Discuss employee’s compensation and reward/benefit

Compensation strategy

Employee compensation refers to the benefits (cash, vacation, etc.) that an employee receives in

exchange for the service they provide to their employer. Employee compensation is generally one

of the largest costs or expenses for any organization. Approximately 92% of the working

population in the United States is made of employees earning compensation from their employer.

Compensation describes the cash rewards paid to employees in exchange for the services they

provide. It may include base salary, wages, incentives and/or commission. Total compensation

includes cash rewards as well as any other company benefits.

Employees receive compensation from a company in return for work performed. While most

people think compensation and pay are the same, the fact is that compensation is much more than

just the monetary rewards provided by an employer. According to Milkovitch and Newman

in Compensation, it is "all forms of financial returns and tangible services and benefits employees

receive as part of an employment relationship" The phrase "financial returns" refers to an

individual's base salary, as well as short- and long-term incentives. "Tangible services and

benefits" are such things as insurance, paid vacation and sick days, pension plans, and employee

discounts.

An organization's compensation practices can have far-reaching effects on its competitive

advantage. As compensation expert Richard Henderson notes, "To develop a competitive

advantage in a global economy, the compensation program of the organization must support totally

the strategic plans and actions of the organization." Labor costs greatly affect competitive

advantage because they represent a large portion of a company's operating budget. By effectively

controlling these costs, a firm can achieve cost leadership. The impact of labor costs on competitive
advantage is particularly strong in service and other labor-intensive organizations, where

employers spend between 40 and 80 cents of each revenue dollar on such costs. This means that

for each dollar of revenue generated, as much as 80 cents may go to employee pay and benefits.

Compensation costs have risen sharply in recent years, primarily because of escalating benefit

costs. Employers now spend more than $1 trillion on employee benefits. In 2003 the Society for

Human Resource Management reported that benefit costs averaged 39 percent of total payroll in

2001, up from 37.5 percent in 2000. This means that, on average, employers provide about $18,000

in benefits to each employee annually. The biggest cost increases have been in health benefits,

which have been rising at an average of 12 percent annually for the past several years.

An organization must contain these spiraling costs if it is to get a proper return on its human

resource investment, and thus gain a competitive advantage. When compensation-related costs

escalate, the organization must find a way to offset them. In the past, companies passed along these

increases in costs to the customer in the form of higher prices. However, most U.S. companies

now find it very difficult to raise prices. Thus, to remain competitive in light of fierce domestic

and foreign competition, unfavorable exchange rates, and cheaper foreign labor costs, it is

imperative that companies find ways to control labor costs. Unless this can be done, organizations

may be forced to implement such adverse actions as pay freezes, outsourcing/offshoring, and/or

massive layoffs.

A host of laws such as the Equal Pay Act, Fair Labor Standards Act, and the Employment

Retirement Income Security Act, regulate corporate compensation practices. Some pertain to pay

issues such as discrimination, minimum wages, and overtime pay; others pertain to benefits, such

as pensions, unemployment compensation, and compensation for work-related injuries.

Organizations must understand and fully follow these laws in order to avoid costly lawsuits and/or
government fines. Pay and benefits are extremely important to both new applicants and existing

employees. The compensation received from work is a major reason that most people seek

employment. Compensation not only provides a means of sustenance and allows people to satisfy

their materialistic and recreational needs, it also serves their ego or self-esteem needs.

Consequently, if a firm's compensation system is viewed as inadequate, top applicants may reject

that company's employment offers, and current employees may choose to leave the organization.

With the aging of the U.S. workforce and the impending retirement of the "baby boomers,"

employers must be more concerned than ever before about retaining skilled, productive workers.

Moreover, disgruntled employees choosing to remain with the organization may begin to behave

unproductively (e.g., become less motivated, helpful, or cooperative).

Compensation Trend

In the early 20th century, the America government took a significant role and began to introduce

several changes in many aspects of workers’ pay and remuneration. This brought about Acts such

as the fair Labour Standards Acts of 1938, which dictated equal pay for equal work. However,

recessions dotted the following twenty years but later on the economy boomed and government

played an increasingly important role in America's workplace by ratifying the equal pay Act

Executive order 11246, Title 7 of the Civil Rights Acts in 1963 (Noe, Hollenbeck, Gerhart and

Wright 2003; Switzer, 2004). In the early 20th For example in Nigeria, in line with the workmen's

compensation Decree of 1987, all organizations and businesses are to provide workers'

compensation coverage for the benefit of their employees who may be injured or incapacitated

while on the job. This is followed by pensions Reform Act of 2003 which requires every

employment to maintain a life insurance policy in favour of an employee for a minimum of 3 times

the annual total emolument or pay of the employee (Aloysus, 2007).

The same way, history of wage reviews fought by workers can be traced to 1945 when workers

staged the famous 45 days general strike for a Cost Of Living Allowance (COLA). In 2007,

Nigerian workers demanded for a 25% increase in general wage through the Ernest Shonekan wage

consolidation committee and this was arbitrarily cut down to 15% by Obasanjo government in

2009. Nigerian workers have struggled for fifteen times to have wages improved and a national

minimum wage legislated upon. However, the struggles produced notable victories for workers

and the Nigerian Labour Congress (NLC), and it was usually the case.

Compensation as it were is a complex topic that has significant impact on organizational success

(Dessler, 2005), and for any organization to succeed, it must not look up to capital investment but

to its employees as the fundamental source of improvement with the understanding that the human

element and the organization are synonymous (Tella. Ayeni, and Popoola, 2007). According to

Cascio (2003), the objective of the design of compensation program is divided into two, which

are, direct and indirect forms of compensation. Direct compensation has to do with wage and / or

salary aspect while indirect compensation is the fringe benefits a worker enjoys as a result of

working in an organization. Integrating the two into a package that will encourage the achievement

of an organizations goal is what compensation is all about.

In the words of McNamara (2006), compensation includes issues regarding wage and/ or salary

programs and structures accruing from job descriptions, merit-based programs, bonus-based

programs, commission based programs and so on, while benefits typically refers to retirement

plans, health life insurance, disability insurance, vacation, employee stock ownership plan and so

on. Gomez – Mejia, Balkin and Cardy (2006) view employee compensation as comprising of base

pay and fringe benefits. Base pay or cash pay is the direct pay provided by employers for work

performed and these include salary, overtime pay, shift allowance, uniform allowances and pay
contingent on performance like merit awards, incentive pay, bonuses and gain sharing while fringe

compensating include required programs such as social security, health benefits, pension plans,

paid time off, tuition reimbursement, foreign service premiums and so on.

However, skill based pay also pose some risks in the area of employee paying higher compensation

that are not offset by organizations productivity. Also, employee may become "rusty" unless there

is opportunity to use all the skills acquired; and thirdly, when employee hits the top of the pay

structure, he may become frustrated and leave the firm just because there is no further opportunity

to receive pay raise. Employee benefits, though a part of total compensation embraces non-

monetary form of compensation ranging from health care plans, to pension or retirement plans,

social security, insurance, family and medical leave (Bernadin, 2007), severance pay, payments

for time not worked (vacations, sabbatical, holidays), workers compensation, that is, those injured

on the job (Cascio, 2003), foreign service premiums, child care, tuition reimbursement and on

campus accommodation (Noe et al 2006).

Other emerging trends in employee benefits embrace flexibility or what is known as cafeteria

approach to benefits. This allows an employee to choose from array of benefits in lieu of pay. An

employee who is a bachelor may choose money in lieu of child care (Miner and Crane, 2005). This

is a welcoming idea though it could be more expensive for employers. By and large, employee

compensation and benefits is the ultimate in an organization whether monetary or non-monetary

and it matters a lot to individual workers.

Benefits

From library and information specialists point of view, monetary compensation is an essential

component in recruitment and retention process; but benefits are equally important and can often

be the deciding factor in whether an individual accepts an offer or even stays. Switzer (2004)
concludes that as the competition increases for library employees with the skills and knowledge

that most academic libraries need, many libraries rely on their benefit packages to give them the

leading edge. It is pertinent therefore that present day human resource specialists are well informed

about the various benefits available so that they can adequately manage recruitment and

employment.

Academic institution typically offer a wide range of benefits to their employees; and as university

employees, academic librarians are afforded the same institutional benefits as other university

employee. These include retirement plans, medical care, sick and annual leave, sabbatical leave,

study leave, maternity leave, child care, pension benefit, sponsorship to conferences and

workshops, leave bonuses, on campus accommodation, and so on, which are referred to as

university supported benefits. Libraries, in addition to these can also make some benefits available

to its employees. The onus is on the human resource specialist who must be aware of benefits

offered by other libraries to ensure that his library is not left behind. Some library supported

benefits have monetary value while some have no financial impact.

Job satisfaction

The happier people are within their job, the more satisfied they are said to be. Most times, job

design aims to enhance job satisfaction and performance and this could be achieved via job

rotation, job enlargement and job enrichment. Other influences on job satisfaction include the

management style and culture, employee involvement, empowerment and autonomous work

position. Job satisfaction is a very important attribute which is frequently measured by

organizations and the most common way of measurement is the use of rating scales where

employees report their reactions to their jobs (Judge, T. A., Thoresen, C. J., Bono, J. E., & Patton,

G. K.2001).
Job satisfaction is defined as an individual's reaction to the job experience (Berry, 1997) and in

order for There are various components that are considered to be vital to job satisfaction and they

include the following: pay, promotion, benefits, supervisor, co-workers, work conditions,

communication, safety, productivity, and the work itself. These variables are important because

they all influence the way a person feels about his job though each of these figures into an

individual's job satisfaction differently. Meanwhile, one might think that pay is considered to be

the most important component in job satisfaction especially as it has been affirmed that money

motivates people; and in job situations, money motivates behaviour when it rewards people in

relation to their performance and when it is perceived to be fair, equitable, and providing rewards

that employee truly value (Bernadin, 2007; Katz In Tella, Ayeni and Popoola, 2007).

However, this has not been found to be true. Employees are more concerned with working in an

environment they enjoy. This is a pointer to the fact that compensation and benefit issues are not

to be taken for granted by employers because not only pay but also fringe benefits influences the

kind of employees who are attracted to, and remain with an organization. Defining a compensation

strategy is an important activity for all companies, including startups. The compensation strategy

must be affordable, structured and reasonably competitive. There are many different types of

compensation paid to employees. The following are a few examples of the compensation paid to

employees:

 Cash compensation consisting of wages or salaries

 Retirement plans (employer contributions)
 Employer-paid health insurance
 Life insurance
 Paid leave for vacation and sick days
 Disability insurance
Your compensation strategy must be structured to best meet your unique business circumstances.

As a startup, you may not be able to compete with large companies on salary. Therefore, you

should consider a combination of options to attract and retain key employees. Do not underestimate

the value of the advantages or perquisites that your company has to offer that may not be readily

available in larger companies’ opportunities for interesting work, lack of hierarchy, flexible

environment, and so on. Some people are motivated by the desire to be on the leading edge of

scientific or technological advances. They may take less pay to work for a startup if they believe

in its future and the work it has to offer.

Salary and wages

A salary (or wage) is a fixed amount paid in exchange for an employee’s services. Ontario

Employment Standards legislation entitles most employees to receive a “minimum wage” in

exchange for the work they complete for a company. For full-time employees, salary is generally

described in annual, monthly, bi-weekly or weekly amounts. For part-time employees, it is

generally described as an hourly amount. To determine an appropriate salary and/or salary range

that your company is willing to pay for a position, you must:

 Establish the value of the position based on your organizational requirements

 Understand what the market is paying for a similar position

 Incentives:

Compensation can be divided into salary, benefits and incentives. While salary and benefits must

be competitive, incentives are the most likely drivers of attracting and retaining the best employees

in startups. There are three key types of incentives: bonuses, profit sharing and stock options.

1. Bonuses

o Individuals are rewarded based on attainment of performance-based goals (individual,

team and/or company).

o Goals must be realistic and closely matched to the business and people involved.

o Payout potential should be large enough to be significant to the individual.

o Bonuses can be set up to directly drive and support the company’s needs (for example,

profitability, annual results, successful completion of projects and/or significant project

milestones).

2. Profit sharing

o Payment is tied to company profits.

o A pre-determined percentage of profit is shared among all employees.

o Profit-sharing bonuses are generally paid out once a year in the form of cash or on a

deferred basis.

3. Stock options

o An individual receives the option to buy company shares for a set price during a

specified time frame.

o Option can be exercised by the individual at any time during the agreed-upon term and

subject to any vesting schedule.

 o Stock options are often part of management’s executive compensation but may be

offered to key employees in lieu of a higher salary—especially where the business is not

yet profitable and/or cash flow is constrained.

o If the business does well and the company’s stock rises, the holders of the options share

in the financial benefits.

o In general, if the company permits a long period from the date of issue to the last date

for exercising the option, it will encourage the employee to stay with the company and

be fully committed to its success.

4. Employee Benefits

Employee benefits typically refers to retirement plans, health life insurance, life insurance,

disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly

expensive for businesses to provide to employees, so the range and options of benefits are changing

rapidly to include, for example, flexible benefit plans.

Benefits are forms of value, other than payment, that are provided to the employee in return for

their contribution to the organization, that is, for doing their job. Some benefits, such as

unemployment and worker's compensation, are federally required. (Worker's compensation is

really a worker's right, rather than a benefit.)

Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and

worker's compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement

(pension pay), profit sharing, stock options, and bonuses. (Some people would consider profit

sharing, stock options and bonuses as forms of compensation.)

You might think of benefits as being tangible or intangible. The benefits listed previously are

tangible benefits. Intangible benefits are less direct, for example, appreciation from a boss,
 likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually

referring to tangible benefits, but sometimes meaning both kinds of benefits. You might also think

of benefits as company-paid and employee-paid. While the company usually pays for most types

of benefits (holiday pay, vacation pay, etc.), some benefits, such as medical insurance, are often

paid, at least in part, by employees because of the high costs of medical insurance.

5. Employee Compensation

Compensation includes topics in regard to wage and/or salary programs and structures, for

example, salary ranges for job descriptions, merit-based programs, and bonus-based programs,

commission-based programs, etc. (Also see the Related Info (including Benefits). Compensation

is payment to an employee in return for their contribution to the organization, that is, for doing

their job. The most common forms of compensation are wages, salaries and tips.

Compensation is usually provided as base pay and/or variable pay. Base pay is based on the role

in the organization and the market for the expertise required to conduct that role. Variable pay is

based on the performance of the person in that role, for example, for how well that person achieved

his or her goals for the year. Incentive plans, for example, bonus plans, are a form of variable pay.

(Some people might consider bonuses as a benefit, rather than a form of compensation.) Some

programs include a base pay and a variable pay.

Organizations usually associate compensation/pay ranges with job descriptions in the

organization. The ranges include the minimum and the maximum amount of money that can be

earned per year in that role. Employees have certain monies withheld from their payroll checks,

usually including federal income tax, state income tax, FICA (social security) contributions, and

employee contributions to the costs of certain benefits (often medical insurance and retirement).
Exempt and Non-Exempt

Jobs in organizations have two classifications, exempt and non-exempt.

Professional, management and other types of skilled jobs are classified as exempt. Exempt jobs

get a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month.

It's not uncommon for exempt positions to receive higher compensation and benefits than non-

exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply by

working more hours.

Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobs usually get a

wage, or an amount of money per hour. Non-exempt jobs also get paid over-time, that is, extra pay

for hours worked over 40 hours a week or on certain days of the week or on holidays.

Each job must have the same pay range for anyone performing that job, that is, one person can't

have a higher maximum pay than someone else doing that same job.

Job evaluation is another technique that can be used to establish an equitable wage rate. This

method is a more systematic and rational approach to internal equity because it evaluates workers

according to factors such as education, skill, experience and responsibility.

Skill-based pay is an approach that bases the doing the job, rather than on the job itself. Employees

with similar skills are grouped together, regardless of job title, to form skill classes or grades.

These classes determine pay level. This technique can be applied to agricultural enterprises rather

easily.

Broadbanding was used in a Cornell University study. Five competency levels were developed to

classify employees according to their decision making authority, skill level, and supervisory

capacity. Every employee was classified as being in one of the following five competency levels.
Level one: •

Employees who are either very new to the farm or have no advanced skills.

Level two: •

Very specialized individuals who perform from one to many specific tasks that require training.

Level three:

Employees who are very skilled in at least one specified area and have supervisory capacity and

decision-making authority over a very limited portion of the business.

Level four:

Employees with exception skill levels, who make decisions that affect entire areas of the operation.

These people have potential for broad supervisory and decision- making authority.

Level five:

These are the most skilled and qualified full time employees. They have complete supervisory

authority and the most decision-making authority given to any fulltime employee. By using a

competency scale, each employee can be cross-referenced by job title and competency level or

studied solely within either category. Employees with similar skill levels, or competency, are taken

together in compensation “bands,” regardless of job title. These bands then compensate similar

employees at similar rates across the entire organization and maintain both internal.

Commissions

Commissions are a common way to remunerate employees (salespeople) for securing the sale of a

product or service. The intent is to create a strong incentive for the individual to invest the

maximum effort into their work. Commissions are usually calculated as a percentage of the sale of

the product or service (for example, 5% of a computer component’s retail selling price). Payment

may be either straight commission (no base salary) or a combination of base salary and
commission. In general, the commission structure is based on reaching specific targets or quotas

that have been previously agreed upon by management and the employee. These targets or quotas

are typically tied to sales revenue, unit sales or some other volume-based metric.

Conclusion and Recommendations

Compensation plays an important role in the recruitment and retention of librarians. Though

librarians in academic libraries these days enjoy significant increase in their salaries and benefits

that are generally provided by their parent institutions, there is still room for improvement. This

study has revealed that in some universities, this group of people is denied some benefits that are

being enjoyed by their counterparts in the faculty which may be as a result of the library being

seen as a support unit of the university. There may be need for university policy makers to review

this concept and see university libraries and librarians as integral part of the educational institution.

The academic library human resource specialist should therefore set in motion strategies to address

especially benefits packages available to library employers across board; as well as creating a work

environment that is appreciative of its employees and conducive to professional growth. The

concept of work life balance (Switzer, 2004) which is valued by today's library employee should

be understood and embraced by library human resource specialist.

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