Unit 6: Compensation and Benefits
When an employer is making a hiring decision, he or she must consider a number of factors, including the cost of compensating human capital. In most cases within a business, this is the highest overhead cost consumed by an organization. Because poor financial planning is one of the top 10 risk factors associated with business failure, it is extremely important that an employer understands the many elements associated with the development and application of a compensation program. An employer must also be aware of compensation, as it is a tool used to attract and retain human capital. At different stages of an employee's life, he or she will have different workplace needs. An organization may have some employees who value direct financial compensation and others who have an immediate need for other, more indirect benefits, like tuition reimbursement or child care. The key is to understand the dynamics of a compensation program and develop an organizational program that serves the needs of the organization, as well as the human capital employed by the organization.
In times of recession, there is usually a larger labor force in search of work. This gives employers leverage when hiring; some can drive down the associated human capital cost of employment due to the high supply of labor. However, the key to retaining good people in any environment, including in periods of high growth, is usually compensation. Compensation is not just about a salary or bonus - it is about work/life balance, perks, and contentment. The happiest employees are not necessarily the ones in the highest pay grade. Often times, the most successful companies pay less than their competitors because they have created an environment that is pleasant to work in.
Much of the chatter surrounding compensation today revolves around executive pay, as the disparity between executive pay and employee pay has grown dramatically over the decades. This widening gap is largely due to the fact that firms have been aligning executive compensation with firm performance. For publicly traded companies, performance is often measured in terms of profitability or stock price performance. This system is problematic in that it incentivizes executives to take on too much risk, as they are guaranteed compensation no matter what happens. This unit will explore this issue as well as others pertaining to compensation and benefits.
Completing this unit should take you approximately 6 hours.