Hiring and Variable Pay Programs Memo

Hiring and Variable Pay Programs Memo

To:      The Human Resources Department

From:  Hiring Consultant

Date:   7/3/2024

Re:      Hiring and Variable Pay Programs

 Comparison of 3 Sub-Plans

The hiring and variable pay program (HVP) contains three basic compensation programs. These payment programs include high-risk, standard, and low-risk plans (Heneman et al., 2019). These compensation plans present monetary risk/reward on a fixed and short-term (variable) basis. A job applicant must decide which one among the three offers they will accept before receiving a job.

Firstly, the high-risk pay plan offers a starting salary of 10 percent to 30 percent below the current market rates. Besides, recruits under the plan receive annual bonuses. The yearly bonuses could be from 0% to 60% of their current salary.

On the other hand, the standard plan also offers fixed and variable compensation. Under this program, the fixed salary is 10% below the current market rate (Heneman et al., 2019). Also, a bonus ranging from 0% to 20% of the current pay is offered. The program creates a balance between fixed pay and bonuses, thus medium risk.

Finally, the low-risk program only offers a fixed salary. Under the plan, the fixed salary is 5% below the current market rate (Heneman et al., 2019). However, recruits under the program are not subject to any bonus. Although the plan has low risk, an employee under the program is locked out of an annual bonus.

The market rate salary is based on data obtained by the HR department. On the other hand, bonuses are determined based on the recruit’s performance metrics. These performance metrics include; the number of hours worked, the number of new clients generated, and the level of client satisfaction (Heneman et al., 2019). Employees who accept the high risk and standard plans negotiate starting salaries with the management before they begin working. Such a negotiation is important because the fixed salary payment range is wider. Another notable fact from the payment plans is that an employer must offer a skills premium that is 10% of the starting salary on all three plans. An employee can switch plans after an agreeable period.

Negotiating Plan with New Recruit Starting Salary

Any company requires an overarching strategy that outlines its compensation strategy and the basis upon which bonuses will be given out. For instance, financial metrics should not be considered if a company bases its compensation on performance. Considering finances may water down other benefits that would come with considering all performance metrics.

Pay Mix

It is important to outline the basis upon which fixed and variable payments will be offered. Compensation committees ought to consult with the management of various teams to determine the link between daily tasks and performance (Groysberg, 2021). For instance, poorly paid employees are likely to work harder if they find an opportunity for salary advancement.

Performance Measures

The performance variables used to measure performance must align with organizational objectives. Compensation committees are advised to use a mix of different metrics when measuring performance (Groysberg, 2021). That is because overemphasizing on a single metric may be detrimental to other equally important performance metrics.

For instance, the management must explain how different incentives for executives link with overall organizational objectives and culture. Besides, the compensation committee should harmonize compensation among all other employee groups in the organization with executive pay. The failure to harmonize executive pay with other organizational cadres may foster the inequality sentiment, which is detrimental to overall organizational productivity.

Goal Setting 

Companies set goals based on three standards; relative to the company’s budget, peer index, or a fixed standard. Whichever mechanism the organization chooses, the goals must be reasonable. On the one hand, such goals should not be easily achievable. Setting too easy goals will result in the organization offering employees large and unsustainable rewards/bonuses. On the other hand, very high goals may occasion the “swing for the fences” mentality, whereby employees can do anything to create the notion that they are achieving goals (Groysberg, 2021). For instance, managers may cut maintenance or research and development costs to attain short-term financial metrics. However, such a move will hurt the organization’s long-term prospects. Therefore, compensation and risk setting should be mitigated appropriately.

Performance Verification and Calculation

Companies should have a reliable system to capture and calculate performance. Such systems may include spreadsheets or software systems. Besides, there should be internal checks and balances to verify performance. That calls for internal audit mechanisms to verify performance. For instance, if the performance of one region exceeds another by a ratio of 3:1, there is a need for verification. Such a variation may result from great performance or performance evaluation errors.

Impact on Job Offer Acceptance Rate

Managers will face a quandary with the hiring and variable pay plans. The pay plan is associated with high-performance targets. However, managers could also face recruitment difficulties, high turnover, and low satisfaction rates depending on the circumstances (Renn et al., 2001). EAR programs are often associated with recruitment difficulties as employees do not know what they will earn with certainty. New employees who join an organization may find the two programs not sufficiently rewarding and opt not to join a company. Besides, companies may drop the compensation plans and resort to traditional plans if the hiring and variable programs reduce the job acceptance rate. A standard plan is relatively attractive since it balances fixed compensation and variable payment, hence low risk and high acceptance rate.

References

Groysberg, B. (2021, January 1). Compensation Packages That Actually Drive Performance. Harvard Business Review. https://hbr.org/2021/01/compensation-packages-that-actually-drive-performance

Heneman, H. G., Judge, T., & Kammeyer-Mueller, J. (2019). Staffing organizations (9th ed.). Pangloss Industries.

Renn, R. W., van Scotter, J. R., & Barksdale, W. K. (2001). Earnings-at-Risk Incentive Plans: A Performance, Satisfaction and Turn over Dilemma. Compensation & Benefits Review, 33(4), 68–73. https://doi.org/10.1177/08863680122098441

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

---

Step 1) Review these documents:

Step 2) Assume you have been assigned the task of hiring a senior management resource for an important project. You are sorting your applicant list and find that many are suitable for the job. You want to ensure that your recruit is adequately skilled and builds a lasting relationship with the organization. You have decided to use the variable pay program in the recruitment process.

Step 3) Write at least at least a 700-word memo with a minimum of 2 different peer-reviewed sources. You must address the following topics below using the subject header provided in bold:
• Section 1- Comparison of 3 Sub-Plans- (<–this is a section header) Compare the 3 sub-plans (high-risk, standard, and low-risk) under the hiring and variable pay program.
• Section 2- Negotiating Plan with New Recruit Starting Salary- (<–this is a section header) Summarize your approach for negotiating the starting salary of your recruit basis the standard and the low-risk plan.
• Section 3- Impact on Job Offer Acceptance Rate- (<–this is a section header) Analyze whether your suggested hiring and variable pay program is likely to impact the job offer acceptance rate.