BUS618 – Solving Compensation and Benefits Challenges In Boeing Company

Introduction

Employee benefits refers to the health insurance policy covers, retirement plans, vacations, disability insurance, employee stock ownership plans, as well as retirement plans. In various occasion, organizations consider employee benefits as one of the expensive aspects that they deliver to their employees. As a result, the range and options of the benefits are rapidly changing in order to include benefits plans that are flexible in nature. According to Lowe (2008), employee benefits form a basis of value delivered by the company to its employees. In this case, the benefits are offered to the employees as a result of their organization contribution. In this case, the benefits can be in the form of vacation pay and pension pay among others. Compensation on the other hand refers to the payment offered to the employees as a way of returning their contribution to the firm. Salaries, wages and tips refer to the most common form of compensation. Compensation is normally offered to the employees as variable or base pay. Compensation pay is arrived at based on the employee’s job description. Despite being required to take part in saving for their compensation and benefits plans, organizations still have an important role to ensure the delivery of costs efficient and high quality plans to the employees.

Historical view of the Organization

Boeing Company is one of the American multinational companies available in the airline industry. The company mainly focuses on the manufacture, sale, and design of rockets, airplanes, and satellites. Besides the company also ventures in the leasing and delivery of product support services. In terms of size, the company is the second largest aircraft manufacturer across the globe as well as the largest exporter.  During the closure of the 2014 financial period, it is evident that the company was ranked 27 on the Fortune 500 list after recording total revenue of $90.78 billion sales revenue (Dodillet, 2015). Boeing Company focuses on the delivery of high quality and costly benefits packages for its workforce however there are instances when this may be impossible due to the failure of constant monitory of the employees’ level of investment when it comes to plans involving mutual funds.

Assess the Company’s Current Challenges

Boeing is an example of a company that has been associated with compensation and benefit issues. The company’s challenges in the identified line have landed it in court especially as a result of the company’s failure to offer retirement benefits to a section of its employees. There are several challenges facing Boeing making it difficult for the company to move forward in the industry.  The challenges have made it difficult for the company to move forward due to the fact that the company is required to pay compensation in large sums to the affected employees. One of the evidence showing the company’s need to pay compensation is the fact that the company has agreed to pay $57 million focused on settling the suit that the company had not been paying its retirement plans.

Looking at the literature provided by “Profiles of the top 200 pension funds. (cover story)” (2001), there are several factors that affect the compensation decisions of companies.  A slow growth in the recovery of economy is one of the factors that have made it difficult for companies to offer compensation to most of its customers due to the fact that the company was striving to save costs to survive within the industry despite the current state. Incidentally, with the difficult economic times, firm have resulted to measures focused on labor containment measures that not only involve cutting down the number of its stuff but also reduce or freeze some of its payment plans such as that of the retired employees. Besides, it is also evident that companies such as Boeing have focused on reducing payroll costs of its employees as a strategy of surviving in the industry despite the sluggish economy.

Black (2009) depicts that future cost cutting as a strategy for companies majorly focuses on the deduction or a complete elimination of the company’s benefits for the employees. A larger percentage of employers across the globe are focusing on the reduction on health welfare costs while improving on its employee’s share and reducing the health benefits to its employees as a strategy of dealing with the challenges associated with its compensation practices as a result of difficult economic times.

Black (2009) states that the cost of benefits is one of the factors that drive organizations to make significant decisions that impact its general compensation actions. As is, the compensation decisions affect the chances that the company will make drastic compensation decisions by 65%. Having this in mind, it is accurate to derive that Boeing Company refrained from offering its employees with retirement benefits as a decision coming from the high costs associated with benefits. The company’s action was not only driven by a motive to save on costs but also with a desire to maintain its current employees. Incidentally, offering compensation for the retired employees during the difficult economic moments means that the company will have to reduce the benefits offered to the current employees in the industry. With a reduction of the benefits to the current employees, the company will have to worry about other resultant factors affecting the company such as a decreased level of employee motivation. In support of this, Forbes (2016) reports that retaining the current employees is one of the factors that affect a company’s compensation choices by 52%. Considering the case of Boeing, it was much easier for the company to offer comfortable working conditions for its employees by maintaining their compensation and benefits levels other than offering retirement benefits for the already retired members of the workforce. This is accrued to the fact that the current workforce were more beneficial to the company that the retired ones.

It is also evident that the compensation decisions of a company are affected by its ability and intent to enhance the performance of the employees within the organization by 48% (Forbes, 2016). For instance, overlooking the current employees in the industry when it comes to compensation and benefits in order to please the retired ones by offering benefits is regarded as a wrong move likely to affect performance. As is, reducing or doing away with benefits means a general reduction in the customers’ motivation level that in turn affect their performance.

It is evident that over the years, retirement plan have been under a great scrutiny from different players such as plan sponsors, regulators, and even participants especially after the result of the 2008 financial crisis (Rachal & Chopin, 2015). It is evident that controlling the costs of plans, countering any arising risks and meeting regulatory requirements is an important consideration for plan sponsors. As a result, major companies such as Boeing have considered it an option to save on costs by reducing its retirement benefits and in other cases failing to pay its retired employees. One of the challenges facing Boeing is managing the costs of its plan especially after the recovery of the 2008 financial crisis. As it is, the high service costs that the company had to endure at the time resulted in additional strain on the company’s profit margins in turn affecting the company’s performance in the volatile market. The challenge became even worse for Boeing due to the increased pressure for the company to meet its fiduciary responsibilities through the establishment of new government regulations that calls for the full disclosure of the company’s requirement regarding services and investment costs paid under a company’s retirement plan to the retired employees.

The second challenge affecting Boeing is its ability to deliver quality cost of services when it comes to the delivery of benefits to the employees (Maatman, 2015). Prevalently, the company has overlooked paying some of its retirees as required by their retirement plans meaning a general decline in the quality of services delivered by the company to the employees. According to Maatman (2015), the cost of services as well as the cost of investment is regarded as some of the top most considerations that a company has to abide to when choosing a plan to deliver to the employees. This is coupled by a high level of quality service which majority of firms has adopted to ensure employee satisfaction when it comes to the delivery of quality care. Regardless of the company’s size or industrial location, it is highly recommended that companies should mind the cost and quality of services as important selection criteria factors.

With the compensation and benefits challenges that Boeing had to undergo in the industry, the company was sued for its failure to meet its retirement plan requirement. As a result, the courts directed the company to settle the lawsuit by paying $57. According to the suit, the company was accused of excessive fees that the employees had to pay in the form of exaggerated investment offering for the employees and the workers available under the 401 (k) retirement plans.

An examination of other organizations facing similar challenges

            Other than Boeing, a number of companies have also faced compensation and benefits challenges that has not only damaged the image of the company but also contributed towards the company’s extra spending when it comes to fee settlement as required by the law. Intel Corporation is one of the companies that have faced similar challenges over the past. Incidentally, Intel Corporation has overlooked its compensation and benefits requirements that have called for the company to show up in court under the 401(k) lawsuit. The company was sued for diverting it participant funds to private equity investments and hedge funds.

Anthem Incorporation, a health insurance provider, has also faced similar challenges in the industry due to the fact that the company has also been sued over the 401 (k) lawsuits. In this case, the company’s employees sued the healthcare provider for providing high levels of mutual funds under its 401(K) plan. As a result, the employees ended up paying lump sum finances to the company. Furthermore, it is also evident that the workers complained of the company’s failure to carry out investigation on non-mutual fund investments that the company engaged in before 2013 (Wille, 2016). The bottom line in the case was that the company was obtaining high fees from the employees since they were not implementing the lowest class of share available.

Strategies the companies used in addressing their challenges

            To address the outlined challenge associated with high fee charges when it comes to compensation and benefits, the companies opted to pursue a cheaper option that does not exceed the set fiduciary standards. With the cheaper option, the employees will not feel exploited in terms of high fee payments.

Theories and strategies of dealing with the situation

            Constant monitory of the company’s level of investment plan is a strategy of ensuring fairness when it comes to the delivery of the company’s compensation and benefit plans. As is, implementing strategies that involve monitoring the investment levels will raise and alarm regarding any unusual changes in the amount of fees saves. As a result, the company will have enough time to deal with the situation before it spurs anger among the employees. The second strategy to consider for dealing with the situation includes the use of a low cost option related to mutual funds saving. With the low cost option, the employees will always feel that the organization cares about how much fees they are charged for their investments in mutual funds. On the other hand, the company will promote equity and fairness in their compensation and benefits delivery.

Any area that have not been discussed used of review

            Despite the fact that literature has addressed various important areas of compensation and benefits with a close analysis of companies such as Boeing, literature has neglected to discuss how companies can reduce the extra costs that it incurs on a daily basis as a result of the increased costs of payments when it comes to settling the plans. Incidentally, the difficult economic times suppresses the profit margins of companies giving rise to intense pressure regarding how to settle benefits to the employees. Therefore, there is an increased need of addressing how companies can also benefit in terms of costs saving when it comes to the delivery and payment of their benefits costs to the employees. As is, the move will greatly discourage companies from engaging in shady dealing involving how to raise extra fees for the plans such as through the use of high cost coverage plans.

Implications of literature

With the provided literature a conclusion can be drawn that a company’s compensation and benefits choices are driven by its desire to cut down on costs. Therefore, increased costs as a result of the existence of difficult economic times is regarded as the main factor that prompted Boeing to refrain from meeting its obligation of paying the retirees as required by the retirement plans.

Recommendations for solving the Problem

To solve the problem of excessive costs associated with the employee’s compensation and benefits plan, it is highly recommended that Boeing Company should continually monitor its investments. Through continued monitoring, it is easier for the company to identify the existence of any imprudent plans that may result to exaggerated fees for the employees. Doing away with the imprudent plans is an important way for the company to ensure the employees offer accurate saving fees are required by their plans without any extra costs being incurred unintentionally.  Furthermore, to solve the challenge of increased costs of employee compensation, Boeing Company should adapt to new strategies of costs saving to ensure the employees do not have to cater for the extra costs especially when the economy changes for the worse. With the alternative means of costs saving, the company will not have to worry about incurring extra cost for the employees and the 401 (k) lawsuits that are detrimental to the company’s brand and image (Meyer, 2015).

Conclusion

In summary, companies have an important role to play to ensure the delivery of plans that are not only cost effective but also of a high quality. To achieve this, the company will constantly monitor its level of investments in order to establish any changes in the amount of fees charges to the employees due to imprudent plans. In addition, the companies have an important role to play to ensure the employees are not highly charged for the plans as well. This can be achieved by the company through the adoption of the lowest cost options available. As is, not all employees will understand when they are highly charged for their plans due to the high costs of plans. But with the low cost packages, the company will not only play it safe but also ensure the employees are not overcharged at any point in time. Literature has however focused more on how the company can benefit the employees when it comes to the delivers of compensation and benefits plan. On the contrary literature has overlooked the effect, especially in terms of cost, on the company’s part. As is, the high costs of the plans puts a strain on the profit margins of the companies especially during difficult economic times hence driving companies to engage in shady ways of raising the costs of the plans.

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