Employee Compensation Programs
The company in the case study prides itself of being innovative while providing outstanding services to all its customers. In fact, it aims at getting a five star in all of the tasks undertaken. However, Managed by Q’s financial spreadsheet suggests that some of its compensation programs should be reviewed to adjust the significant costs incurred in terms of wages and benefits. Nevertheless, the suggested employee compensation programs should not divert the company’s vision of maintaining quality services to its clients.
Since the company seems to be leading in terms of compensation to its employees, there are high chances of other companies copying the system and taking some of their customers. As such, it may not be necessary to lead in compensation but instead provide a competitive compensation scheme (Evans & WorldatWork, 2016). Besides, the company’s CEO states that there have been “clones” of his company after it was founded. Incurring unnecessary costs that may not have major benefits reduces the company’s profits. Thus, minimizing unnecessary costs and including bonuses would be the most effective way to address the skyrocketing expenses and costs.
Compensation Design: Pay Mix
The design of a compensation mix can be influenced by both internal and external factors. Consequently, some of the things to consider in internal factors include the worth of a job, relative worth of each employee and the company’s ability to pay (WorldatWork, 2017). For worth of a job, the organization in the case study should be performing job evaluation for all the operators in at least six months to effectively determine the pay rate. Evaluation of a particular job will enable Q to determine whether an employee has more duties compared to others and this guarantees compensation of a specific employee. Additionally, an employee’s relative worth can be in terms of whether he/she can handle more knowledge based tasks. Essentially, the employee can be rewarded with promotions and incentives such as differential piece rate which would be effective for the company (Esen & Society for Human Resource Management, 2017). This enables the company to sustain profit levels and the amount of work done.
On the other hand, some of the external factors that would affect the compensation design for the company in the case study include the living costs and the condition of the labor market. The company in the case study exhibits a larger labor market and this will be regularly increasing the demand for number of employees required. Therefore, the company should adjust the pay rates to retain current employees and provide room for recruiting new ones. Hence, the company should set up a bargaining committee to address any grievances that may need to be discussed to ensure a higher retention of employees (Condrey & Perry, 2015). Additionally, the organization should address the impact of the cost of living by using Consumer Price Index which would be reliable in setting up wages. As such, the rates of compensation would be adjusted depending on the mentioned factors.
Analysis of Particular Elements of Compensation and Benefits and the Corresponding Changes that Can be Made.
The financial spreadsheet shown below in Exhibit 7 is instrumental in identifying specific targets in the organizations compensation and benefits scheme.
Source: The company and case writers
From exhibit 7, there is a 20% markup for benefits and taxes. This implies that if the percentage markup was to be reduced, the amount payable to wages and taxes could be reduced paving the way for an improved gross profit. Particularly, approximately $545,000 was spent on benefits and taxes, this amount could be leveraged to reduce the costs incurred while ensuring a competitive rate comparable to the market. The company can address the higher mark up by incorporating merit pay instead of fixed pay rates. Besides, Merit pay will motivate employees to realize their full potential which in turn ensures optimal output. Merit pay could lower the cost of benefits without hindering the quality of work (Smith & Mazin, 2017). As such, half of the amount spent on additional taxes and benefits could be diverted to profits realized.
Additionally, Managed by Q can embrace cost sharing by researching on more partners to help in delivery of services while ensuring that they provide prior training to all partners so that they can be aligned to the organization’s vision. The move will reduce the cost of enormous packages paid to Q’s employees. Besides, the company can opt for a small contribution which is usually the co-pay from employees basic pays to carter for health insurance vacation. Consequently, the costs will be distributed which will lessen the company’s burden of huge costs. Further, since the company regularly employees new staff and the organization is innovation based, it attracts most of the talented technology savvy young people and therefore the organization should review its creative benefits. As such, the organization should consider linking up its 401(k) plan with student loans. Essentially, Managed by Q can shift the 4% match approach to 5% and make it mandatory for the beneficiaries to contribute 2% of their pay check to their student loans. The approach will be essential especially for the young graduates.
Managed by Q should also allow their employees to choose benefits according to their specific needs. Thus, each employee can be allowed to choose 2 benefits which will suit his/her needs. The employees should have the option to change the benefits in every two years if he/she is unsatisfied with their current benefits. Therefore, apart from the law mandated benefits, the company should incorporate the following benefits that their employees can consider; Child and Elder Care, Time off for Children and Paid Federal holidays off. The mentioned benefits are attractive and the company can use it as an added advantage to maintain its employees. The strategy of regulating the number of benefits that one is entitled will help in reducing the unnecessary costs incurred by the firm and thus there will be a decrease in the additional benefits and taxes.
Compensation and benefits packages are an intricate part of any leading organization. However, the packages should be skillfully designed to meet a company’s vision while maximizing on profits. Managed by Q is a company determined to provide the best services and its employers will be reluctant to leave such an organization because of the hefty pay and attractive compensation and benefits. The company could be making a fortune from its activities but most of revenue is spend on additional taxes and benefits. Hence, the only way to realize a sustainable compensation and benefits system is to change some of the areas of concern while being keen to maintain the company’s standards. Thus, some of the ways to address the challenge is by restricting benefits and utilizing merit pay system which will cut on some costs.
Evans, E. M., & WorldatWork (Organization). (2016). Compensation basics for HR generalists. Scottsdale, AZ: WorldatWork.
WorldatWork (Organization). (2017). The WorldatWork handbook of compensation, benefits & total rewards: A comprehensive guide for HR professionals. Hoboken, N.J: John Wiley & Sons.
Esen, E., & Society for Human Resource Management (U.S.). (2017). 2006 HR practices in executive-level compensation: Survey report. Alexandria, VA: Society for Human Resource Management.
Condrey, S. E., & Perry, J. L. (2015). Handbook of human resource management in government. San Francisco, CA: Jossey-Bass.
Smith, S. A., & Mazin, R. A. (2017). The HR answer book: An indispensable guide for managers and human resources professionals. New York: American Management Association.