Compensation Effectiveness Evaluation


In the modern global economy, identifying and implementing workforce strategies is a significant challenge. Therefore, human resource strategic planning is vital to every company, and it should always align with the organizational objectives and goals regardless of size. In this case, to attract and retain human capital, the human resource department must effectively and efficiently develop qualitative and quantitative approaches. Consequently, it is essential to thoroughly evaluate the effectiveness of the compensation policies to determine the most productive framework. The current paper discusses the key areas of HR development, analyzes the methods of assessing the effectiveness of compensation management, and proposes recommendations based on the example of Starbucks.

Organizational Elements

Alongside the compensation program, some of the key elements that determine the productivity of the employees are workforce planning, organizational capacity, structure, inclusivity, and change. The said factors are related to the motivation of the employees and might affect their outlook on the compensation policy. For instance, workforce planning analyzes the supply and demand for the employees and is an essential part of recruiting.

Consequently, capacity concerns the organization’s ability to appeal to, encourage and keep the aptitude required to fulfill the organizational goals. Structure, inclusivity, and organizational change are also essential factors that determine the satisfaction of the employees. Ultimately, it is vital to discuss the evaluation methods of compensation in combination with the said elements of organizational development.

Evaluation Methods

The core focus of the paper is to analyze the evaluation methods of compensation effectiveness. In general, compensation refers to any tangible and intangible rewards that the employer offers to employees in exchange for labor (Agbo, 2019). Therefore, compensation is arguably the most significant factor affecting the workers’ motivation and productivity. However, as mentioned before, a large variety of factors influence the motivation of the workers; thus, any method of compensation evaluation should take the whole organizational culture into account. Consequently, it is the responsibility of the HR department to assess the significant factors and measure the effectiveness of the compensation policies.

For this purpose, there is a number of potential strategies that could be used for the evaluation. First, the correlation between the compensation amount and the economic situation within the country and the industry is the most significant factor that determines the effectiveness of rewards (Agbo, 2019). In other words, the HR department needs to ensure that tangible compensations are comparable with rewards provided by the competitors.

The said compensations include salary (hourly or monthly rates), paid leaves, assistance programs, relocation expenses, insurance, career opportunities, retirement benefits, and many others. Therefore, if the company does not provide compensation comparable to other competitors in the industry, it is highly complicated to retain the employees. Thus, the primary method of assessing the effectiveness of the chosen compensation policy is to compare the rewards to the analogs provided by the competitors.

Consequently, compensation also includes intangible rewards; therefore, the emotional condition of the workers is a highly significant metric as well. For instance, healthy organizational culture, inclusivity, and effective leadership frameworks increase the motivation of employees. As a result, the psychological condition of the workers should also be taken into consideration for compensation evaluation (Agbo, 2019).

Most employees want to experience a sense of belonging at the workspace, and intangible compensations, such as team building, praise of work, and recognition of one’s achievements, significantly affect the motivation of workers (Agbo, 2019). Therefore, the other method of compensation evaluation is the comprehensive feedback system, which allows assessing the emotional condition of the employees.

As a result, an ineffective compensation plan is a combination of low tangible and intangible rewards, which significantly decrease the motivation and retention of the employees. One of the ways to manage such a compensation policy is direct negotiation with the workers. Transparent communication is essential in the employer-employee relationship and should be prioritized for maximum efficiency (Agbo, 2019). On the other hand, it is possible to choose a contrary approach by hiring short-term workers. This strategy is particularly relevant in the industry that requires no specific training, such as fast-food or delivery. Ultimately, there are several ways to mitigate the ineffectiveness of compensation policies, depending on the industry and the chosen approach of the HR department.

Recommendations for Evaluation

Lastly, it is essential to provide guidelines for assessing the compensation plan’s effectiveness based on the real-life scenario. The compensation policy of Starbucks demonstrates relatively low effectiveness; the employees frequently feel that they are replaceable, and the organization provides few benefits to them (Chang, 2020). It is a relatively common compensation policy in the fast-food industry, and Starbucks has achieved great success by utilizing this method.

Nevertheless, the organization could arguably benefit from additional strategies of employee retention. For instance, most of the workers are young people who perceive Starbucks as a temporary occupation before settling for a new job. Therefore, as proposed in the previous paper, Starbucks could implement time-gated insurance and education opportunities to increase the attractiveness of long-term employment.

Furthermore, the effectiveness of this method might be evaluated with relative ease via the comprehensive feedback system. The HR department should thoroughly inquire the employees about interest in pursuing a long-term career in the organization during the hiring process. Consequently, they should repeat the process after the workers have received the time-gated benefits. This approach would allow the evaluation of the effectiveness of the compensation policy. As a result, the time-gated compensations might significantly benefit the productivity and motivation of Starbucks’ employees.


Agbo, M. U. (2019). Effects of compensation plan on employee performance in the telecommunication industry (A study of MTN and GLO Nigerian LTD Umuahia branch). Journal of Business and Organizational Development, 11(2), 1-34.

Chang, W. J. (2020). Experiential marketing, brand image and brand loyalty: a case study of Starbucks. British Food Journal, 123(1), 209-223. Web.

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