Compensation Strategy and Compensation-Related Challenges - Essay Example

Compensation Practice One of the principal factors that prospective employees examine, while in search for potential employers is the value depicted by the latter’s benefits or compensation package. The modern society is also characterized by increasing, and constantly changing benefit choices among potential employment candidates. This explains why many contemporary firms are striving to create specialized compensation packages, to meet the needs of a progressively diverse workforce. Kellogg Company is an exemplary example of these modern firms seeking to offer competitive compensation packages to their employees, as discussed further in this paper. Kellogg Company’s compensation strategy, despite its shortcomings, enables the company to attract and retain highly qualified employees hence its success in the global business environment. Compensation Strategy Kellogg’s compensation strategy is specifically designed to provide competitive salaries and benefits, which are crucial in luring and retaining talented, experienced and highly qualified workers. The compensation package also strives to adequately motivate employees and enable them to productively contribute to the success of Kellogg’s short and long-term goals. Further, compensation at Kellogg Company is aimed at propelling total returns for shareholders in the long-run. Accordingly, the company’s compensation program is underpinned by several core principles including payment for performance, values-based compensation, shareholder alignment and risk mitigation (Kelloggcompany, 2013). A brief description of these core compensation principles is given in the subsequent paragraphs. In regard to the payment for performance principle, Kellogg’s compensation plan is designed in a manner that links employees’ actual pay to the company’s performance. This is accomplished through utilization of payment programs such as annual incentives, stock options, three-year performance appraisal and limitation of incidental benefits. Concerning shareholder alignment, Kellogg’s aligns workers’ interests with those of shareowners, by encouraging them to maintain a significant individual financial stake in the company. Kellogg’s compensation committee also evaluates total shareholder return as a principal financial index when evaluating performance, in order to verify the company’s payment for performance link. These core principles clearly have a motivating effect on employees, since the harder they work, the higher the compensation (Kelloggcompany, 2013). The preceding assertion applies to the values-based payment principle, since employees are examined on the behavior they portray, as they seek to attain company goals. If employees exhibit productive demeanor, then they get better compensation. Finally, in consideration of risk mitigation, Kellogg’s uses claw back strategies to lower compensation-linked risks. Compensation-related Challenges Despite the clear-cut compensation principles adopted by Kellogg’s, the company is not exempt from compensation challenges. For instance, it is difficult to guarantee efficacy of performance-driven payment. This is because aligning individual, team and company objectives is a difficult task. Another challenge is posed by the values-based principle, with regard to environmental considerations. As a multinational company, Kellogg’s employees do not always have enough market information to guide their operations. Therefore, values in one geographical location may differ from those in another, making values-based payment ineffectual and inhibiting competitive compensation decision-making. Use of claw backs to mitigate compensation risks also presents a challenge, since employees may view it as a deprivation of benefits that are rightfully theirs. This is likely to negate the motivating role of compensation (Kelloggcompany, 2013). Kellogg’s compensation practices in determining positive or negative impact on its stakeholders The company’s compensation approach helps in determining the impact it has on stakeholders. This is why, the organization has a compensation committee to evaluate the effectiveness of the practice The approach used by the by the compensation committee is a principal feature, which ensures that actual plans for compensation are consistent with the company’s core elements. Therefore, the organization approach towards independent compensation decision making, is paramount. This is because if the decisions made will increase the organizations operation cost then, this will be determined as a negative impact to the stakeholders. Another practice utilized by the organization is use of peer group data to appropriately target the diverse compensation levels. The data offers necessary information showing how efficient a compensation practice is to the organization. Additionally, using verification tools in ensuring that appropriate compensation practices have been put into place is essential. This will assist in determining which decisions are working and which should be done away with. For instance, Kellogg’s offers very competitive salaries, thus giving individuals the means to acquire basic needs. This is a practice that has been deemed to work and has a positive effect on the stakeholders. The company also has a Cornflex flexible benefits programme, which allows workers to choose the kind of benefits which seems to suit them. By giving them autonomy in making decisions, the employees feel appreciated thus working harder giving a positive check to the compensation practice. Effects of Laws, labor unions, and market factors on Kellogg’s Compensation Process Laws, labor unions, and market factors have a considerable effect on an organizations compensation process. Unions play a fundamental role in securing employee’s labor protections, as well as, their rights like safety and health, compensation for overtime and other rights on the job. The labor laws ensure that workers are well informed about their salaries and other compensation elements. Unions on the other hand act as intermediaries to institutions that give a necessary complement to workers compensation (Greenhouse, 2014). For instance, in Kellogg’s Memphis cereal plant there the workers went on strike and they were presented by the union in order to have better wages. Kellogg’s workers are therefore, receiving raised wages for the unionized workers. This is because there is a body that is representing the employee’s issues and not the workers directly. Market factors have also played a huge role in improving the organization’s employee wage levels. This is because of the reduced wage inequality which is being experience all over the world. Additionally, the employees are receiving better pension plans for their compensation process (Greenhouse, 2014). Traditional bases of pay The traditional bases of pay in Kellogg’s are divided into seniority and longevity pay structures. Seniority pay is utilized determining profitability in the businesses while longevity is determined by how long a person has been working for the organization. The pay system promoted equality and fairness of employees. On the other hand, longevity pay is awarded to workers that have met their pay grade maximums. However, the traditional system is not as effective because the organization is unable to determine the workers pay by taking into consideration their performance. Therefore, the traditional bases for pay are less efficient in the organization. References Kelloggcompany. (2013).Business Strategy. Retrieved from http://crr.kelloggcompany.com/en_US/corporate-responsibility/overview/business-strategy.html Greenhouse., S (2014). Labor Battle at Kellogg Plant in Memphis Drags On. Retrieved from http://www.nytimes.com/2014/02/11/business/kellogg-workers-in-4th-month-of-lockout-in-memphis.html?_r=0 Read More