This paper discusses how employees ` compensation entails as compared to “pay”. It encompasses economic benefits provided to employees in exchange to their performance contribution and employment commitment to an organization. It includes both direct and indirect compensation, immediate and deferred compensation extends to a wide variety of economic incentives, and benefits (Long, 2010). The paper also describes how an employer could best determine a compensation strategy that is market driven and be able to achieve the goals of the employees. The strategy of choice should be critical to attract, engage and retain key employees. However, the strategic concern is how best to create a compensation system that supports the business strategy of the firm (Long, 2010).
The strategic compensation framework should be used as a tool for designing effective reward and compensation systems.This is well illustrated from the graphic below:
Figure 1: Strategic Compensation Framework for Compensation (Long, 2010)
The best type of structure for an organization based on the premise depends on the key contingencies (contextual variables) associated with that organization.
The three main managerial strategies that an organization can adopt include classical, human relation and high involvement.Their determinants are the environment, nature of the workforce, corporate strategy, technology and size of the organization. The main goal of system design is to insure both external and internal equity within the parameters of legal compliance and employers’ ability to pay (Long, 2010). The four key questions that could be addressed include:
- How much should we pay? (What is the SIZE of the economic pie?)
- In what form should we pay it? (How should the pie be SLICED?)
- When should it be granted? (When and how do we serve the pie?)
- How do we make adjustments? (When should we change the pie recipe?)
It is therefore very critical for an employer to maintain a strategic compensation that both caters for the needs of the employees and meets the objective of the organization.
Long. R. (2010). Strategy,Rewards and Behaviour. In O. Toronto, Strategic compensation in canada 4th Edition (pp. 10-50). Nelson.
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