Designing an Effective Pay and Perks Package across the Organizational Hierarchy
The Five Challenges of Determining Pay and Perks Challenges in Organizations
Ensuring fair pay and perks packages across the organizational hierarchy can be challenging for Human Resources or HR Personnel.
- For one, they have to ensure that the Pay Gap between the Topmost and the Lower most levels is not too high to demoralize the workforce.
- Second, dissatisfaction over differential pay is inevitable given the differing standards of performance on which the pay is determined.
- Third, as we move up the hierarchy, the compensation packages are a mix of monetary and nonmonetary benefits such as access to premium clubs, company provided housing, and chauffeur driven cars and the like that might be resented by those who failed to make the cut for these perks.
- Fourth, compensation varies not only according to performance but also due to other factors such as experience and time spent in the organization that might lead to bitterness among those who have excelled, and yet, find themselves paid less than their counterparts.
- More importantly, the converse is also true which means that some legacy employees and those who have been working for a long time in the organization might find themselves poorly paid than the new comers.
The Problem of Determining Compensation with Limited Resources and Unlimited Wants
Therefore, HR has to make difficult choices when determining pay and perks packages. Moreover, the Line and the Middle Managers have to work closely with the HR in designing effective pay and perks packages for everyone from new hires to the experienced employees.
The point to be noted here is that any compensation package that is designed would still leave employees wanting for more as the modern day Corporate system is made for Unlimited Greed whereas the Resources at the disposal of such firms are limited and more importantly, distributed across the workforce in a fair and just manner.
In addition, there is the challenge of transparency as corporates typically have an opaque package from the Middle Level and higher up.
The other aspect of the challenge is that Compensation packages have to meet the expectations of the employees as far as their Self Worth is concerned.
In other words, employees feel satisfied and motivated only when they feel that the pay and perks they are getting are as accurate markers of what they perceive is their due.
Therefore, pay and perks have to be designed keeping this basic human urge of feeling wanted and being paid according to that.
The Creative Tension between What Employee and Employer Perceptions of Self Worth
In recent years, another challenge before corporates and especially, start-ups and new ventures is to how use stock options as a carrot for employees.
Stock Options are vested after a few years or when the firm goes public and hence, the appropriate distribution of stock options at different stages of the firm’s lifecycle is a challenge.
This is because some employees often leave after the stock options mature whereas others expect more such rewards for their loyalty. In addition, not all employees can be given stock options multiplying the challenges for the HR professionals.
We mentioned how pay and perks have to reflect what the employees perceive is their due.
On the other hand, the firm has to believe that such rewards are justified and this is where there is Creative Tension between what the firm thinks a particular employee is worth and what that employee thinks he or she is worth.
This is the existential disconnect that often demoralizes employees as well as the managers being angry at them wherein the former thinks that they are poorly paid or inadequately compensated and the latter think that they are being too greedy or not performing enough to justify their expectations.
How Corporates are Coping with Covid and Determining Pay and Packages Now
Continuing the point on the disconnect between employee expectations and the realities that determine pay, HR also has the unenviable task of persuading employees that are disgruntled in this regard.
Moreover, with the current Pandemic taking its toll on Corporate Revenues and Profits, the cases of such discontent are rising.
This is the reason why many leading corporates are putting on hold pay rises for the time being as they feel a mass discontent rising from their workforce due to differential treatment in such tough times.
On the other hand, evaluating performance when everyone is working from Home is another challenge before the corporates.
Of course, there are some firms such as the software giants who are doling out handsome bonuses as they feel that this is the time to say Thank You to the employees working against all odds.
Whereas some firms feel that employees would think twice before leaving them as the current scenario is not conducive to changing jobs.
Above all, the real challenge in the recent past has been about how to retain the top performers especially in these Covid times as replacing them is tough given the current exigencies that make hiring a lot tougher.
Last, there are many questions being raised by Worker Unions and Activists about the pay gaps in firms in the manufacturing sectors.
This is another challenge as the alternative can well be worker unrest and lockouts as we have seen in recent months.
This is also an emerging challenge for services firms as gradually, their employees are beginning to unionize themselves.
Moreover, pay disparity has become a burning issue worldwide and this can lead to unwanted consequences such as mass worker disobedience especially when we face a Depressed Economy.
To conclude, designing pay and perks packages needs vision and compassion.
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Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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