Compensation Methods Paper

1099 words - 4 pages

Compensation is one of the tools that allow organizations to recruit and retain top level employees. The challenge employer's face is establishing a fair and equitable compensation plan that the company is willing and able to pay for this top level talent. Executive Compensation, Sales Compensation (Base Pay plus Commission), Salary, and Hourly Wages are several compensation methods that are commonly used by companies. Each method can have different impacts on employees and organizations.Senior Executive positions such as Chief Executive Officers, Presidents, Board Directors, Chief Financial Officers, and Chief Information Officers desire more than a high salary; many seek extra incentives such as additional company stock options, flexible schedules, or deferred compensation plans that would defer taxation of an employee's initial contribution. Performance incentives should be tied to the performance of the division or business that an executive manages. Additional shares of stock, cash bonuses, or additional vacation hours can persuade an executive to join and remain with an organization.Sales performance is the essential element to the success of any profit-based organization. A sound sales compensation package enables the organization to focus sales activities on desired results, and reward these outcomes with compensation tied directly to the level of achievement. (Compensation Resources, Inc., 2009) A typical sales compensation plan includes a base salary, commission-based incentives connected to short-term goals, and possibly annual incentives to reward employees who achieve individual and company strategic goals.Employees who are paid a set periodic wage regardless of the amount of hours worked are salary employees. Middle and upper management are commonly placed in salary positions. Employees in management positions do not directly impact production but are the organizing and driving force of production. Generally, salaried employees are paid more than hourly employees within the same organization. Rewarding managers who meet or exceed performance expectations by increased salaries is a common practice. Companies can budget for the fixed expense of salary employees.Hourly employees get compensated for actual hours worked. These employees are entitled to receive overtime and could be subject to a reduction of pay for hours not worked. A company assumes financial risk associated with employees' lack of motivation to produce. An hourly employee gets paid for hours worked regardless of the quality and quantity produced.Benefits within an organization are another form of paid compensation. The types of benefits an employee earns while employed with an organization depend on that organization. While some benefits are required by law, others are benefits that an employer puts together in a package. Benefits are not only to the advantage of an employer, but to an employee. Some employees expect certain benefits to help them feel more secure...

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