Introduction
Compensation and reward programs are seen as an integral part of business success. Carefully crafted reward and compensation programs go a long way among other things to motivate employees. When an employee is assured that the company has his/her best interest at heart they encouraged to go the extra mile in their work performance. Moreso, the motivation breeds commitment that assures the employer of total employee trust and input at all times. Compensation eventually involves an individual evaluation and determination of value or worth in exchange for work effort, whereas rewards and incentives may be provided based on realizing organizational or team performance goals, but they must appeal to the individual and be deemed to be of value to have an impact. Nonetheless, careless developing of this compensation and reward programs can cause an employees’ morale to decline due to high employee turnover and dysfunctional performance, which ultimately leads to loss in business revenue. The main purpose of the compensation and reward programs is workforce management. This involves selectively attracting, retaining and motivating employees; however, there are a number of challenges that affect companies when implementing these programs.
Challenges
Economic situation
According to Total Rewards Conference by World at Work (2010, par.1), harsh and uncertain economic times was cited as the main challenge affecting companies while implementing their reward and compensation reward programs. Engaging in any business in an uncertain economy, cost cutting while at the same time retaining and engaging a workforce in an increasingly competitive global environment has proved hard for many companies.
In addition, this ever-changing state of the economy will require constant reviewing of the compensation and reward programs failure to which the company might be forced to operate on a loss. Nevertheless this will require the full cooperation of all the employees. For example in order for a company to achieve its’ core business objective of maximizing on their profits and the general survival in this competitive world, then the company may be forced to review some of it’s reward and compensation policies.
The sales department has continuously been referred to as the most important department of most companies. This is so because the sales personnel have to look for new business everyday to ensure the companies clientele base increases. Though the success of the company does not entirely depend on the sales personnel, the department appears to be on the frontline of any business success while the other departments work from the background. With the cutthroat competition across all business fields, companies are working towards motivating their sales personnel to achieve more of their objectives. The most common rewards scheme utilized by successful companies is offering a commission to their sales employees. This motivates them to look for more business so as to earn more in terms of commission, which is a percentage of the total business brought in by the employee.
According to McDermott (1997, par.1) “the increasing pace of change in both business strategy and compensation design are leading companies to consider and implement changes to one side of the bridge without making changes to align it with the other side of the bridge”. This makes the strategy weak and often ineffective in achieving the business’ objectives. However, the above can be effectively handled if the company has clear stipulation on what to do incase of uncertain economic times. Moreso, the company might introduce other programs that will ensure its’ survival. For example instead of massive layoffs the company might consider introducing a program whereby the employees work in shifts. One group works for one week then goes home leaving room for the other groups. This way the company will not have to deal with industrial unrest caused mal by aggravated employees who feel shortchanged by being laid off. Once the economy stabilizes and business operations go back to normal all the employees will resume their normal duties. This is the program used by Del Monte Company when business is low and it has proved to work.
Choosing the right compensation strategy
Successfully executing an appropriate total rewards strategy can increase a company’s market premium. Selecting and implementing the right compensation strategy has perennially become a challenge for most companies. Instead of implementing the reward and compensation programs that augment the overall business strategy and its associated goals and objectives, companies tend to be swayed into employing the most popular or trendy compensation approach (McDermott, 1997, par. 11). One company decided to change its compensation approach to that of earnings per share as the core financial measure of performance in both the short and long term incentive plans. However, this effort turned into a big challenge since the current accounting processes were not friendly to operate. This was particularly difficult because they could not match their colleagues whose operations were smooth. The company was able to invigorate itself when each business unit had its own operating performance pointers in place under the interim incentive plan. Nevertheless the above challenge can easily be solved by critically determining what a given employee can control and what impact their performance has on overall company success. By establishing what an employee can manage best, the compensation expert comes up with several promising targets and goals to be appreciated by offering incentives. In order to determine the type of incentive to give to the individual employee, the compensation expert should first establish the value of the employee within the company.
Equity
How do companies decide on whom gets what without making other employees feel underpaid? This is especially a problem that affects multinational companies. Employees working in a more economically developed country will tend to earn more for the same job done by another employee who is deployed to a developing country. The feeling among the employees is that some employees are favored by the company as compared to others (Watson et al., 2005, 33). However, the company should clearly explain the conditions under which such scenarios are expected.
More often than not companies are unable to strike a balance between the different levels of employment in regard to compensation and reward. Thus the lower level employees are left feeling unappreciated as compared to the executive management. This may have a negative repercussion amongst this group whereby their enthusiasm to work and work effectively will diminish. Companies should strive to be different and move away from common practices. The problem of the lower cadre employees feeling underappreciated should be rectified if the business is to move forward. The best way to achieve this and beat the problem of equity is to have a common policy regarding compensation and rewards. If the business is doing so badly and it can no longer afford holiday allowance for its employees then the rule applies to all from the top management to the operational employees to the messenger.
Conclusion
It has been proven that the way in which employees are treated determines a lot how they treat their customers and this in turn dictates the revenue collected by the company. If the employee feels treasured by the company they will also treat the customer in the same way. In turn, this will develop loyalty with the customer and thus in crease the revenue collected by the company enabling it to realize its business objectives. One way in which employees determine their place in the company is through analyzing the compensation and other reward systems available. According to Berger et al (2000, 485) compensation and other rewards programs send messages about what is valued by the organization. If the programs are effective they encourage employee loyalty, motivation and commitment towards realizing the overall business objectives.
However if the reward systems are ineffective and seem to favour one group, then the repercussions too are not favorable. A common scenario is whereby the top executives are entitled to more incentives as compared to employees in the lower cadre. This partiality leads to demotivation of the lower cadre employees. In addition it has been proven that it is the lowest cadre employees who work harder to achieve organizational objectives. The compensation and reward programs can make or break an organization depending on how carefully the relevant management designs it. Making the employees feel as part of the success goes along way in ensuring the business goals and objectives are achieved on a daily basis.
Reference
Berger, L., & Berger, D. (2000). The Compensation Handbook; a state of the art guide to compensation strategy and design. New York: McGraw Hill Professional.
McDermott, D. (1997). Reinforcing the Bridge between Business Strategy and Compensation Strategy. Web.
Total 2010 rewards. World at Work Conference and Exhibitions; total rewards. Web.
Watson, B., & Singh, G. (2005). Global Pay Systems: Compensation in Support of a Multinational Strategy. Compensation & Benefits Review, 37(1): 33.