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attached is the discussion instructions as well as the chapter readings. please respond substantively to the questions using the chapter reading to support your claims.

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Compensation Strategy: Select an organization with which you are familiar and describe the type of compensation strategy it uses. Your initial post should be at least 250 words in length. Support your claims with examples from required material and properly cite any references. Reference to chapter reading: Weathington, B. L. & Weathington, J. G. (2016). Compensation and benefits: Aligning rewards with strategy [Electronic version]. Retrieved from https://ashford.content.edu 1 An Overview of Compensation and Benefits iStock/Thinkstock Learning Objectives After reading this chapter, you will be able to: 1. Describe the historical development of compensation. 2. Explain the broad context within which a total rewards program operates. 3. Discuss the primary goals of a compensation system. 4. Describe the key components of a total rewards system. 5. Define core compensation and list its components. abc82339_01_c01_001-026.indd 1 12/23/15 9:26 AM Introduction  Introduction Consider the following situations: A financial services firm has grown to the point where it needs to add account managers to handle the client accounts. What is the best way for the company to pay the account managers so that they are rewarded for getting new client accounts as well as servicing existing client accounts? Should the account managers be paid a salary, a commission, a bonus, or some combination of all of these options? •••• Two retail companies are in direct competition. One company pays an average of $15.00 an hour but provides no company-paid holidays or vacation. Another company pays an average of $10.00 an hour but also provides company-paid holidays and vacation. Is one method better than the other? For the company? For the employees? Could either approach lead to a competitive advantage over the competition? •••• An automobile company has run into difficult times and must cut expenses. Recognizing that payroll is often the single largest expense in organizations, what is the impact on the company if it cuts wages? What impact will that have on the morale, motivation, and retention of current employees? Will this impact the ability to attract new employees? Managers, executives, business owners, and human resources (HR) professionals ask questions such as these every day. Why? Because it helps them stay in business! It must be remembered that employees are individuals with their own desires, motivations, and needs. Properly designed, a compensation and benefits strategy that addresses the needs of not only the business but also its employees will support the company’s overall business strategy, helping the company be successful in an ever-changing, competitive environment. The key is to align the goals and efforts of employees with those of the organization for which they work. Questions such as those above must be answered in a way that enhances, rather than detracts from, the operation of the company. Since employee talent is a critical resource for a company, the compensation, which includes benefits, of that talent is a vital component of how a company operates. In this book, we will explore the need for aligning compensation and benefit strategy with business strategy. Specifically, we will address the contributions an effective compensation and benefits system makes to ensure successful achievement of the firm’s strategy. We will examine all aspects of what it takes for an employer to attract, motivate, recognize, reward, and retain the most talented and skilled work force possible. While not every company will have a dedicated compensation professional, much less a compensation department, these decisions must still be made in all types and sizes of businesses, and it is our goal in this book to provide you with the knowledge and background to make these kinds of informed strategic decisions. abc82339_01_c01_001-026.indd 2 12/23/15 9:26 AM Section 1.1 A Brief History of Compensation We begin this chapter by providing a brief overview of the history of compensation and how compensation systems evolved into what they are today. We then shift our attention to the primary factors that go into creating a compensation system, namely, an organization’s culture, business strategy, and administration, and how the three interact. We then end with the primary goals that any compensation system hopes to accomplish and the types of compensation that can be utilized to design a cohesive compensation and benefits plan. 1.1 A Brief History of Compensation It is important to understand where we came from in order to understand where we are and where we are going. Understanding how modern compensation practices evolved can assist in identifying best approaches to aligning corporate strategy with both short- and long-term goals. Bartering: The First Compensation System One way to examine human culture is by considering the three waves (or ages) of revolutionary change that have, arguably, had the greatest impact on society (see Toffler, 1970). The first of these was the agricultural revolution (beginning about 9000 BCE), when humans began transitioning from primarily living as hunter-gatherers to growing crops and beginning to live a more settled existence. The next is the Industrial Revolution (from the late 18th century through the beginning of the 20th century), which was characterized by a dramatic growth in technology and the movement from an agricultural-based to a manufacturing-based economy. The last, which began in the mid-20th century and is still going on, is the information revolution, exemplified by the creation and growth of computer-related technology. Our standards with regard to what is considered both valuable and useful in our lives have shifted accordingly. For example, how people live has changed, from the extended families necessary to sustain an agrarian society to nuclear families during the industrial period to the working-parent families of today. Similarly, business during the agrarian age was conducted by the family, by bureaucracies during the Industrial Revolution, and by teams in the current information age. Underlying all of these economic shifts and the subsequent ways in which we organize society has been the method by which we compensate each other for labor. Christie’s Images Ltd./Superstock Bartering arose as the first monetary system. Without a developed monetary system, compensation for one’s labor entailed using what one had grown or made by hand, such as making clothes from cotton grown in the fields. People quickly figured out that this system was limiting and would not work well. As such, bartering, abc82339_01_c01_001-026.indd 3 12/23/15 9:26 AM A Brief History of Compensation Section 1.1 or the direct exchange of goods or services for other goods or services, arose as a system of exchange for one’s labors. In bartering, a fur trapper, for example, might trade pelts to a dairy farmer in exchange for milk, eggs, or cheese. The quantities exchanged between the two would be determined by their mutually agreed-upon valuation. They might agree, for example, that two dozen eggs was worth one small pelt, or that the trapper would provide trapping services for the farmer over the time frame of a winter in exchange for the farmer’s supplying milk for the same duration. Much of the impetus for the creation of written language came directly from the need for keeping track of bartered goods over time (Robinson, 1995). The direct-exchange compensation system was helpful in addressing immediate needs, but this method was limiting in its utility in that the resources available were restricted to those in the immediate exchange. A dairy farmer’s milk was worthless to a locksmith, for example, if that locksmith also owned a cow, as there would be nothing the farmer could give to acquire the locksmith’s services. This is why a medium of exchange, such as the various currencies we use today, is so vital to an exchange system—it allows for people to acquire goods, services, and resources beyond a direct one-to-one trade. Instead of a dairy farmer having to trade milk for another direct good or service, such as pelts or a locksmith’s services, the farmer could receive a tangible item (the medium of exchange) with an agreed-upon value that could be saved and used for an altogether different need or purpose at a future time. The medium of exchange, in effect, then becomes a means of storing value. This exchange allows goods and services to obtain a certain universally accepted value, often resulting in the medium used for the exchange becoming valuable in itself. Perception of value is the key component of this system. All parties involved must accept the value for an item in order for it to maintain its value. The actual items used in exchange and as a store of value have also evolved with time. Lumps of base metal, such as copper or tin, were used as a medium of exchange since at least the beginnings of the Bronze Age, or about 1000 BCE, while modern coinage is much more recent and began as simply a method for identifying the weight and quality of the metal being exchanged. People could exchange their particular goods or services for one of these metals and then trade elsewhere the metal they acquired for whatever they wanted or needed. Today, our mediums of exchange are even more diverse. We still use coinage for smaller exchanges, but we also use paper, plastic, and even electronic means of compensating individuals and groups. All of these different means of exchange have liberated individuals and organizations alike to form ever more complex, mutually acceptable relationships that address wants and needs. While the mechanism of exchange has changed over time, this core concept of storing value for later use and exchanging what we have today for what we want or need in the future has not changed. HR professionals use this concept of exchanging one item (an employee’s labor) for another (compensation and benefits) every day. Designed properly, this exchange relationship serves to align the employee’s labors with the company’s goals and strategies. The Industrial Revolution: The Basis for Modern Compensation Practices Our complex system of compensation used today has its roots in the late 18th century with the beginning of the Industrial Revolution. The advent of tools such as the cotton gin, abc82339_01_c01_001-026.indd 4 12/23/15 9:26 AM A Brief History of Compensation Section 1.1 patented by American inventor Eli Whitney in 1794, signaled the decline of individual hand labor and the beginning of the proliferation of mechanical devices capable of much greater productivity. The increasing complexity of heavy industrial machinery, however, necessitated the systematic training of workers, and training, in turn, represented an increased cost in terms of both time and money. Therefore, companies needed to find a way to both utilize that increased training and retain those trained workers. The method of rewarding workers for labor needed to evolve. Such technological changes in the economy also required workers to move from the family farm to more population-dense urban areas where manufacturing was booming. Individuals and families required—at a minimum—food, safety, and shelter in this new urban environment. Compensating workers for their time, skills, and efforts became a requirement. This dramatic shift in how and where people worked and lived added yet another dimension to compensation—hence the need for a comprehensive compensation system that would attract, retain, and motivate employees while enabling the company to make a profit. Taylor’s Scientific Management Theory In addition to proper training, guidelines and rules related to how the new industrial worker was to be managed were required. Compensation methods that mirrored the realities of the Industrial Revolution were also needed. This void was filled by Frederick Winslow Taylor, who has been called the father of “scientific management” due to his work aimed at improving industrial efficiency. Taylor, a trained mechanical engineer in the United States, believed that through a detailed analysis of a given task, using techniques such as the detailed study of both the time taken to accomplish actions and the actual physical motions performed (“time and motion” studies), it would be possible to discover one best way to perform a task (Kanigel, 2005). Based on his research and observations, Taylor developed four rules for scientific management: 1. 2. 3. 4. Create work methods based on a scientific study of specific tasks. Scientifically select, train, and develop each employee. Provide detailed instructions for specific tasks. Divide work nearly equally between managers and workers. While conducting research using time and motion studies, Taylor found that workers and managers typically did not interact with one another. At the time, there was little to no standardization in factory work, and little motivation on the part of managers or their subordinates to work except to maintain an employed status. In the late 1800s, standardizing tasks and focusing on employee motivation were radical ideas, which is precisely what Taylor proposed. One of the most influential ideas Taylor introduced at the time was the notion of providing a fair wage for a fair day’s work. Additionally, he highlighted the need for selecting, training, and developing each employee. Although Taylor was focused on the scientific side of work—and as a result would often forget that the workers were people and not machines themselves— many of the ideas he put forth related to the need to fairly compensate workers for their labor. Taylor’s ideas laid the groundwork for the modern workplace and the need for a comprehensive compensation system. abc82339_01_c01_001-026.indd 5 12/23/15 9:26 AM Components of a Compensation System Section 1.2 Fayol’s Principles of Management Building on Taylor’s scientific management theory, Henri Fayol, a mining engineer in France, developed 14 principles of management (Fayol, 1949) (see Table 1.1), three of which have direct implications for the compensation and benefits programs of today. They are remuneration, initiative, and equity. • Remuneration—Employee satisfaction depends, in part, on a fair day’s pay for a fair day’s work, a reflection of Taylor’s influence on Fayol’s thinking. • Initiative—Productive employees take responsibility for their work and put forth effort and ideas to better the organization. • Equity—Employees should be compensated commensurate to their output. The compensation employees receive must be aligned with not only what they believe they and the job they perform are worth but also with what others who perform similar work receive. Taken together, Taylor’s and Fayol’s ideas have influenced business practices since their inception and continuing into the modern day. Today, organizations have evolved beyond just providing pay for work to providing other forms of care and support for employees. Changes in society have necessitated the creation and growth of laws and government regulation. Additionally, the field of psychology has taught us that people are not easy to understand and are driven by individual goals and motivation. Both of these factors will be addressed extensively in future chapters. Remember, however, as we will repeat numerous times throughout this book, the hallmark of an effective compensation and benefits program is consistency. In order to attain consistency, we need to understand what compensation actually is. 1.2 Components of a Compensation System A compensation system is a systematic approach to providing rewards to employees in exchange for work provided, with the goal of helping organizations attract, motivate, and retain the best talent. Of course, many different components factor into not only a proposed compensation plan but also the execution of that plan. An organization needs to take into account how much it can afford as well as what the market demands, what potential talent might expect, and also how current employees might react. Let’s consider the following scenario: A German software company became aware of an extremely talented senior marketing executive from a U.S. company who had become dissatisfied in her current position. The woman, Anne Prevost, had risen through the ranks at her current company and had been promoted as far as possible. The German firm saw that Prevost had engineered an advertising campaign that helped her company make significant inroads into the German firm’s marketplace. The current head of marketing for the German firm, Jürgen Mehr, recognized that Anne might be open to changing employers and would be a valuable addition to the company. However, Jürgen was dismayed that Anne’s salary was already almost identical to his, and wooing her away from her current abc82339_01_c01_001-026.indd 6 12/23/15 9:26 AM Components of a Compensation System Section 1.2 employer might require offering a potential subordinate a higher salary than he made himself. In discussing the situation with the head of human resources, Mehr discovered Prevost had a firm offer with another of their competitors, a highly leveraged start-up that offered a lower base salary but substantial stock options. Prevost spoke excellent German and was quite interested in moving to Germany and rearing her sons there, even though the cost of living in Germany was substantially more than what she was used to. Additionally, the CEO of the German company was sold on the idea of having Prevost join the team, especially since their current strategy was to increase international revenues by 10%, and he firmly believed Prevost could help achieve that goal. (Fryer, 2003; used by permission) As is evident in the above scenario, there are several elements Anne Prevost finds important in a rewards program: compensation, benefits, work-life, recognition, and developmental and career opportunities. If this German firm wants to recruit Prevost, it needs to take her needs into consideration. However, an effective compensation strategy also will take into account issues related to what is best for the company in terms of the productivity gains it accrues by making the hire, how much it is able to afford, how it will affect the standing of current talent in the firm, and so on. A compensation strategy, therefore, must align with the company’s overall strategic vision and goals. The company’s management must answer these questions: What will it cost not to have this employee on board (due to not benefiting from her talents as well as the potential of a competitor benefiting instead)? What problems do we expect her to solve? How can she help us achieve our long-term market objectives? Part of this equation is taking into consideration the personal costs and changes for the Critical Thinking potential hire. In the particular case of Anne Prevost, the firm must consider cost-of-livSelect an organization with which you ing differentials between the United States are familiar and describe the type of and Germany, effective cultural integration compensation strategy it uses. support, and other elements key to her success. After all, little will be gained by a company in hiring an employee for perhaps less up-front money, only to have that employee be unable to efficiently and effectively make the personal and occupational transition. Fundamentally, the goal of an effective compensation strategy must address what it will take to keep the new potential hire focused on performance and not distracted by personal matters that may in part arise due to being hired by the organization in the first place. In the case of Anne Prevost, the German hiring firm would not want to hire her ...
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Running head: COMPENSATION STRATEGY

Compensation strategy
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COMPENSATION STRATEGY

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A compensation strategy is vital in the creation of guidelines for the critical remuneration
principles in any company. A compensation strategy is used by a Human Resource manager to
retain key employees and ensure that new and skilled talent flows into the company while
making sure no extra costs affect the normal flow of activities in the organization (Weathington,
2016). This paper will discuss the comp...

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