Task 3: Pay & Compensation; Strategic & Practical Approaches Essay

Task 3: Pay & Compensation; Strategic & Practical Approaches

Task 3: Pay & Compensation; Strategic & Practical Approaches

Strategic Compensation

Strategic compensation refers to the human resource function of bringing about optimum growth in employee performance through suitable compensation plans (Larkin, 2019). It is aimed at orienting the behavior of employees and their performance to align with the objectives of the company and its goals. The objectives of a strategic compensation plan are to attract, retain and motivate talented employees and to maximize return on investment (Rubel & Kee, 2015). Designing strategic compensation entails several actions such as identification of employee objectives, setting of realistic budgets, plan implementation, and espousing creativity (Leonard, 2019, March 7). A suitable compensation strategy makes a company remain competitive in the market by attracting and retaining the best possible talent in the market. 

Options for Designing Compensation Strategically

The three options available for designing compensation strategically are performance measurement, time horizon, and ownership.  In performance measurement, firms use several financial metrics that derive shareholder value (Gerakos et al., 2018). Today, however, some firms are integrating non-traditional financial metrics. Additionally, firms are also utilizing strategic measures that are suitable for communicating strategic themes. In the time zone option, companies design their long-term incentives in 3-year cycles of overlapping performance and vesting. In the ownership option, companies strive to attain leverage on wealth through the implementation of ownership guidelines. Likewise, some firms provide a premium for opting for cash awards in terms of equity that cannot liquidate over a certain period. This way companies make employees think and behave like owners (Ferracone, 2018, December 21).

The Most Effective Option for Designing Compensation Strategically

I think the most effective option for designing compensation strategically is the ownership option. With this option, employees feel that they own the company and therefore they work at optimum performance to make the company the company achieves the highest possible performance and competitiveness. This is because their compensation rises with rising company profitability.

Task 3: Pay & Compensation; Strategic & Practical Approaches