Compensation and Benefits
Matching Compensation with Core Values
As you sit down to review the compensation package your company offers, one thing that stands out is that your compensation package no longer matches the core values of your organization. When your organization merged five years ago with a similar firm that specializes in online shoe retailing, your company had to hire hundreds of people to keep up with growth. As a result—and what happens with many companies—the compensation plans are not revised and revisited as they should be. The core values your company adopted from the merging company focused on customer service, freedom to work where employees felt they could be most productive, and continuing education of employees, whether or not the education was related to the organization. The compensation package, providing the basic salary, health benefits, and 401(k) plans, seems a bit old-fashioned for the type of company yours has become.
After reviewing your company’s strategic plan and your human resource management (HRM) strategic
plan, you begin to develop a compensation plan that includes salary, health benefits, and 401(k) plans, but you feel it might be smart to better meet the needs of your employees by making some changes to these existing plans. For example, you are considering implementing a team bonus program for high customer service ratings and coverage for alternative forms of medicine, such as acupuncture and massage. Instead of guessing what employees would like to see in their compensation packages, you decide to develop a compensation survey to assess what benefits are most important to your employees. As you begin this
task, you know it will be a lot of work, but it’s important to the continued recruitment, retention, and
motivation of your current employees.
6.1 Goals of a Compensation Plan
1. Be able to explain the goals of a compensation plan.
So far, we have discussed the process for strategic plan development and the recruitment and selection process. The next aspect of HRM is to develop compensation plans that will help in the recruitment a nd retention of employees.
Most of us, no matter how much we like our jobs, would not do them without a compensation package. When we think of compensation, often we think of only our paycheck, but compensation in terms of HRM is much broader. A compensation package can include pay, health-care benefits, and other benefits such
as 401(k) plans. Before we discuss specifics, you should be
aware of courses and certifications that can be earned through the WorldatWork Society of Certified Professionals, specifically related to
WorldatWork offers several certifications in the area of compensation:
• Certified Compensation Professional (CCP)
• Certified Benefits Professional (CBP)
• Certified Sales Compensation Professional (CSCP)
• Certified Executive Compensation Professional (CECP)
These certifications involve taking a multiple-choice exam online or at one of the WorldatWork testing locations. The exams test for knowledge, experience, and skills in each of the compensation certification areas and can be a valuable asset to you when applying for HR positions.
First, the compensation package should be positive enough to attract the best people for the job. An organization that does not pay as well as others within the same industry will likely not be able to attract the best candidates, resulting in a poorer overall company performance.
Once the best employees and talent come to work for your organization, you want the compensation to be
competitive enough to motivate people to stay with your organization. Although we know that
compensation packages are not the only thing that motivates people, compensation is a key component.
Third, compensation can be used to improve morale, motivation, and satisfaction among employees. If employees are not satisfied, this can result not only in higher turnover but also in poor quality of work for those employees who do stay. A proper compensation plan can also increase loyalty in the organization. Pay systems can also be used to reward individual or team performance and encourage employees to work at their own peak performance. In fact, in the 2011 list of the Best Companies to Work For
by Fortune magazine, all the companies who topped the list (SAS and Boston Consulting Group, for
example) had satisfied employees—not only with their pay, but their entire benefits package. 
With an appropriate pay system, companies find that customer service is better because employees are happier. In addition, having fairly compensated, motivated employees not only adds to the bottom line of the organization but also facilitates organizational growth and expansion. Motivated employees can also save the company money indirectly, by not taking sick days when the employee isn’t really sick, and companies with good pay packages find fewer disability claims as well.
So far, our focus on HRM has been a strategic focus, and the same should be true for development of compensation packages. Before the package is developed for employees, it’s key to understand the role compensation plays in the bottom line of the organization. For example, in 2010, the US military spent 22
percent of its budget on personnel salaries.  One-fifth of the total budget—or more—is not uncommon
for most US organizations, depending on the industry. As a result, it is easy to see why the compensation plan should be an important aspect of the overall HRM strategic plan. The next few sections will detail the
aspects of creating the right compensation packages: for your organization, including legal considerations.
HUMAN RESOURCE RECALL
If you have had or currently have a job, do you feel the compensation plan motivated you? Why or why
• A compensation package is an important part of the overall strategic HRM plan, since much of the company budget is for employee compensation.
• A compensation package can include salary, bonuses, health-care plans, and a variety of other types of compensation.
• The goals of compensation are to attract people to work for your organization and to retain people who are already working in the organization.
• Compensation is also used to motivate employees to work at their peak performance and improve morale.
• Employees who are fairly compensated tend to provide better customer service, which can
result in organizational growth and development.
1. Visit a website that gives salary information for a variety of jobs, such ashttp://www.salary.com.
Using the search box, type in your ideal job and research salary information. What is the median salary for the job you searched? What is the lowest salary you would be willing to accept for this
job? At which point would you be completely satisfied with the pay for this job?
 “100 Best Companies to Work For,” CNN Money, accessed February 11,
 US Department of Defense, Financial Summary Tables, May 2009, accessed February 11,