Strategic Focus on Compensation and Benefits
Must use this text as source: Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.). Upper Saddle River, NJ: Pearson
Katherine Allen
Jun 26, 2024Jun 26 at 3:41am
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Author Note
Katherine Allen
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Katherine Allen.
Email: [email protected]
Strategic Focus on Compensation and Benefits
Many of the human resource (HR) functions serve the organization’s employees with the overarching goal of serving the organization to gain a competitive advantage (Martocchio, 2019). Compensation management, a vital HR function, is one way in which HR professionals “attract, motivate, and retain” their workforce (Martocchio, 2019. p.3). Compensation refers to the monetary and non-monetary rewards (such as benefits) for an employee in exchange for participation in their job. Some of the strategic ways in which compensation managers can utilize these rewards to gain a competitive advantage is by attracting top employees, minimizing turnover rates, creating brand loyalty, and providing employees opportunities for receiving intrinsic and extrinsic rewards for performing their jobs (Martocchio, 2019). Intrinsic compensation refers to psychological benefits, such as feelings of worth or that one is positively contributing to something bigger than oneself (Martocchio, 2019). Extrinsic motivators refer to tangible compensation, monetary and non-monetary, that often leads to an intrinsic reward for the employee if the systems are designed effectively (Martocchio, 2019).
One example of an extrinsic reward and strategic element of compensation is the utilization of seniority reward systems. An organization might decide that it will compete in the market utilizing different strategies, such as producing a low-cost product, or creating a product so unique or difficult to reproduce that it eliminates competitors, however, there are also strategic and narrowly focused strategic systems in place for employees (Martocchio, 2019). As a strategic element of compensation management, seniority pay systems reward employees based on their length of time in an organization (Martocchio, 2019).
Implementing pay-for-performance seniority systems benefits both the employee and the organization. Companies realize that rewarding employees based on seniority will likely reduce turnover rates and those employees will become more valuable contributors over time (Martocchio, 2019). This strategy is based on the human capital theory which is the idea that an employee’s growth in ability adds benefit to the organization (Martocchio, 2019). Seniority systems also benefit the employee by providing both extrinsic and intrinsic rewards. Being compensated for the length of time one serves in a company motivates the employee to utilize growth and development opportunities, creates deep loyalty to the company, and rewards them as such. Research conducted in Israel analyzing data focused on seniority systems found that the primary intrinsic motivators for employees close to retirement age were social constructs in the workplace, the need to be seen as strong and capable, and an appreciation for diversity and change (Davidov, 2023). One of the traits of a strategic compensation system is that it is internally consistent (Martocchio, 2019). When employees trust in the system set in motion, i.e. its consistency, they will become internally motivated to acquire more skills and training as they gain seniority (Martocchio, 2019).
Compensation management involves making ethical and lawful decisions and minimizing potential discrimination in pay. Research shows that, historically, pay-for-performance systems are quite effective and promote preferred employee behaviors (Park & Sturman, 2022). However, due to the complexity of their nature researchers suggest that a necessary area for future examination is the nuanced motivating factors connecting individual behaviors and rewards (Park & Sturman, 2022). We see that even in scripture many different motivating factors produce responses to what Jesus is asking of his disciples. And we see in scripture that God’s economy is different than ours. For example, in the parable of the laborers in the vineyard in Matthew 20:1-16 we see the story of the workers who were all paid the same, regardless of the amount of time they worked. The master of the house says to the disgruntled workers, in Matthew 20:15-15, “Am I not allowed to do what I choose with what belongs to me? Or do you begrudge my generosity? So the last will be first, and the first last” (English Standard Version, 2011). As HR professionals, we rely on ethical guidance and the legal environment to help shape what is “right” in compensation management. Threading the needle between what is right and fair for the employee and the organization requires a specific understanding of each strategic aspect of the compensation management function and how they contribute to gaining a competitive advantage.
References
Davidov, P. (2023). Differences of motivation profile of public sector employees in Israel depending on age and job seniority. Administratie Si Management Public, (41), 91-106. https://doi.org/10.24818/amp/2023.41-05Links to an external site.
English Standard Version. (2011). BibleGateway. http://biblegateway.com. (Original work published 2001)
2. (Original Content Only) (350 words) (APA citations) (in-text citations are a must)
(Must incorporate biblical scripture related to the topic
2 scholarly sources, and 1 integrated Bible verse.
Leah Proper
Jun 26, 2024Jun 26 at 9:32pm
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Cost of Living Adjustments
A customary practice within organizations is annual reviews. During an employee annual review, a common topic is compensation for the next fiscal year. From previous years the typical raise is three percent. The Cost-of-living adjustments (COLAs) are two to three percent annually (Martocchio, 2020). The COLAs represent a change in an employee’s compensation that is based off the Consumer Price Index (CPI) (Martocchio, 2020). The CPI is a critical component in the economic climate as it is an indicator for determining inflation which is the change in price for household items and other consumer commodities (Nguyen et al., 2023, para. 1). Furthermore, the CPI is the foundation for government decisions to adjust welfare, social security, and salary raises (Nguyen et al., 2023). COLAs are a crucial part of the compensation strategy within organizations. COLAs can help the company ensure they are maintaining a loyal workforce and supporting their employees appropriately. The book of Deuteronomy 24:14-15 states, “You shall not oppress a hired worker who is poor and needy, whether he is one of you brother or one of the sojourner’s who are in your land within your towns. You shall give him his wages” (English Standard Version, 2024). Organizations need to ensure that they are adequately always taking care of their employees. If a hired worker is dependent on their wages to sustain a level of living it is crucial for companies to review the CPI and recommend an increase of COLAs nationally. A study sought to see the impact of large minimum wage increases. This type of research has not been completed in the past due to the lack of significant minimum wage increases. The study’s finding suggests that large minimum wage increases are most pronounced in industries and plants that are strongly affected by the current minimum wage (Bossler et al., 2019). Minimum wage increases are also a notable part of debate conversations in political rallies.
Cost of Living Adjustments within Unions
While researching COLAs and CPI there were many studies of compensation management within unions. One study found that unionized employees demand a form of rent-sharing therefore creating an environment where unionized firms could manage earnings downward (Lin et al., 2022). COLAs are common mostly among workers within unions as unions go to great lengths to maintain their workers’ continuous support (Martocchio, 2020). First Timothy 5:18 states, “For the Scripture says, you shall not muzzle an ox when it treads out the grain” (English Standard Version, 2024). The employees and employers within unions have expectations of each other. Unions can only survive if the employer and employees communicate their needs to each other. As followers of Christ, we need to ensure laborers are paid fairly and inline with, or above the current cost-of-living. If we muzzle employees via their wages their level of commitment and support for the organization will the entire organization from their mission. As human resource professionals it is critical that COLAs and CPI are reviewed to help allow the company either promote their employees, give a higher compensation, or potentially give bonuses.
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