Compensation Strategy Values
Gillera is a mid-size organization that will benefit from a pay for performance compensation strategy. The strategy is aligned with the company’s mission and vision of delivering its customers high-quality services; therefore, it is based on three components that function in conjunction with each other and Gillera’s values: power, balance, and sustainability. Power is an element of the strategy that allows new knowledge workers to immediately create cash flows for Gillera. The element has been designed to attract professionals committed to residual income generation (Biswas, 2014). Balance is the strategy’s component that emphasizes the importance of fair reward for employees across all levels of the organization (Biswas, 2014). The strategy rewards the company’s workforce for the creation of a wide network of business partners and attraction of a strong base of customers. Sustainability is an element that supports the development of long-lasting operations. To this end, the strategy recompenses all employees for behavior that contributes to the creation of a balanced work environment (Biswas, 2014).
Compensation Strategy Objectives
A systematic approach to the design of the compensation strategy helped the director of compensation to better understand employee needs and managing costs. It was also instrumental during the development of a comprehensive communication strategy (Biswas, 2014). The approach also helped to integrate employee benefits, accounting, finance, and tax implications into the strategy, thereby achieving its main goals. Furthermore, by systematically developing and assimilating various elements of the strategy such as base compensation and incentives, it was possible to ensure that they are aligned with the Gillera’s human resources (HR) strategy.
A compensation program consists of three components each of which is designed to fit unique needs and abilities of the company’s sales executives: competitive base salary, progressive commission, and bonuses. Base salary is a monetary compensation that is tied to a responsibility level of an employee and is not affected by performance (Biswas, 2014). Bonuses are additional amounts of money that are received by those sales professionals who meet the company’s performance goals. Commissions of Gillera’s sales managers are increased earnings that are directly linked to the efficiency of their teams. The compensation program ensures that the organization professionals’ achievements are recognized and compensated accordingly. The progressive bonus structure helps to retain effective sales managers whose presence positively affects the performance of their teams. There is ample evidence pointing to the fact that successful sales executives can have turnover intentions if they are not compensated properly (Ray, n.d.). Therefore, the commission and bonus structures have been designed to ensure that the sales professionals are not attracted by competing offers.
The Gillera’s compensation strategy presupposes regular revisions that are needed to incentivize the employees to stay. The compensation plan is readjusted every time a sales manager in the company is promoted (Ray, n.d.). Furthermore, the bonuses, which are a part of the sales managers’ compensation packages are also readjusted for inflation. These provisions have been put in place to ensure that the compensation strategy remains competitive in the ever-changing marketplace (Waring, 2013).
The sales executives’ bonuses are directly linked to a real-time performance appraisal system, which is aligned with the high-performance culture of Gillera. Differentiated compensation helps to connect the company’s key objectives to their strategic execution. The director of compensation recognizes the fact that performance-driven rewards are necessary to retain talented workers. Therefore, the variable pay mechanism established though bonuses promotes the growth of the company’s expected profits. It is important to stress that bonuses do not perform a punitive function. Instead, they help to establish a link between the organization’s success and exceptional performance.
The four bonus tiers have quantifiable performance metrics that fit nicely into the organization’s compensation landscape. The leadership bonus is divided among the top three performers of Gillera who help to expand the company’s operations. A proportion of this bonus depends on a rank of a sales executives and is paid every three months. The elite bonus is a powerful monetary incentive that corresponds to earning potentials of the company’s workforce.
Gillera’s bonuses were developed by using the SMART framework; therefore, they are specific, measurable, attainable, relevant, and timely (“Performance-driven compensation,” 2012). The framework targets the following metrics: revenue, customer services, and quality statistics. The bonus strategy relies heavily on technology support. Performance calibration process that underpins the strategy is conducted with the help of information technology (IT) solutions that help to appraise key quality statistics of sales managers. Metrics from the accounting and customer support department are also taken into consideration during calculation of the executives’ bonus eligibility. Having measurable metrics is essential for distinguishing the individual performance of the sales managers from the overall performance of Gillera. It has to be borne in mind that all metrics used for the compensation strategy are linked to realistic and achievable targets (“After AIG,” 2009).
According to Goel (2012), a compensation has to be “directed towards achieving the desired output from the employee, which necessitates the motivation to act on his part” (p. 327). Therefore, the company’s compensation professional encouraged employees to provide their input in the compensation strategy. By doing so, it was possible to determine the workforce’s expectations with regard to the compensation plan. All sales executives received opinion surveys, which helped to evaluate major compensation factors influencing their satisfaction. The inclusion of the employee input in the process of designing a compensation strategy is essential because even a seemingly perfect benefit plan can raise major objections if workers feel that it is not congruent with their needs (Biswas, 2014). All sales executives were informed that the participative process had helped to ensure that Gillera’s compensation system is linked to both the company’s business strategy and their personal expectations.
In addition to the employees’ feedback, compensation committee members, executives, and department managers were encouraged to provide their input. By doing so it was possible to magnify the compensation strategy’s strengths and eliminate its weaknesses.
In addition to the employees’ feedback, compensation committee members, executives, and department managers were encouraged to provide their input on the plan. By doing so it was possible to magnify the compensation strategy’s strengths and eliminate its weaknesses.
The compensation plan presupposes two types of incentives: direct and indirect. The base salary of sales executives functions as a direct incentive to work towards the attainment of the company’s short-and long-term objectives. In order to ensure that that the workforce engages in productive behaviors that contribute to the creation of a competitive edge, the compensation professional included a comprehensive bonus incentive structure in the plan.
According to Miller (2012), incentives help to “motivate and engage employees in order to drive intended business results and reward and differentiate employees fairly for the value they create” (para. 2). Therefore, extra-financial incentives reward the sales professionals for the performance that exceeds the limits of targeted work (Biswas, 2014). By remunerating the employees for their additional production efforts, the compensation plan appeals to their basic need of additional income. Furthermore, the company’s willingness to incentivize sales managers to increase their productivity shows the workforce its commitment to the high-achievement culture. Not only does the individualized incentive system motivate the employees, but it is also maintains desired quality levels. The workers are also incentivized indirectly by an insurance plan, services, and perks (Biswas, 2014).
Fairness of the pay structure is an issue that may evoke significant, visceral reaction of the Gillera’s employees. Therefore, the director of compensation ensured that the plan treats all sales managers equitably. It is essential that the sales managers do not perceive an imbalance when assessing the value of their contribution to the firm’s success (Bussin, 2014). To this end, the compensation system had been developed to be utterly straightforward, which allowed streamlining the process of assessing its distributive justice. All key performance indicators (KPI) are linked to relevant levels of pay. It allows the sales professionals to compare their performance measures to compensations, thereby ensuring that rewards are commensurate with contributions.
The compensation strategy is underpinned by equity theory, which posits “the proportionate relation between contributions and inducements should be equal for all employees” (Gomez-Mejia, Berrone, & Franco-Santos, 2014, p. 5). Equity theory serves as a basis for the compensation program.
The director of compensation recognizes that monetary rewards are an insufficient motivator for the sales executives. Therefore, the compensation structure presupposes an upward career growth. It has to do with the fact that work for knowledge workers is often an inseparable part of their identity (Goel, 2012). It follows that the empowering role of the compensation strategy helps to both motivate and satisfy the sales professionals. It is extremely important because the satisfaction with the compensation plan, in particular, and the employment, in general, is a function of the relationship between the following performance components: organizational culture, communication, perception, motivation, action, and satisfaction. The interplay between these elements is mediated by stress and incentives (Goel, 2012). The equitable incentive structure will help to minimize the harmful influence of stress, thereby improving the quality of performance.
The communication plan is an essential element of the Gillera’s compensation strategy. The plan will help the sales managers to understand how their needs are addressed by the strategy (Bussin, 2014). The first step of the communication plan is to inform the employees about compensation philosophy of the company. Another step of the plan is to let the employees know that their input played a critical role during the process of developing the strategy. External influences on the compensation strategy such as the marketplace trends will also be articulated to the workforce. In addition, the sales managers will be informed of the base pay, incentives, salary administration, eligibility, and tax implications (Bussin, 2014).
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