Compensation Plan Outline essay

CompensationPlan Outline

CompensationPlan Outline

Compensationrefers to all rewards accruing to employees as a result of theirlabor in achieving company goals (Heneman, 2000). In the corporateworld, payment serves as an incentive to retain talented skills aswell keep employees motivated. Without motivation in anyorganization, it is impossible to achieve set objectives because apush factor is often necessary to harness the best out of people. Toachieve and even surpass targets, employers need to designcompensation schemes that are desirable for their employees.

Evaluatethe existing benefit plan to determine if it is the most appropriatefor your company. Explain your rationale.

TheBayer compensation plan is designed to attract the most talentedindividuals across the globe and retain them on a long term basis.Salaries of employees are paid by the market-based compensation plan.However, the employees are provided with an opportunity to earn wellabove the market plan if they go over and above what is expected ofthem by their employer. The success of Bayer is mostly attributableto its attractiveness as an employer. Basic salaries of all Bayeremployees are accurate reflections of personal and professionalperformance. Based on the success of the company in a given financialperiod, employees are extensively paid additional benefits and otherperformance rewards.

Sucha compensation plan serves to give employees both security andreliability. The salary structure also conforms to gender balance asmen and women are paid equally. To ensure that their compensationschemes are always competitive in the international market, Bayer iscontinuously involved in benchmarking to assess the need to raisebenefits to employees. Compensation is also aligned in some way tolocal market conditions. At the executive level, the bonus isrewarded based on a Hay method that is internally recognized.Individuals in managerial positions are evaluated and paid accordingto the responsibilities bestowed on them.

Bayerconsiders the Human Rights position on minimum wage and in thisregard, payment of salaries in all the countries that it hasestablished its presence in is as per the requirements of the HumanRights stand and in most cases, even higher. A lot of premium isattached on transparency. Well over 30,000 Bayer employees in 12countries are guaranteed access to an annual Total Rewards Statement(TRS) that is usually comprehensive and details all informationregarding compensation and the rationale used.

Basedon the above discussion, it is reasonable to say that the currentcompensation plan of Bayer is appropriate. This is because theirsalary structure is attractive at all ranks in their organization.Employees feel valued and motivated to achieve more because rewardsand benefits are strictly pegged on personal and professionalperformance. Their transparency instills loyalty and employeeretention because employees feel their employer has nothing to hideas far as compensation and the criteria used are concerned.

Determinethe most beneficial ratio of internally consistent and marketconsistent compensations systems for the company you selected.

Paymentplans should be designed in a manner that achieves internal as wellas external equity. Bayer is a multi-national company specializing inthe production of pharmaceuticals and chemicals. Externally,GlaxoSmithKline (ask) which is also an industry player inpharmaceutical can provide a basis for comparison for employeecompensation. Internal consistency is an important concept inensuring pay equity. Perceptions of equity among employees andprospective employees have a significant bearing on the capability ofa company to attract, motivate and retain employees.

Equityin compensation is said to have been achieved internally whenemployees are being rewarded fairly, and there are no hugedisparities in income between employees at all ranks. External equityis achieved when the payment structure of a company is consistent foremployees in the same position in other similar industry players(Heneman, 2000). A comparison of compensation plans between Bayer andGlaxoSmithKline reveals that the current Bayer payment plan achievesexternal equity. The most beneficial ratio (comp-ratio) for Bayer isthus 1. This rate implies that Bayer employees are paid for similarwork what other employees in similar industries are paid.

Evaluatethe current fee structure used by your company and assess therecognition of employee contributions.

Thecurrent Bayer pay structure is purely based on the individualemployee professional performance. Levels of qualification andresponsibilities are used to define the employees` base salary. Inaddition to this, employees are recognized for their desire to goover and above to ensure that the objectives of the company areprimarily achieved. Compensations and rewards are given commensurateto the contribution of each employee. Employee recognition in Bayerhas made it possible for them to attract and retain innovative andhardworking employees over the years across the globe.

Maketwo (2) recommendations for improving the effectiveness of thediscretionary benefits provided by the company you selected.

Thecompensation plan of Bayer is tied to external competitiveness.However, recent studies indicate that employees are more likely tohave a better grasp of fair treatment by looking at how otheremployees are being remunerated in other jobs in the sameorganization than by looking in the external mirror. This emphasizesthe fact that internal consistency is better than externalconsistency and for this reason Bayer should embark on measures toredesign its compensation plan to ensure that it is in line withinternal consistency. Domestic equity will go a great length inenhancing satisfaction among employees (Heneman, 2000).

Bayershould also utilize market studies to determine pay increases for itsindividual employees so as to ensure that it maintains itscompetitiveness with other key players in the industry and to avoidlosing their valuable talents to their competitors. Most studiesreveal that increases between 2.7 and 3.0 percent are desirable. Toget the most from this research, Bayer should pay its employeesincreases that are slightly above the bare market minimum of 2.7 percent.

Evaluatethe types of employer-sponsored retirement plans and health insuranceprograms provided by the company you selected and compared them tothat company`s major competitors.

Bayerhas a comprehensive health insurance scheme as well as a retirementplan for almost all of its employees. It is estimated that close to77 percent of all Bayer employees across the globe are covered inthese discretionary programs. In some countries where Bayer has setits presence, it is a legal requirement that all employees arecovered by their employer under health insurance as well pensionplans.

Incountries that do not have this as a legal obligation, Bayerundertakes to extend those rights solely at its discretion. Employeesworking with Bayer on a contractual basis are not covered under thepension plan. Their pension scheme is based on individual employeecontributions. Employees also have the option of obtaining a healthinsurance either through the company or statutory health insurance.

AtGlaxoSmithKline, employees are awarded pensions also based on theircontributions. GlaxoSmithKline moved away from the non-contributoryarrangement that was the basis of premium payment before 2013. Theirpension plan is currently recorded to enjoy100 percent participationrate. In addition to the 5 percent contribution that GlaxoSmithKlinerequires their employees to remit towards their pension, GSK alsoputs in 5 percent for each employee.

Thereis also a pre-retirement course for all employees aged over 50 years.This course is meant to ensure that employees will still maintaincontrol over their financial lives beyond retirement. Again, GSK hasa health care trust for all of its employees. Their health care trustis, however, unlike for Bayer based on shared responsibility. Forinstance, if an employee receives treatment through the trust, theywill be required to submit a co-payment by GSK.

Evaluatethe effectiveness of traditional bases for pay (seniority and merit)against incentive-based and person-focused compensation approaches.

Toa certain extent, the traditional bases for pay are more efficientthan the incentive-based and person-focused compensation methods.This process eliminates bias that sometimes is the characteristic ofthe said alternative methods. Duties and responsibilities are clearlydefined and measured against compensable factors (Dukers &ampBaelemans, 2007). The approach supports organizational structure inthat it makes possible the ranking of jobs by importance in anorganization. Job evaluation is used to determine the performance ofevery employee in each position and relevant labor markets are usedas a basis to design competitive compensation perks.

Thelimitation of this traditional approach is that it fails to recognizeindividual efforts and performance in realizing the overall goals ofthe organization. Motivational among employees is affectednegatively, and they will lose the desire to innovate because ofrecognition absence. As a result, dissatisfied employees will leavethe company for a competitor who recognizes individual performanceand rewards innovation. To get the most out of any compensation plan,it is desirable to utilize the traditional approach along anotheralternative like the incentive-based approach.

Compareand contrast internally consistent and market-competitivecompensation systems.

Bothpayment systems are similar in that their overall goal is to achieveequity in a competitive corporate environment. Internally coherentsystem is designed to ensure equity within the organization while themarket-competitive system aims to ensure equity in the externalenvironment. However, the internally consistent approach uses themarket competitive compensation scheme as a yardstick to designingcompensation plans that are sound and yet still competitive in thelabor market (Dukers &amp Baelemans, 2007). This ensures they do notlose their most valued employees to the competition who may beplaying better than them.

Theinternally consistent system aligns itself with the strategy of theorganization while the market-competitive aligns itself with thelabor market strategy. The market compensation plan is based oncomparisons of compensation perks within the same rank with othersimilar players in a given industry. The internally consistentsystem, on the other hand, makes no such comparisons and relies onthe figures obtained by the market –competitive system to set theirprivate compensation plans.

Roleof benefits in strategic compensation

Instrategic compensation, benefits play a critical role in attractingand retaining employees. In a dynamic labor market, the organizationneeds to keep up with the never-ending changes so as to remainrelevant. Benefits are increasingly gaining recognition in manyorganizations as incentives to derive the most out of the humancapital (Cascio, 2013). Large organizations with huge financialmuscles have resorted to this approach as a way of keeping theiremployees motivated. Increased motivation and innovation amongemployees make it possible for such organizations to achieve and evensurpass their targets.

Issuesin compensation management

Inall companies, size notwithstanding, compensation management isbecoming a major problem in their human resource departments. Smallbusinesses have been particularly affected because of their limitedbudgets. They have to adhere to the market requirements for them toattract and retain talents, and this has limited their operationalefficiencies (Cascio, 2013). Finding the balance between the two hasbeen a difficult issue for many of the small businesses. Largecorporations with large budgets capable of meeting the labor marketcompensation plans have also been faced with the problem ofdissatisfaction among employees. Some employees have accused theiremployers of bias in rewarding bonuses and other financial benefitsciting lack of clear criteria.


Cascio,W. F. (2013). Managing Human Resources (9th ed.). New York, NY: TheMcGraw-

HillCompanies, Inc.

Dukers,R. &amp Baelemans, C. (2007). Employee benefits. Deventer:Kluwer.

Heneman,R. (2000). Business-driven compensation policies. New York:Amacom.