Over the past few weeks, we have made a lot of progress in the merger of InterClean and EnviroTech. We have constructed a career development plan, which delineates our processes of the job analysis and selection methods, the development of a training and mentoring program, and the performance and career management plan for the new Sales Department. We endeavor to devise the appropriate compensation plan that will attract, retain, and motivate our employees. We know if the plan is properly implemented this will help InterClean soar like a rocket ship because it will assist in pulling the employees together with our company. It will help us drive our employees in the area in which we want them to go and give an extra thrust that every company needs in this competitive environment.
Equity of Pay System
We have established a plan derived from assessments of what must be paid to attract and retain the best people, what we can afford to pay, and what will be required for InterClean to accomplish our strategic goals. We will be objective when applying the new pay system. ???Perhaps the most important objective of any pay system is fairness, or equity??? (Foulkes & Livernash, 1989). Equity can be assessed on at least three dimensions:
Internal equity. In terms of the relative worth of individual jobs to an organization, are pay rates fair
External equity. Are the wages paid by an organization ???fair??? in terms of competitive market rates outside the organization
Individual equity. Is each individual??™s pay ???fair??? relative to that of other individuals doing the same or similar jobs (Foulkes & Livernash, 1989).
???Researchers have proposed several bases for determining equitable payment for work??? (Foulkes & Livernash, 1989). They have three points in common:
Each assumes that employers perceive a fair return for what they contribute to their jobs.
All include the concept of social comparison, whereby employees determine what their equitable return should be after comparing their inputs (e.g., skills, education, effort) and outcomes (e.g., pay, promotion, job status) with those of their peers or coworkers (comparison persons).
The theories assume that employees who perceive themselves to be in an inequitable situation will seek to reduce that inequity. They may do so by mentally distorting their inputs or outcomes, by directing altering their inputs or outcomes, or by leaving the organization (Gerhart & Rynes, 2003).
Determinants of Pay Structure and Level
???Marginal productivity theory in labor economics holds that unless an employee can produce a value equal to the value received in wages, it will not be worthwhile to hire that worker??? (Jaffe, 1997, p. A2). There are a number of factors, that interact to determine wage levels. Labor market conditions, legislation, collective bargaining, management attitudes, and an organization??™s ability to pay are the most influential factors.
Labor Market Conditions
???Whether a labor market is ???tight??? or ???loose??? has a major impact on wage structures and levels??? (Klaas & Ullman, 1995, p. 285). ???Thus, if the demand for certain skills is high while the supply is low (a ???tight??? market), there tends to be an increase in the price paid for these skills??? (Klaas & Ullman, 1995, p. 285). ???Conversely, if the supply of labor is plentiful, relative to the demand for it, wages tend to decrease??? (Klaas & Ullman, 1995, p. 285). for example, Jordan Machine Company of Birmingham, Alabama, has never worked so hard to find so few employees. He had high pay, full health benefits, and a company-sponsored savings program, and his company still lost more than half a million dollars last year because he couldn??™t find enough workers to meet the demand for new orders. Efficiency wage hypothesis is another labor market phenomenon that causes substantial differences in pay rates, even among people who work in the same field and are of similar age and education, is the payment of wage premiums by some employers to attract the best talent available and to enhance productivity in order to offset any increase in labor costs (Klaas & Ullman, 1995, p. 285).
???Legislation related to pay plays a vital role in determining internal organization practices??? (Budd, 2005). The legislation have a lot of relevant laws, that presents a summary of coverage, major provisions, and federal agencies charged with administering four major federal wage-hour laws. The four major federal wage-hour laws are: Fair Labor Standards Act (FLSA), Davis-Bacon Act, Walsh-Healy Act, and McNamara-O??™Hara Service Contract Act. FLSA affects almost every organization in the United States.
Collective bargaining has a major influence on wages in unionized as well as nonunionized firms. ???Collective bargaining affects two key factors: (1) the level of wages and (2) the behavior of workers in relevant labor markets??? (Henenman & Reinharth, 1992). Sometimes nonunionized firms fail to match the wages of unionized firms, so they have difficulties attracting and retaining employees.
Management Attitudes and Organization??™s ability to Pay
On the contrary, management??™s desire to maintain or improve morale, attract high-caliber employees, reduce turnover, and improve employees??™ standards of living also affect wages, as does the relative importance of a given position to a firm (Henenman & Reinharth, 1992).
To develop the pay system, we will have to look at assigning a monetary value to each job. To develop such a system, we need four basic tools:
Updated job descriptions – they identify important characteristics of each job so that the relative worth of jobs can be determined. From them we can identify, define, and weight compensable factors (common job characteristics that an organization is willing to pay for, such as skill, effort, responsibility, and working conditions).
A job evaluation method (I.e., one that will rank jobs in terms of their overall worth to the organization).
Pay surveys. Two key components of this process are identifying and surveying pay rates in relevant labor markets.
A pay structure- attach dollar values to jobs using the point methods to establish grades, or ranges, characterized by a point spread from minimum to maximum for each grade. Starting wages are given by the trend line that represents the minimum rate of pay for each pay grade, while the highest wages that can be earned within a grade are given by the trend line that represents the maximum rate of pay (Henenman & Reinharth, 1992). .
This will be our new compensation plan. Statistically this pay system has been proven not to be effective for the following reasons: the incentive value of the reward offered is too low, the link between performance and rewards is weak, supervisors often resist performance appraisal, union contracts influence pay for performance decisions within and between organizations, the ???annuity??? problem.
Guidelines for effective Merit-Pay Systems
With the merit-pay system, it is important that employees feel a sense of ???ownership??? of the system. ???To do this, considering implementing a merit-pay system on a step-by-step basis (e.g., over a two-year period), coupled with continued review and revision??? (Henenman & Reinharth, 1992). Here are five steps to follow:
Establish high standards of performance. Low expectations tend to be self-fulfilling prophecies.
Develop accurate performance appraisal systems. Focus on job-specific, results-oriented criteria (outcomes) as well as on employees??™ behavior (processes).
Train supervisors in the mechanics of performance appraisal and in the art of giving feedback to subordinates. Train them to manage ineffective performance constructively.
Tie rewards closely to performance. For example, use quarterly or semi-annual performance reviews as bases for merit increases (or no increases). One review found that 40 of 42 studies looking at merit pay reported increases in performance when pay was tied closely to performance.
Use a wide range of increase. Make pay increases meaningful (Henenman & Reinharth, 1992).
We will let our executives chose from the following long-term compensation:
Restricted stock- common stock that vests after a specified period
Restricted stock units- shares awarded over time to defer taxes
Performance shares- essentially stock grants awarded for meeting goals
Performance-accelerated shares- stock that vests sooner if the executive meets goals ahead of schedule (Lublin, 2001, pp. R1).
We will have lump-sum and spot bonuses for lower-level employees. Lump-sum bonuses will be given at the end-of-the-year, based on employee or company performance. Spot bonuses are given when an employee??™s performance has been exceptional.
Finally we will use organizationwide incentives. Organizationwide incentives include three broad classes: profit sharing, gain sharing, and employee stock ownership plans. Profit sharing is the amount of earnings, that are paid to each employee based on the profit??™s the company earned. Gain sharing seeks pay-outs based on the company??™s productivity. ESOPs are used to increase employee involvement in decision making.
We will utilize the U.S. Chamber of Commerce system for our benefit package. With this system, benefits fall into three categories: security and health, payments for time not worked, and employee services. Security and health include the following:
Life insurance- flexible benefits.
Workers??™ compensation- cover payments to replace lost wages, medical treatment and rehabilitation costs, and retraining to perform a different type of work.
Disability insurance- benefits when employees can not perform main functions of their job.
Hospitalization, surgical, and maternity coverage.
HMOs- services to employees who enroll voluntarily under a prepayment plan.
Sick leave- provides short-term pay to employees against loss of wages due to short-term illness.
Pension plans- money paid in intervals for retired employees.
Social Security- is an income maintenance program.
Unemployment insurance- workforce is covered by federal and state unemployment insurance laws.
Severance pay- is used when downsizing to smooth the outflow of employees.
Payments For Time Not Worked
Payments for time not worked will include: vacations, holidays, personal excused absences, and grievances and negotiations.
Employee services will include the following: tuition aid, fitness and wellness programs, child and elder care, and food service.
Budd, J. W. (2005). Labor relations: Striking a balance. Burr Ridge, IL: Irwin/ McGraw-Hill.
Foulkes, F. K., & Livernash, E. R. (1989). Human resources management: Cases and text (2nd ed.). Englewood Cliffs, NJ: Prentice-Hall.
Gerhart, B., & Rynes, S. (2003). Compensation: theory, evidence, and strategic implications. Thousand Oaks, CA: Sage.
Henenman, R. E., & Reinharth, L. (1992). Merit pay: Linking pay increases to performance ratings. Reading, MA: Addison-Wesley.
Jaffe, G. (1997). South??™s growth rate hits speed bump. The Wall Street Journal, p. A2.
Klaas, B. S., & Ullman, J. C. (1995). Sticky wages revisited: Organizational responses to a declining market-clearing wage. Academy of Management Review, 20, 281-310.
Lublin, J. S. (2001). Hedging their bets. The Wall Street Journal, pp. R1, R4.