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Compensation Strategies

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Business Research Report
Compensation Strategies

Student Name: Shannon Prazen

Table of Contents
Executive Summary 3
Introduction 4
Research Findings....................................................................................................................................4 - 7
Finding Number 1………………………………………………………………………………………………………………………………4 - 5
Finding Number 2……………………………………………………………………………………………………………………………….5 - 6
Finding Number 3……………………………………………………………………………………………………………………………….6 - 7
Recommendation…………………………………………………………………………………………………………………………………….7
Conclusion……………………………………………………………………………………………………………………………………………….7
References………………………………………………………………………………………………………………………………………………8

Executive Summary

Within this report I have completed research on three additional compensation strategies that have a focus on retaining and recruiting highly qualified employees in the manufacturing field. The additional compensation packages could be implemented into the benefit package already in place for both our exempt and non exempt employees, as well as future employees. The key factor in this report is to battle our problem of employee turnover. While we offer a very competitive wage for a manufacturing company we also need to show that we value dedication and above all pride in a job well done. We need to make sure that we are encouraging the quality of the work performed meet existing standards, and also provides the extrinsic motivation needed to instill a sense of loyalty. By offering additional compensation we are telling our employees that we value the need to advance and learn new concepts to keep our company fresh and moving in a forward direction into the future.
Offering Tuition Assistance Programs shows that the company encourages career development. This package also has the added benefit of exposing employees and future employees who demonstrate leadership attributes. This compensation program has many advantages to both the company and the employee and it is the easiest to implement. The downside to this offering is that some of the employees who complete the program will expect to be compensated monetarily for their efforts even though we may not have the job openings to move them into leadership roles. Our goal with this package would be to find the next leaders to keep our company strong and moving into the future and compensate them accordingly.
Performance driven reward compensation or P4P can increase employee performance as well as enable the individual employee to better their performance and take pride in the part they play within the scope of the job they are currently doing. This type of reward can be either intrinsic or extrinsic by nature. We currently have some aspects of this type of compensation in place within the company. We encourage managers and team leaders to non monetarily reward employee performance within their scope of responsibility by acknowledging top performers as well as attendance, and innovation. The downside of offering a P4P monetary incentive package is the challenge of gathering the information needed to set the perimeters to fairly implement desired results. To much focus on quantity can have adverse effects on quality. Focusing on individual performance can cause competitive rather than cooperative situations within teams and workgroups. With this type of program there is always the chance that some employees may feel that there is a bias towards the top performers and this can lead to investigations and litigation.
Discretionary Bonuses can be used for many different reasons and are completely made available by discretion of upper management. This type of compensation is used by many companies as a way of retaining highly skilled employees during times of trouble and chaos. If used correctly they could be given to an employee for numerous reasons. They could be used to encourage an employee to stay with our company as well as a reward for outstanding service and dedication. The down side to this type of compensation is that if employees expect that they will be rewarded it would no longer be discretionary and must be considered a non discretionary bonus which would have to be worked into our payroll calculations. This would cause a need for a new payroll software program. This type of bonus if handled incorrectly can also lead to investigation and litigation.

Introduction

Upper management has requested that the Human Resources department research and submit a report on three compensation strategies that could be added to the present employee compensation package we are currently offering our existing and future employees. They have requested that this report should focus on career development in order to aid in retention of current employees and attracting highly skilled future employees. The three types of compensation being presented are as follows.

Research Findings

Finding 1: Tuition Assistance Program

Tuition Assistance Programs or TAP encourages current employees to add skills needed to advance within the company. It also helps to attract more qualified future employees. This gives the company a competitive advantage in recruiting and retaining highly skilled employees. This can also be applied to job enhancing skills training. By paying for some or all of the costs associated with management skills training it is possible to guide employees who demonstrate strong leadership skills toward a supervisory path within the company (Joseph, 2014). Offering tuition reimbursement demonstrates to current employees and, future employees that the company is interested in their career development. The importance of career development is crucial to employee retention. “According to a survey of global HR leaders conducted by Sum Total, 97% of HR leaders believe that a systematic career development process has a positive impact towards employee retention and engagement. HR leaders also believe that providing career advancement opportunities and dedicated career development planning to employees are the two most important mechanisms for retaining high performers (Sumtotal, 2014)”. Offering an education reimbursement program is one more weapon in the recruiting, and retention arsenal of employee compensation programs. Even if it isn't always enough to keep a job candidate from accepting an offer from a larger company, an education reimbursement program provides a competitive edge over other small businesses in the area (Joseph, 2014).
By limiting the course selection to courses that are related to the company and requiring that employees stay with the company for a period of time after graduation; commonly 5 years to qualify for this benefit will increase the chance that they will not seek employment with a competitor (Joseph, 2014). If the employee leaves the company before the end of fifth year after graduation they would be responsible by contract to pay the tuition back to the company. The front end cost of implementing a tuition reimbursement package is the cost of the tuition. Yearly tuition costs averaged more than $6,000 at four-year public schools, and over $2,000 at two-year public schools in 2010-2011. Most employers do not pay for full-time tuition on a yearly basis, even at part-time prices; the cost of reimbursement per employee per year would average $2,000 (Cornett, 2014).
Educational assistance programs under U.S. Code § 127 provides the employee with a tax break of up to $5,250.00 and allows the company to also take the deduction of up to $5,250.00 per employee involved in college and graduate school programs (Federal Tax Incentives, 2014). Under paragraphs 5- 6 of section 127 it states that no prior funding is required to start this type of compensation package but reasonable notification of availability of the program must be provided to all eligible employees (26 u. s., 2013).
Analysis: Tuition Assistance Programs are a good fit for any company that is looking to attract and retain highly motivated and career oriented employees. This sends the message that the company is forward looking and has plans for the future. Helping employees to further their education is one way to show that the company values and respects personal achievement as well as exposing those employees who are exhibiting leadership abilities. These employees will be the future leaders in any organization. Our goal is to keep, and train them toward a career of their interest within the rank and file of our company. Implementing this compensation strategy is a financial win for the company and the employee. Tuition assistance programs increase employee morale. Current or new employees who do not take immediate advantage of the program will be happier knowing that they have educational opportunities available to them when they are ready to utilize them. Happy employees are more productive workers and less likely to leave the company for a higher paying job.

Finding 2: Performance Driven Rewards

A pay for performance compensation package has the ability to increase employee performance as well as enables the employee to better their performance and take pride within the scope of the job they are doing. Performance based reward systems are designed to compensate individual contributors in proportion to what they can achieve as well as contribute to the company’s bottom line. Often referred to as P4P or pay-for performance, the concept is to build a culture of top performers by aligning goals, performance and rewards across an entire organization (Sumtotal, 2014)
Performance based pay is an incentive pay program that is generally awarded to employees for performance results rather than for the amount of time worked. “Employees are motivated by both intrinsic and extrinsic rewards. To be effective, the reward system must recognize both sources of motivation. All reward systems are based on the assumptions of attracting, retaining and motivating people (University of Texas, 2014)”.
Creation and implementation of variable – pay plans such as performance based compensation are based on the assumption that the company can make a commitment to clearly define the expectations in behavioral and measurable terms. The goals must be clearly achievable, profitable, and practical for the company and its employees. It is very important to have a plan that is easy to understand and measure and is in turn creating economic value for the company. Instead of raising base pay amounts many manufacturing and service related companies are implementing and using incentive compensation plans to reward outstanding achievement without causing an increase in fixed costs (Zall, 2001).
Other research suggests that implementing a P4P program requires major organizational change and can have serious challenges. To much focus on quantity can have adverse effects on quality. If the performance appraisal process is subjective, arbitrary, or based on a forced ranking system it can lead to employee dissatisfaction. This in turn can lead to litigation if an employee feels that they are being discriminated against or that there is an overt bias caused by favoritism towards other employees. “When the focus is on individual performance alone, competition against coworkers may hinder efforts at teamwork (Wiscombe, 2001).”
Analysis: A pay for performance strategy has become a very popular way to motivate and retain employees. While there are plenty of success stories that make this type of compensation strategy attractive there are almost as many that show that it has many adverse effects on employee morale and productivity, and quality. If implemented correctly it can produce great results and be a very rewarding experience for all concerned. If it is not properly evaluated and implemented it can cause poor employee morale and even lead to the deterioration of team dynamics and quality of goods being manufactured. This type of compensation can lead to litigation if a disgruntled employee feels the company is discriminating against them or that there is a bias caused by favoritism.
Finding 3: Discretionary Bonuses
This compensation strategy is used widely in the corporate world to retain and reward loyal employees who stay with the company for an extended period of time or to retain top performers during troubled times
Depending on how this type of bonus is structured and administered the FLSA may require that the bonus be calculated into the employee’s regular rate of pay to determine whether it must be included in the overtime calculation. The difference between a bonus that must be figured in as overtime pay or not is whether the bonus can be categorized as discretionary or non discretionary. A non discretionary bonus must be calculated into overtime pay and taxed as such where a discretionary bonus is exempt from this. In order for this type of compensation to qualify as discretionary under the Fair Labor Standards act of 1938 the following conditions must be met:
· The payment must be made at the full discretion of the employer.
· The amount of the payment is at the full discretion of the employer.
· The amount of the bonus must remain discretionary until the end of the period in which the bonus is paid.
· There must be no contract, agreement, or promise to pay the bonus.
If the bonus does not meet these standards it must be considered a non discretionary bonus and must be included in the employee’s regular rate of pay calculation.
The downside of offering this type of bonus is that for it to be considered discretionary the company cannot make this type of bonus known to employees in advance or create an expectation that it will be paid. This type of compensation must comply with the Fair Labor Standards Act of 1938. If the company fails to do this it is opening itself to a liability for damages and incurred attorney fees as a result of a FSLA lawsuit (Wayland, 2011).

Analysis: While in theory this compensation program seems to make sense it can be a problem when employees start to expect that they will receive a bonus just for showing up at work. This type of bonus is commonly used to retain the support of key employees during hard times. It may be advantageous to use this type of bonus to encourage a valued employee to remain with the company. The downside of this compensation program is the chance that the employee who receives the discretionary bonus would not keep the fact that they received a bonus to themselves. This could have a negative impact on other employees not receiving a bonus and effect morale. The company could be open to litigation under the Fair Labor Standards act by disgruntled employees.
Recommendations

Following the completion of research on the three employee compensation packages suggested by upper management to retain and recruit employees the following recommendation for moving forward is to implement a Tuition Assistance Program. This program can be implemented with the following recommendations.
1 – Create a special team within the Human Resources department to gather information on which schools, platforms, and curriculum would provide the best outcome for the success of this offering. This team would create the basis for moving forward. This special team would research the strategies of successful programs offered by other manufacturing companies. The team would make suggestions on whether it would be advantageous to buy a software program to use or create a program on our own.
2- Prepare a notification and information packet to be added to the benefit package currently being offered. This will include creating forms needed to for employee registration, contractual agreements, and bylaws that will govern this new addition to the benefit package. This will let our current and future employees know that the company is now offering tuition assistance. This notification will inform the reader what courses will be covered by the benefit as well as the requirements for qualifying and receiving a tuition reimbursement. It is extremely important that this information is clear and distributed to all exempt, non exempt, and future employees in a clear and informative fashion to meet the standards set forth by U. S. Code § 127.
3 – Set Up the account within the chart of accounts and general ledger that will be used for the bookkeeping procedure needed to fund and report the tuition reimbursement benefit. Create a Contract to be signed by employees taking advantage of the TAP program.

Conclusion

Within this report research has been completed on three additional compensation strategies that have a focus on retaining and recruiting highly qualified employees in the manufacturing field. The three compensation strategies include tuition reimbursement, performance based compensation or P4P, and discretionary bonuses.
After considering the three options research findings support that the company move forward with the Tuition Assistance Program (TAP). The research and information that is provided within this report supports the fact that this is the most advantageous addition to our benefit package. This addition supports the request from Upper Management that we support a focus on career development in order to attract and retain highly skilled employees. An additional advantage that this compensation package offers is the exposure of employees who are demonstrating the drive and leadership qualities needed to become the future leaders in the company. In addition to paying for tuition to Associate and MBA programs we will also support singular job enhancement classes and training needed to move into managerial positions. Even if it isn't always enough to keep a job candidate from accepting an offer from a larger company, an education reimbursement program provides a competitive edge over other small businesses in the area (Joseph, 2014).

References

Finding 1 – Tuition reimbursement
Joseph, C. (2014). The Advantages of Education Reimbursement for Employees. Retrieved January 07, 2014, from Small Business.chron: http://smallbusiness.chron.com/advantages-education-reimbursement-employees-13630.html
Cornett, J. (2014). Cost to Employers for Tuition Reimbursement Programs. Retrieved January 07, 2014, from Chron: http://smallbusiness.chron.com/cost-employers-tuition-reimbursement-programs-15726.html
26 u. s. c. §127 educational assistance programs. (2013, December 25). Retrieved February 8, 2014, from http://codes.lp.findlaw.com/uscode/26/A/1/B/III/127 Federal tax incentives targeted to education. (2014). Retrieved March 02, 2014, from http://www.savingforcollege.com/tutorial101/federal_tax_incentives_to_education.php
Finding 2 - Performance Driven Rewards
University of Texas. (2014). Retrieved January 20, 2014, from Performance Rewards: http://hr.uth.tmc.edu/Training_Development/perplan/reward.html
Zall, M. (2001, September). Pluses and minuses of variable pay. Today’s Chemist, Retrieved January 20, 2014, from http://pubs.acs.org/subscribe/archive/tcaw/10/i09/html/09work.html
Wiscombe, J. (August 2001). Can pay for performance really work? [Electronic version]. Workforce, 28-34.
Finding 3 – Discretionary Bonuses
Wayland, J. W. (2011, September). A bonus is a bonus is a bonus: Or is it? When a bonus impacts your overtime calculation. SHRPP Newsletter, Retrieved February 9, 2014, from http://www.cdblaw.com/CMSADMIN/document/files/A Bonus is a Bonus.pdf…...

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Foundations of a Compensation Strategy

...Foundations of a Compensation Strategy Datrise D. Boyd Bus 434: Compensation & Benefits Management Professor Furlong, J. Sept 10, 2012 Foundations of a Compensation Strategy The sole purpose of a compensation strategy is to “develop a compensation program that recognizes the lifestyle and standard of living of all employees,” (Henderson, R., 2006, pg 3). To define a compensation strategy even simpler, organizations use this strategy to determine how rewards to their employees are distributed. Considering that, compensation is an excellent way to motivate those employees not performing well to do better and those that are working hard to work harder. It is critical that a good compensation strategy be developed and put in place so that companies have a fair process of rewarding each employee for their hard work and determination. “The most effective compensation strategy is one that develops a clear link between the following components: job description, performance evaluation, external salary survey, and internal salary comparison,” (assignment instructions). The position selected for this paper is Human Resource management but first let the discussion focus on the three links mentioned previously. The job description is where potential candidates learn the expectations of the inquired position such as general tasks, functions, and responsibilities. It can also include the position point of contact, specifications such as qualifications or skills needed, or a......

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