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Alfonso Gómez Franco Creative compensation practices
International Business and Human Resources. often supplied through industry or area wage surveys. Again. the traditional characters for the word “compensation” are based on the symbols for logs and water. loss. suffering. is necessary for determining an appropriate pay structure in making individual wage and salary decisions within that structure. offsets. or anything related. don’t let them go Creative Compensation practices. staying in them and accomplishing certain levels of work performance. Compensation: Definition and facts Experts in Human Resources have talked about having the right compensation to maintain their key elements. Campus Monterrey. Information regarding the external labor market. some may say it is not the ideal thing to do in order to have a stable workforce. “compensation” means something that counterbalances. lack. Campus Monterrey.Creative compensation practices March 2012 2 If you have a great team. Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. Compensation is defined as something given or received as an equivalent for services. While some experts may say it is a good thing for the companies to have a young crew. Alfonso GÓMEZ Instituto Tecnológico y de Estudios Superiores de Monterrey. It is a great waste of money to have your employees trained and then let them go because they are not content with their jobs. in the form of wages and salaries and a wide range of legally required and agreed upon benefits. The main objective of compensation strategy would be to give the correct rewards for the right employee behaviors. In China. debt. Also necessary is information regarding the internal labor market. or makes up for something else. definitions of compensation. . is a key people-processing activity. The compensation activity in personnel management. is the compensation system attractive? Is it equitable? A variety of job evaluation methos are available for estrablishing pay grades and ranges for jobs on the basis of their relative worth to the organization. In English. collectively represent the means by which employees are financially compensated for joining organizations. Throughout the world there are different other companies by using the right compensation system but before it is important to define what compensation is and what creative compensation can be. which begins with the planning that occurs before people enter organizations and continues until their exit and beyond. compensation was treated © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. It has been said organizations must take their compensation systems both attractive and equitable to current and prospective employees. Introduction We need to ask ourselves if we are ahead of Companies with high employee turnover ask themselves what they can do to retain their employees. therefore. 2012 Pay. injury.
15 10. France Canada Italy Ireland Australia Spain Korea Singapore Taiwan Portugal Mexico 0 23.76 13.1 Hourly compensation costs for production workers in Manufacturing in U. when differences in productivity are factored in. benefits training opportunities.44 5 10 15 20 25 © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey.13 22.K.Creative compensation practices March 2012 3 as an entitlement.29 18. Creative compensations: a new term Norway Germany Denmark U. Korea and Taiwan disappears.75 2. Ensure that management of compensation takes this into consideration. Money is considered a powerful source of motivation. it is also said that salary increase can only motivate until the next pay increase is due. . employee and even global. dai yu. For example. In today’s China. labor costs in Mexico are around 10 percent of those in the US.86 21. International Business and Human Resources. and so on. Source: Bureau of Labor Statistics.14 15.77 5. dollars. This is when creative compensation starts playing an important role. It is true compensation has existend since companies started to work. compensations may take several meanings and it is useful to be in context when using the term correctly. motivation. higher-wage economies to less developed ones. In Japanese kyuyo means compensation.88 8.98 20. A new word.1 reveals.88 15. Campus Monterrey. Japan Austria Netherlands Sweden U.7 4. managerial. the wage advantage of Mexico. is used. Exhibit 1.S. According to society. which is made up of two separate characters and both mean giving something.4 19.23 13. compensation takes on a more subtle meaning. they ask each other about the dai yu in their companies. Recognition. However.S. When people talk about compensation. April 2003. Compensation is an important motivator when you reward achievement of the desired organizational results. It refers to how you are being treated. feedback but above all an integration of every aspect of compensation is needed.09 7.59 19.28 13.32 19. a comparison of earning of women with those of men highlights what many consider inequities in pay decision. As Exhibit 1.your wages. Sometimes differences in compensation among countries are listed as a cause of loss of jobs from more developed. However. Society sees pay as a measure of justice.35 16.
I. task identity and task significance enable employees to experience meaningfulness of work. Compensation professionals are responsible for extrinsic compensation. vacations). jobs that demand skill variety. paid time-off (for example. Jobs that provide autonomy lead to experienced responsibility for outcomes of work. autonomy. medical insurance). According to this job theory. however. Exhibit 1. Extrinsic compensation includes both monetary and nonmonetary rewards.2 gives a broader idea of what core job characteristics are and the importance for employers. task identity. II. monetary compensation represents core compensation. employees experience enhanced psychological states when their jobs rate high on five core job dimensions: skill variety. Exhibit 1. Extrinsic Compensation Extrinsic compensation includes both monetary and nonmonetary rewards. Compensation represents both the intrinsic and extrinsic rewards employees receive for performing for their jobs.3 Types of core compensation © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. compensation. and services (for example. Intrinsic compensation reflects employees’ psychological mind-sets that result from performing their jobs. or how well they have performed. day care assistance). Organizational development professionals promote intrinsic compensation through effective job design. task signficance • Autonomy • Feedback Base Pay Cost-of living Adjustments • Experienced meaningfulness of the work • Experienced responsibility for work outcomes • Gained knowledge of results of results from work activities Seniority Pay Merit Pay • Lower turnover • Lower absenteeism • Enhanced job performance • Greater job satisfaction Incentive Pay Pay for knowledge plans and Skill-Based Pay Exhibit 1. As we will discuss shortly. Jobs that lack these core characteristics do not provide much intrinsic compensation. Jobs that convey feedback enhance employees’ knowledge of the actual results of their work activities. Most compensation professionals refer to nonmonetary refer to nonmonetary rewards as employee benefits or fringe compensation. task significance. in this paper only two of them Core Job Characteristic Critical Psychological State Benefit to employers • Skill variety. Job characteristics theory describes these critical psychological states. are several ways to classify According to job characteristics theory. . and feedback. Principles of intrinsic compensation also provide basis for nonmoneteray recognition awards.3 shows the six types of monetary or core compensation. Exhibit 1. International Business and Human Resources.Creative compensation practices March 2012 4 Types of compensations: its options There will be analyzed.2 The influence of Core Job Characteristics of Intrinsic Compensation and Subsequent Benefits to employers. Nonmonetary rewards include protection programs (for example. Campus Monterrey. Intrinsic Compensation Intrinsic compensation represents employees’ critical psychological states that result from performing their jobs. Compensation professionals establish monetary compensation programs to reward employees according to their job performance levels or for learning job-related knowledge or skills.
2. . Based on how organizations are changing and the impact of reward systems. Person-based pay should be used to reward individuals for their skills. and people who have more than they could ever use do dreadful things to get more” Money provides a rich basis for studying behavior at work because it offers explanations for why people act as they do. Multiple pay for performance approaches should Reward systems should be individualized to fit be used. this can best be done by allowing individuals choice in the rewards that they receive. Given that many organizations are moving towards a more diverse workforce and becoming more global. Traditionally the pay programs of organizations have adopted a one-size-fits-all approach to rewards. International Business and Human Resources. they clearly do not fit all situations and they are only the first step in developing an actual reward system for an organization. This can obviously have negative consequences for both and the attraction and retention of individuals as well for motivation. with variable pay and stock as rewards. Individualizing the pay system. particularly organizations that are dealing with diverse markets and multiple national cultures. The next step is to develop actual pay practices that follow them and fit with the management style. Newman and Hodgetts investigated motivation in the hospitality industry. structure organization. recently noted that “Nobody refuses it. This approach generally fits a homogeneous workforce but does not fit a diverse workforce. Although these three approaches are widely applicable. it is more important than anything else their organization can give them. status and respect.Creative compensation practices March 2012 5 Comparative anaylisis Money has long been viewed as a reward and. freedom and control and power. a compensation expert with Goldman Sachs. and found that workers here rank good wages at their top of important work factors. the characteristics of individuals that an organization wishes to attract and retain. This was a sharp contrast to industrial workers who ranked interesting work as first (and good wages as fifth) in importance. Organizations consequences of need having to a think diverse through versus the a homogeneous workforce and then pick the reward profile that fits the degree and type of diversity they desire. for example. three strategic techniques are appropriate: 1. Money is also associated with four of the important symbolic attributes for which humans strive: achievement and recognition. for some people. but one thing is clear: money is an important reward. In most cases. The differences that exist within organizations are usually the result of the type of work individuals do rather than their needs and desires. With a diverse workforce it runs a tremendous risk of giving individuals rewards that they do not value while failing to reward them with things that they value highly. Individuals are given little choice with respect to how they are rewarded and what rewards they receive. it is likely that organizations will increasingly choose to have flexibility and individualization in their reward system. Steve Kerr. nobody returns it. This simply makes sense with respect to optimizing the impact of the dollars organizations spend. Commenting on money. 3. So the role of money as reward will often vary by both individual and industry. knowledge. Campus Monterrey. and competencies relative to their external market value. and strategy of the © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey.
Some of the easiest and representative ways are the following: • Practice giving concentrated focused recognition by calling deserving employees into your office and thanking them fordoing an outstanding job. • Have a senior manager come by and attend one of your team meetings during which you recognize people for their accomplishments • Invite your work team or department to your house on a Saturday evening to celebrate their completion of a project or attainment of a particularly important work milestone. 7. International Business and Human Resources. as they are the ones who are most likely to know what works well and what does not. It could be said that there are easy and creative ways to recognize employees. Solicit recognition ideas from both employees and managers. • Take a picture of someone who is being congratulated by his or her manager. 1. Inscribe the individual’s acceptance. When introducing new recognition procedures and programs. 2. In sports. have this recipient choose the next member of the unit to be recognized and explain why this individual was chosen. say. focus is only on the detailed recognition and nothing else. For some. so that the effect is not diluted by the discussion of the matters. Fortunately. 3. the more recognition they get. • Write a note that recognizes an individual’s contributions during the last pay period and attach this note to the person’s paycheck. take advantage of all communication tools including Intranet and other knowledge-sharing networks let everyone know what is going on. Give a copy of the photo to the employee and put another copy in a prominent location for everyone to see. To help ensure fairness and employee in the unit or department. the more they want. Employees never seem to tire of recognition. they do not seem to become satiated or filled up with recognition as they do. it is not difficult to recognize people. Campus Monterrey. in fact. During this interaction. • When you get a raise or a promotion. . In psychological terms. at the end of the month. Let everyone know the steps that the best Continually review the recognition process in managers are taking to use recognition effectively order to introduce new procedures and programs and scrap those that are not working well. Publicize the best practices of the employees so that everyone knows some of the things they can do in order to earn recognition 6. • Buy a trophy and give it to the most deserving name. 8. a smart quarterback who receives all the attention for a win will always recognize especially his line in front of him and may even take theses “unsung heroes” out for dinner or buy them something. Recognition is one of the compensation parts that needs to be taken into consideration at any company. 4. Educate Make the managers so that they use recognition as part of the total compensation package recognition part of the performance management process so that everyone begins to use it Have site-specific recognition ceremonies that are featured in the company’s communication outlets such as the weekly newsletter and the bimonthly magazine. 5. with food or even money. acknowledge the role that was played by your support staff by taking all of them out to lunch. © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey.Creative compensation practices March 2012 6 How to implement a certain type of compensation. Steps as the following need to be set up to effectively manage a reward and recognition program.
They are designed to meet the specific and changing needs of the employees. betterquality products and customer service. thus. All effective programs are designed to reward effective employee performance behavior and enhance employees’ satisfaction and commitment. • Stay alert to the types of praise and recognition that employees seem to like the best and use these as often as possible • know! How is all this relevant for your company? 1. an expert on implementing recognition systems offers the following creative. Catch people doing things right and let them Acknowledge your employees for work well done by writing your kudos on your praising pad.Creative compensation practices March 2012 7 • Recognize the outstanding skill or expertise of Patricia Sellers. repeat it to that person as soon as possible. Nebraska. knowledge. Hire a caterer to bring in lunch once a week. Campus Monterrey. and innovative solutions. which comes to about $8 an hour.() Select a pad of Post-it Notes in a color that nobody uses and make it your “praising pad”. The 1100 mostly production employees are organized into 32 teams. but also a group identification and focus. (For a real example. ideas. CEOs tend to be overpaid. including how one’s team is performing. an individual by assigning the person an employee to mentor. This will give the team not only a sense of camaraderie and cohesion. Having the right compensation for the right employee may save you a lot of money because he or she might be excellent for your company 2. Having a happy team will always result in better performance and this is something your company wants to have. International Business and Human Resources. reduced cost. The centerpiece of the manufacturing company’s variable reward plan is gain sharing. this encourages mingling and the sharing of information. These tidbits represent useful suggestion but many companies have gone much further by designing formal recognition systems that align their overall objectives (increased productivity. because you want to make them happy. Today there are a wide number of formal recognition systems that are being effectively used by organizations globally. Although each individual receives a base-pay component. demonstrating both your trust and your respect. Real case: Rewarding Teamwork in the plains. . and even higher profitability) and employee performance behaviors. so having a creative way of compensation may do the same effect as raising three times the amount of money you pay 3. an increasingly © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. the rest of the compensation is variable and is determined in a number of different ways. • Next time you hear a positive remark made about someone. To get a team motivated during an important project. have them design a simple logo for the assignment. Besides showing your respect and appreciation. whereas others have as many as 60. Some of these teams have only a handful of members. but practical suggestions. go to the section: Real case: Rewarding Teamwork in the plains) Companies applying compensation strategies. Behlen Manufactoring company in Columbus.
The CEO explained this team reward system as follows: “if you are in a group that makes stock tanks. It is reasonable to assume that displaced workers will find jobs that pay at least as much as they were earning prior to being laid off. How well has this company in the middle of the Great Plains performed with this organizational reward system? In each of the eight years this pay plan has been in pace. most laid-off workers seek employment elsewhere after company downsizing. for example. from the start of the process to the end of the process. when most business activity slowed. International Business and Human Resources. which means that the jobs will not be filled in the future. more company layoffs are permanent now. In addition to the five million dollars the firm saved because of safety. performance expectation. However. all month long. Oftentimes. in the case of managers. Laid-off Workers accept jobs with lower pay Layoffs represent one type of involuntary termination instigated by the employer. Behlen employees can earn monthly gain sharing of up to $1 an hour when their teams meet productivity goals. each of its members is rewarded anywhere from 0 to $1 an hour for every hour worked in that area” Documentation of the gains is based on actual pounds of products. During the recent economic recession. announcements for company layoffs were common newspaper headlines. we are seeing positive productivity improvements in every corner of the plant” Recent knowledge about HR: creative compensation I. a New York Times article called “Data show growing trend toward permanent layoffs” indicates that those who managed to find full-time employment after having been laid off (from 1999 through 2001) earned a median weekly average of $571. creating a situation in which the supply of qualified job applicants exceeds company demand for these individuals. Still another part of the reward package is the employee stock ownership plan. employers institute layoffs to control costs when business activity slows down. so that everyone on the team knows exactly how well their team is doing. This practice is also known as downsizing. performance is calculated on the gross margin of their business unit before selling and administrative costs are deducted. Employees receive 20 per cent of the profits. The CEO explained it this way: “As people focused in on their gain-sharing opportunities and they have understood their profit-sharing opportunities. Campus Monterrey. if the team achieves certain levels of productivity. © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. the company has exceeded its profit goals each year. quality and efficiency ideas that were submitted through the teams.Creative compensation practices March 2012 8 popular form of compensation whereby all members share a usually fixed percentage of the documented savings or performance gain accomplished by the team. Senior managers in the company participate in the same reward system as the workers. many job seekers have accepted comparable jobs at lower pay. In addition. Another part of the company’s variable-reward system involves profit sharing. For example. However. in the most has exceeded top management’s recent year profits were one million dollars greater than expectations. . Each employee receives company stock equal in value to two percent of his or her base salary each year. In recent years this has resulted in everyone’s getting a profit-sharing bonus equivalent to three week’s salary. compared with $609 in the jobs they lost. over all shifts. Not surprisingly. As a result. In fact. the slowing economy has substantially reduced the number of comparable available jobs. receiving the same proportional benefits.
Implementing the recommendations made here may help stem the tide of rising compensation and develop a more fair and equitable mechanism for distributing the rewards of work. Paying high compensation rates must also be reinforced by achieving desired organizational objectives that are clearly stated and understood by the employee. and other forms of compensation should be based on meeting and/or exceeding these standards. In summary. such as those in which pay is tied directly to measured performance. especially those financed by concerned stockholders. CEO compensation is under increasing scrutiny because of its growth relative to other employee groups. to continue to reinforce desired behavior. A true random sampling of competitors should be conducted to determine the real price of the executive position. Conflict of interest clauses should be made clear and be rigidly followed. thus allowing © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. The companies themselves must also receive something in return for such high compensation. in many cases. The standard base-pay technique provides for minimum compensation for a particular job. Pay raises. Recommendations for managing executive pay practices. Third. provided by consultants the should for adhere Human to ethical guidelines for the profession. First. III. Perhaps the ethical code Society Resource management (SHRM) for human resources professionals could be followed. Many. It is not unreasonable to demand a higher salary than what the executive is currently paid to make a job change. and related to the previous suggestion. of course. these plans are unfair in the sense that some jobs may be easy to do or carry very high incentives. especially CEO pay. Several practices can be recommended to ensure that executive pay. watchdog organizations. These organizations can draw attention to outrageous compensation rates and initiate activity to reduce compensation packages to reflect governance and selection procedures would allow the selection of board members who are not politically in the pocket of the chief executive. executive compensation has grown despite the financial setbacks experiences by most firms in the early 2000’s. pay for performance plans not only reward high performance but also punish low-performance. Campus Monterrey. . Compensation is no other exception. In fact.Creative compensation practices March 2012 9 performance necessary. bonuses. is fair and equitable and is high enough to ensure the attraction of talent but not too high to fly in the face of efficiency and fairness to employees and company stockholders. are paid fairly. II. In these cases. New pay techniques. many CEOs are overpaid. It does not reward above-average performance nor penalize below average performance. in light of their experience and firm performance under command. little has been revealed concerning CEO’s positions and motivation for these unique individuals. bonuses. HR has gathered vast information about HR from the bottom-up level. However.. Fourth. systematic procedures for conducting accurate market surveys should be implemented. Sometimes. However. International Business and Human Resources. play a viable role by ensuring that by laws and regulations are followed when developing and implementing executive compensation plans. Pay-for-performance plans correct this problem. In fact. one must turn to motivation theory to understand the need to offer marketable salaries to provide raises. improved is management senior executives Practical performance standards should be delineated and adhered to during the evaluation period. for Finally. etc. We are to pay attention onto how compensation and motivation for CEOs is a key element in an organization. it is not the intent to generalize the belief that all CEEOs and other senior executives are overpaid or have purely mercenary intentions.
As this paper describes. Similarly. International Business and Human Resources. concerned. compensation is without a doubt an aspect we should be © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. everyone in the group ends up being punished. the personnel will maximize their earnings. Campus Monterrey. Conclusion. Exhibit 1. in a group incentive arrangement in which all members are highly productive. Despite the downside to some of these pay-forperformance plans and the fact that they have been around for many years. This is a broader approach on how compensation can lead to a better performance motivator.4 New pay techniques.4 shows a brief summary of them. to go back on track. Compensation is one of the most important or key element in HR Management. whereas in other cases the reverse is true. there are several techniques or recommendations any company may follow. From its definition to its actual application. . praising the best customer. training. but in groups where some individuals are poor performers. Comissions beyond sales to customers Rewarding leadership effectiveness Rewarding new goals Pay for knowledge workers in teams Skill pay Competency pay Exhibit 1. There are many ways we can improve our team’s steadiness such as giving them positive feedback when needed. Change creates many exciting challenges for those who wish to work as compensation professionals. Compensation systems are changing. However it is key to any Human Resource team to preserve its best elements and make those ones who are not fully accomplishing the company’s ideals.Creative compensation practices March 2012 10 employees to easily earn high rates of pay. extra pay and so on. offering knowledge courses. rewarding leadership effectiveness. rewarding new goals. they have become quite propular and can be considered new pay techniques. There is a new approach nowadays about creative compensation.
G. Retrieved October 17.mx/redalyc/src/inicio/ArtPdfRed. “What Exactly is Charisma?” Fortune. Administración de recursos humanos. Sánchez. 2011 from http://redalyc. Editorial LIMUSA. Redalyc. (2002).com/books?id=m0voFJyc8MAC&d q=sistemas+de+incentivos+en+las+organizaciones&s ource=gbs_navlinks_s 2. 2011 from http://redalyc. Prentice Hall. Cabeza. George T. Las disfuncionalidades de los incentivos y la ética de los sistemas de control. Gerald R. International Business and Human Resources. Universia Business Review. Campus Monterrey. B. & Snell. 7. Business & Economics. “Organizational Behavior”. Cengage Learning Editores. Retrieved October 17. México. S. .68 9. N. Fred Luthans (2005). Patricia Sellers (1996). Grupo Noriega Editores. Pearson. Bohlander. un enfoque más estratégico. Joseph J Martocchio (2004). Redalyc.google. Rosanas. Revista venezolana de análisis de coyontura. “Strategic rd Compensation” 3 edition. Milkovich. Técnicas de Administración de Recursos Humanos. (2006). M. April 2003 3. 2011 from http://books. (2005) “Compensation” McGraw Hill International Edition. J.Creative compensation practices March 2012 References: 1. Prentice Hall. de C.mx/redalyc/src/inicio/ArtPdfRed. (2008).uaemex. 8. 11 © 2012 Instituto Tecnológico y de Estudios Superiores de Monterrey. . 6. 8th edition. jsp?iCve=36480111 4. V.uaemex. S. Sistemas de incentivos basados en el reconocimiento. Retrieved october 17. & Cugueró. p. Ferris. (2011). 4th edition. McGraw Hill. January 15. jsp?iCve=43318798004 10. 5. Bureau of Labor Statistics. (2002) “Human Resources Management”. A.
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