completion of their roles and responsibilities gains thoroughness and leads to the achievement of other goals such as wider market share, increased customer loyalty, better reputation in the market, better product and service quality, consistency in service delivery, improved customer care, as well as general organizational growth and expansion. The employer benefits from this plan because of the workforce’s sustained motivation.

Employee’s and Employer’s Perspective

Both the employee and the employer hold different perspectives regarding salaries and profit-sharing plans as the chosen forms of financial compensation. From an employee’s perspective, a profit-sharing plan is beneficial in most cases because it increases the gross income that one accesses. However, this benefit is accessible temporarily. When using the substitution agreement, the employers and employees agree to substitute some of the pay components in the fixed pay. This allows the company to align the plan with the budgeted costs of labor and gain the ability to pay employees as agreed. In this case, when the company enjoys high revenues, employees also enjoy increased pay. However, low revenue influences the employees’ earnings negatively (Long & Fang, 2012). Thus, the assumption that earnings increase due to the presence of a profit-sharing plan changes depending on the plan’s agreement.

Critically interrogate your own concepts about compensation and benefits issues.

In a different case scenario, employees’ earnings increase due to a profit-sharing plan and are not subject to fluctuations in turnover. The human capital approach is adopted with the intention of increasing the employees’ earnings, retaining them, and attracting better talent. Employers use this approach to offer an above-market rate wage to employees (Long & Fang, 2012). Instead of increasing the salary and other benefits, employers use the approach to motivate their workforce differently.

However, employers are compelled to implement certain aspects that enable employees to retain high productivity. The training and development of the workforce is important to ensure they have the necessary skills and knowledge to accomplish their job descriptions. The jobs must be meaningful and broad enough to retain the employees’ interest. Autonomy in decision-making is common in such organizations because employees also participate in the process. Thus, this approach not only assures employees of higher wages than those offered in the market but also enriched jobs. Low-wage payers can also use the human capital approach to draw closer to the market rates. Such employers do not intend to reduce the other pay components. Instead, they introduce the profit-sharing plan as a substitute for a pension, which enables employees to set aside retirement funds (Long & Fang, 2012). Despite this minor difference, both employers adopt the approach for the same reason; to increase employees’ earnings.

Finally, the worker behavior approach enables employers to enhance productivity by creating an environment that supports the same. The main elements that employers seek to enhance include motivation and cooperation of the workforce. In this case, firm performance is increased through the creation of an enabling environment, which motivates the current staff members. Less emphasis is placed on the attraction of new talent using the profit-sharing plan. Increment of employees’ earnings is not the main agenda. However, it results from increased productivity in an organization (Long & Fang, 2012). Regardless of the approach that employers choose, it is possible to achieve an unintended consequence, which is theoretically thought to come about when a specific method is adopted.

Conclusion

Employers usually have different perspectives from their employees when implementing a profit-sharing plan alongside base wages. The employers’ goals may include motivating the workforce, increasing wages to achieve the market rate, attracting better talent, retaining employees for longer, increasing revenue, improving workforce productivity, or offering higher market rates. On the other hand, employees may accept the profit-sharing plan as a motivating element, an avenue to increased income, an opportunity to create a pension plan, or a chance to prove one’s worth to an organization by increasing productivity. Regardless of the goals for both parties, it is fair to conclude that in most cases, the expectations are exceeded. This conclusion may not work for the substitution agreement, which offers fluctuating bonuses and eliminates some of the salary or wage aspects. Apart from the likelihood of reducing turnover due to avoidable or unavoidable circumstances, the other two approaches offer maximum benefits to the employer and employee. This confirms that a profit-sharing plan is a fair system of financial compensation when coupled with a salary because it exposes the employee and the employer to growth, enrichment, and expansion.

References

HR-Guide, LLC. (2015). Compensation: Outline and Definitions.

Long, R. J., & Fang, T. (2012). Do employees profit from profit sharing? Evidence from Canadian panel data. IZA Discussion Papers. Bonn: Institute for the Study of Labor (IZA).

Resource Management, Inc. (2016). Fair Employee Compensation — How It Benefits Your Employees and Your Company.

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