Setting the stage for strategic compensation and bases for pay Term Paper

Setting the stage for strategic compensation and bases for pay - Term Paper Example Compensation Department Goals Milkovich & Newman (2005) define compensation as the financial returns and benefits employees receive from employer in order to achieve a positive relationship between employer and employee. It is geared at enhancing employee’s performance and organizational effectiveness and consequently competitive advantage in the labor market. The compensation department is part human resource department as it is concerned with employee base pay and benefits administration.The main goals of the department are to attract, motivate and retain talented employees in the organization. To achieve these goals, an organization needs to align its compensation objectives with organization objectives (Ledford & Heneman, 2002). To attract high quality talent, its pay has to be competitive in the market. The compensation department carries out surveys to determine what the other organizations are offering for similar tasks and pay the same amount or higher than the competi tors. The salary should reflect the value of the job being performed for an employee to be satisfied (Heneman, 2002).If the compensation an employee receives is not equivalent to the task performed or is not equivalent to what others performing similar tasks in the organization or in the job market, then the employee loses morale or is demotivated leading to poor performance and loss of productivity for the organization hence the compensation system should be internally equitable and externally competitive (Bohlander & Snell, 2010). Through job evaluation, salary structure and performance management systems, an organization can be able to motivate and retain high performing employees. Ledford & Heneman (2002) argue that performance appraisals can be used to justify increased pay rate (413). Higher pay rates then enable the organization to set high selection standards thus recruit better qualified employees. To retain the employees, the organization can offer pay based on performance or the currently new system of pay for skills (Bohlander & Snell, 2010). However, motivation depends on the value of rewards achieved after achieving the set standards or after good performance thus the rewards should be motivating so as to direct behavior towards high performance. Contextual Influence That Pose Greatest Challenge and One That Poses Least Challenge to Companies’ Competitiveness Organizations strive to achieve competitive advantage through its compensation system. According to Cardy & Leonard (2011), company gains competitiveness if its pay is fair compared to what is offered by other organizations. This can be achieved by developing strategies aimed at ensuring it remains competitive in the market such as cost leadership and differentiation. A strategic analysis of the internal capabilities and external market environment is required to establish the challenges to organizations competitive ability. Organizations attain efficiency by operating at low cost whi le at the same time producing high quality products. This has an implication on its inputs since the cost of production is determined by cost of inputs such as labor, capital and land. To attain efficiency, it thus has to ensure maximum utilization of its resources; in this case its employee skills, knowledge and interests. The competitiveness of the company is however challenged by various contextual factors such as; employment laws, labor unions, market influences and social factors. These factors affect compensation practice and consequently competitiveness (Milkovich & Newman, 2005). The employment laws may pose a great challenge to compensation practices. The wage laws determine the minimum and maximum wages an employee can receive and prohibit employment discrimination. If an employee perceives a practice such as performance pay or skill based pay as discriminatory, he/she can claim discrimination allegation. The base pay for employees performing