Hrm 531 Employee Compensation Paper

Employee Compensation
University of Phoenix
Human Capital Management 531 Employee compensation can be a very complex issue in any organization. This area combines basic human resource concerns as well as financial aspects of the organization. When dealing with compensation, an organization must balance the employee’s expectation and its own financial abilities. Employee compensation not only covers the salary but also includes other indirect benefits that may be part of a total compensation package. Compensation packages are set up to appeal to potential employees within a competitive business world. In other words, “compensation is the total of all rewards provided employees in return for their services. The overall
purposes of providing compensation are to attract, retain, and motivate employees” (Mondy 2008, p. 276)
According to Mondy (2008), “direct financial compensation consists of the pay that a person receives in the form of wages, salaries, commissions, and bonuses. Indirect financial compensation (benefits) consists of all financial rewards that are not included in direct financial compensation. This form of compensation includes a wide variety of rewards normally received indirectly by the employee.
Nonfinancial compensation consists of the satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the person works. This aspect of nonfinancial compensation involves both psychological and physical factors within the firm’s working environment. The various rewards described comprise a total compensation system” (p. 277) Organizations must follow certain guidelines to design a general compensation package that may be customized to each company as well as each position. Organizations must pay special attention to the indirect benefits that they can offer their employees. For example when offering incentives and bonus plans, companies must be clear and specific to avoid or minimize misunderstandings. End-of-year bonuses are usually expected as part of the employee’s salary, therefore other incentive and bonuses may be added and reserved for employees who excel in their performance and help the company attain their strategic goals. When determining the various benefit plans, an organization must conduct intensive research on the long term financial
burden imposed by these benefits. Adding benefits to an employee’s compensation package may offer motivation; however, taking away these benefits can demoralize the team. Companies must take into consideration their long-term financial position before offering indirect compensation benefits and should refrain from establishing benefits and consequently removing them, unless an unexpected situation arises. Organizations must also consider the cost of the employee’s in the overall company payroll in terms of taxes. Federal and state laws, although they may vary from region to region, require that the employer cover expenses such as Social Security, Medicare, unemployment insurance and worker’s compensation insurance. These expenses should be taken into consideration when adding other benefits that may also put a burden on the finances of the company. An effective way of managing the added costs brought about by these benefits is by designing a payroll budget that will include direct salary, commissions, bonuses, incentives, taxes and insurance, along with any other directly related costs the business incurs in the payroll function.
Compensation package
In the InterClean scenario, the team will be setting up a new sales department in a new geographical area away from the parent company. Sales-related jobs include a base salary plus commission, consequently the compensation for sales representatives is directly related to their performance. This specific team includes one regional manager, Tom Gonzalez; a sales and compliance/regulatory manager, Eric Borden; a customer service manager, Susan Burnt; a field training manager, Ving Hsu; and an outside sales representative, Terry Garcia. All members of the team will have to move to the new region, in this case, Puerto Rico. An appealing compensation package for this team may include base pay plus commission, medical and dental insurance, retirement plan, living accommodations away from home, car or car expenses, spouse/family travel, parking, per diem, and relocation costs. The average range for the base salary for a regional sales manager is from $69, 000 to $160,000. Tom Gonzalez, the regional manager, should have an executive compensation package because of his top leader position. In this case his base salary will be set at $95,000. In addition, he may receive commission based on the productivity of the company in the new region as well as special relocation allowances, use of company credit cards and reimbursement for children’s school/college expenses. The other three managers should receive a mid-level management salary. The range for mid-level sales managers is from $44,000 to $75,000. In this case they will be offered a base salary of $65,000 plus commission. Each should also benefit from the compensation plan mentioned above. The range for sales representatives is form $33,000 to $65,000. Terry Garcia, the outside sales representative should have base salary of $45,000 plus commission. In addition he should benefit from the compensation package mentioned above.
Benefits to the employees and the company
Aside from the salary and commission, the added incentives in the compensation package, such as the car expenses, per diem, travel and school expenses, may be very appealing to the team. In addition, the company may incur in bonus system based on productivity and performance. This added reward can motivate as well as help retain the employees who are going to be relocated to a new cultural environment. According to Mondy (2008), “if any one feature sets sales compensation apart from other programs, it is the emphasis on incentives. You can usually identify specific sales representatives as the cause for sales increases, a situation that encourages payment of incentive compensation. Experience in sales compensation practices over the years has supported the concept of directly relating rewards to performance” (p. 301) In other words, although the employees receive a reward package, consequently the organization ultimately will benefit from the productivity that may result from these incentives.
Differences in compensation in Puerto Rico
Because of the nature of this assignment, the expansion into international business, the InterClean management must conduct research on the differences and similarities of labor rules and regulations in the new region.
In this case, InterClean is expanding operations into Puerto Rico. Although Puerto Rico is a commonwealth of the United States, the country is ruled by its own constitution. Labor laws differ from that of the United States and the company must ensure to abide by any law that pertains to the compensation of employees within the territory. According to Cascio (2005), “International compensation presents special problems because salary levels differ among countries. To be competitive, firms normally follow local salary patterns in each country. Expatriates, however, receive various types of premiums (foreign service, tax equalization, cost-of-living) in addition to their base salaries—according to the balance-sheet approach. Benefits are handled in terms of the best-of-both-worlds model” (p. 663) Aside from the labor laws issues, InterClean must pay special attention to the cultural adjustment of its team. The company must provide orientation in terms of the new culture and new business models that differ from the United States. The team may benefit from cross-cultural training, foreign language classes or interpreters and introduction to the geographical
region.
Conclusion
Compensating employees is a difficult but vital part of the business world. Companies must balance expectations by their employees and their own financial goals. To properly compensate an employee companies must follow guidelines that will ensure the well-being of the human resources as well as the achievement of goals. “When it comes to performance incentives, the possibilities are endless. Because each has different consequences, each needs special treatment. One way to classify them is according to the level of performance targeted— individual, team, or total organization. Within these broad categories, literally hundreds of different approaches for relating pay to performance exist” (Cascio 2005, p. 436)

References

Cascio, W. F. (2005). Managing Human Resources. : Seventh Edition, Mc Graw-Hill Companies.
Mondy, R. Wayne (2008). Human Resource Management: Tenth Edition, Prentice Hall.