MODULE OVERVIEW:
Module Four explored various aspects of performance management. This module takes the next step by looking at employee compensation, which is often in part driven by an employees performance appraisal. But compensation means much more than just an hourly wage or salary. HR leaders know that to remain competitive, organizations need to think strategically in terms of all forms of compensation. Being strategic with employee compensation will determine the kind of employee a business will attract, allowing it to compete successfully for the best people (Lister, 2015).
As Snell, Morris, and Bohlander observe, Developing a compensation strategy requires that the organizational objectives are first analyzed. What does the company want to be known for? (2015, p. 346). Some companies strive to have the highest pay in their industry, believing this approach will enable them to attract and retain the best talent. Others choose to fall somewhere in the middle, while the rest intentionally pay under the market rate, often attempting to have their benefit package make up the difference.
But external comparisons are not the only consideration. Employers need to be mindful of three forms of pay equity impacting employee perception:
· External equity: Employees compare their pay level to others doing similar work for different employers
· Internal equity: Employees assess how their pay compares to others in different positions in their organization
· Individual equity: Employees compare themselves to co-workers in their organization with the same job title (Snell, Morris, & Bohlander, 2015, p. 350).
Attracting and retaining key talent requires that HR leaders and senior management do their best to balance all three forms of pay equity. For employers with a decentralized hiring process, it can be especially difficult to achieve internal equity when there is no oversight of new hire pay rates by HR staff.
Other forms of compensation are typically left to the organizations human resources staff to develop and maintain. The U.S. Bureau of Labor Statistics reported in March 2015 that private industry employers spent an average of $31.32 per hour worked for total employee compensation. Wages and salaries accounted for just under 70 percent of these costs, while averaged benefits represented slightly more than 30 percent (Bureau of Labor Statistics, 2015).
Take a moment to reflect on this statistic using your own job. Using the 30% average, what is your benefit package worth? Does the figure surprise you? If so, you are not alone. Benefits consultants advise employers to educate employees on the value of their benefit offerings. A good example of a company that realized it needed to heed this counsel is Credit Suisse. The value of its benefit package put the company in the top 75th to 80th percentile, yet an employee engagement survey showed that employee satisfaction with the benefit package was only 5558 percent (HR Enwisen, 2012).
It is no wonder that benefits account for 30% of employers compensation costs. A sample total compensation statement from SHRM lists the following benefits employers offer for employees and their families:
· Medical benefits
· Vision benefits
· Vacation leave
· Holiday leave
· Disability insurance
· Employee assistance plan
· Retirement
· Dental benefits
· Flexible spending accounts
· Sick leave
· Personal days
· Life insurance
· Social security (SHRM, 2014)
Other sources expand this list to educational assistance, relocation, and miscellaneous forms of paid leave such as bereavement, military, and jury duty (SHRM, 2012). Some employers offer less common benefits, such as adoption assistance and volunteer days.
Traditionally, the approach of viewing all forms of pay and benefits as a whole has been referred to as total compensation. Susan Deller of Eckler Ltd. advises HR professionals not to confuse the concept of total compensation with total rewards. She states:
A total compensation approach focuses on the financial rewards of the employment deal. These are the tangiblesthey can be measured and added together to give a dollar value . . . On the other hand, total rewards present a more inclusive perspective [to encompass] the intangibles that are often the most critical factor in driving performance (Bruce, 2015).
For a clearer understanding of what Total Rewards encompass, view this
video
on the changing role of total rewards video from WorldatWork.
The captioned version of this video may be accessed in the following link:
OL-211: The Changing Role of Total Rewards (CC)
References
Bruce, S. (2015, March 23). Total rewards vs. total compensation: Are you muddling the two? BLRBusiness and Legal Resources. Retrieved from http://compensationdailyadvisor.blr.com/2015/03/total-rewards- vs-total-compensation-are-you-muddling-the-two/
Bureau of Labor Statistics. (2015, March 11). Employer costs for employee compensation news release text. Retrieved from http://www.bls.gov/news.release/ecec.nr0.htm
HR Enwisen. (2012). Your employee total rewards statements: Its more than you think! [Video file]. Retrieved from https://youtu.be/YUdB23kGTJk
Lister, J. (2015). Strategic plan for employee compensation and benefits. Houston Chronicle. Retrieved from http://smallbusiness.chron.com/strategic-plan-employee-compensation-benefits-15613.html
SHRM. (2012, December 11). Communication: What should be included in a total compensation statement? Retrieved from http://www.shrm.org/templatestools/hrqa/pages/totalcompensationstatement.aspx
SHRM. (2014, August 22). Total compensation statement. Retrieved from http://www.shrm.org/templatestools/samples/hrforms/articles/pages/cms_003753.aspx
Snell, S., Morris, S., & Bohlander, G. W. (2015). Managing compensation. In Managing Human Resources (17th ed.). Australia: Cengage Learning.
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