Impact and Effect of Compensation Within an Organization

Strategic compensation is a component of the human resource system. Organizations must determine the importance of many factors when choosing compensation and benefits. Write a three-to-five page essay (not including the title and reference pages) that summarizes the impact and effect of compensation within an organization. Your paper should be written in a scholarly third-person tone; it should be in APA format. In addition to the introduction and conclusion, your paper should address the following:

  • Examine how organizations determine the relative importance of compensable factors.
  • Evaluate how compensation strategies tie into underlying corporate values.
  • Analyze an example which demonstrates how an organization’s compensation and benefits programs have been utilized to obtain corporate strategic goals.

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Strategic Compensation Within an Organization Impacts and Effects

The extensive application of strategic compensation as an innovative human resource management strategy is generally considered as one of the most integral approaches within the organizational structure. Strategic compensation is central to the job evaluation process and now enables organizations to retain capable employees who ultimately play a major role in the quest to realize set objectives. A comprehensive strategic compensation scheme is a valuable tool which stimulates an organization’s competitive advantage by exploiting the potential of individual employees to improve performance.  The art of strategic compensation also allows an organization to outline its approach to employee’s pay and benefits with the primary aim of guaranteeing egalitarianism. 

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Thus, compensation resources are harnessed to ensure set objectives are achieved by aligning them with employee skills and expertise. The application of an elaborate compensation strategy has traditionally been linked to job satisfaction within major organizations. A structured compensation package with opportunities for a raise and other accompanying benefits is also bound to attract some of the most talented prospective employees in the market. The process of choosing key benefits and compensation is reliant upon numerous factors which guide the decision-making process. It is, therefore, fundamental to discuss the impact and effect of compensation in an organization

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The determination of the relative importance of compensable factors by organizations

            Within major establishments, internal consistency has traditionally relied solely on a specific set of compensable factors to reflect the importance of each employee to the organization. Compensable factors are particularly crucial during routine job evaluation process since they influence informed judgments regarding various aspects of a particular job. Final decisions must always reflect a level accuracy and fairness by qualified practitioners well-versed in various functional areas within an organization. Compensable factors also aid human resource specialist to consider subjectivity and the rate at which areas of specialization transform when seeking to counter desuetude (DeVaro, 2020, p. 34). 

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When applying skill and know-how as a compensable factor, the determination process considers knowledge and education level as crucial to the reimbursement rating scale. The selection of this factor is closely accompanied by an evaluation of the job’s worth based on the educational level required for one to be shortlisted as a potential candidate. This allows an organization to select uniquely qualified individuals capable of discharging their duties diligently devoid of emerging challenges. Effort is also considered a crucial compensable factor whose relative importance is based on its degree.  The determination of its relative standing is based on the level of physical or mental effort required for successful completion. Measuring the demands of specific task then becomes crucial since it probes the level of intensity and average time spent completing it. Long working hours spent sitting or standing, complexity and concentration are also important parameter to consider when reviewing effort as a major factor. Responsibilities that come with a specific job are also a prominent compensable factor.  The determination process by considering the scope of accountability and decision-making processes associated with the position. Consequences for error, confidential information, and fiscal responsibility are also all taken into account. Working conditions such as the physical demands and risks associated with a particular profession are also essential when seeking to determine the rate of pay for an organization.

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How compensation strategies tie into underlying corporate values

            In recent years, the application of compensation strategies has been linked to specific corporate values. The primary aim of this particular approach is foster the application of a specific set of behaviors and principles which are bound to influence an organization’s vision to create an ideal organizational culture for success. Compensation strategies also outline specific underlying expectations within the organization and their role in creating an ideal environment for employees (Martocchio, 2015). Compensation strategies create a foundation for the articulation of corporate values which are comprehensively relayed to improve the overall performance of individual employees. The first step when applying this approach is attracting potential employees who would then actively participate in making sure organizational objectives eventually come to fruition. Values are closely tied to the prevailing organizational culture which is particularly why they are closely aligned to compensation strategies for posterity.

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For instance, a company may strive to attract highly talented employees by including a health plan and retirement benefits as part of its compensation package. This type of alignment ensures that employees benefit from the aforementioned arrangement while being accorded a unique opportunity to contribute to the overall success. Additionally compensation strategies are tied to corporate values which underscore the importance of employee retention to an organization.  This has, over the years, prompted organizations to endeavor to retain high performing individuals who are an embodiment of the organization’s philosophy and values. A high level of performance is always bound to improve productivity while also fostering an environment where employees collaborate towards the attainment of a specific set of goals.  A broad performance management process supports the organization when approaching issues of career advancement by applying a meritocratic policy to remuneration.  Major organizations also strive to motivate employees through compensation strategies as incentive plans highlighting their importance. It also allows employees to align their plans with organizational objectives to create a high-performing enterprise.

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Costco’s compensation program and role in obtaining strategic goals

Costco is a leading retail franchise shop which has enjoyed relative success over the past decade. Apart from providing an assortment of quality goods, the store is known for the unique services offered and their role in in creating an ideal environment which fosters improved outcomes. One such strategy involves providing exceptional treatment to employees through a favorable compensation structure tailored its employee’s needs. The retailer stands out among its contemporaries by paying employees between $12.10 and $ 28.00 per hour (“How much do Costco wholesale retail jobs pay? | Indeed.com,” 2019). This is far above the average pay by retailers such as a Wal-Mart and Target which typically pay between $9.00 and $11.00 as standard wages for sales cashiers.

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Furthermore, Costco also includes generous benefits such as a health plan and retirement benefits for all employees. Its “Freedom of Choice” insurance package also allows employees to gain easy access to physicians thus gaining access to expensive prescription drugs at a low cost.  Costco also abides by a transparency policy which ensures employees are aware of the payment plan while also being able to raise any noted concern. Costco’s compensation program has allowed it to expand within the United and globally in locations such as Japan and Taiwan. The company has achieved its goal of assuring customers of high-quality consumer goods and services while employing a robust compensation strategy which creates a high level of contentment among employees. This business model has allowed it to achieve its strategic goals while contributing to its competitive advantage.

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