Human Resources 6: Establishing a Benefits and Compensation Program

This continues our series on how human resource functions can improve your business. I acknowledge the works of Dr. Lori Wadsworth for the content of this series.

Compensation involves more than what you pay. Compensation includes all the tangible and intangible rewards employees enjoy by working for your company. A good compensation and benefits program helps you identify and evaluate what you are offering your employees.

Deciding How to Compensate Yourself and Others

The objectives of your compensation plan:

• Recruit qualified employees
• Increase or maintain morale and satisfaction
• Reward and encourage performance
• Reduce turnover and encourage organizational loyalty
• Remain equitable with internal and external positions

Legal issues governing compensation include: Internal Revenue Code, Equal pay act of 1963, Employee v Contractor. The Fair Labor Standards Act (FSLA) regulates:

• Wage and hour issues, exempt and nonexempt classifications, minimum wage, overtime, and child labor provisions
• White Collar exemptions for executives, administrators, professional or outside sales, doctors, lawyers, teachers, and computer employees

Strategic compensation tools include variable pay, team-based pay, skill-based pay, and short-term incentives. You may determine pay increases using single or flat rate (COLA), step-rates based on seniority, and pay for performance or merit increases.

Determining What Benefits You Will Offer Employees

Lori Wadsworth outlines some basic building blocks for a compensation program:

• You attract good employee with benefits through indirect compensation
• You retain good employees with contributions and co-payment programs
• You motivate good employees with deductible and cafeteria benefit programs

Dr. Wadsworth provides the following list to help you determine what to offer:

• Security benefits: workers compensation, federal unemployment, and severance pay
• Retirement benefits: social security, pension plans, individual retirement benefit options such as defined contribution plans or IRA’s (you define how much you will match their contributions to savings account)
• Legislated benefits: ERISA, COBRA, HIPPA and Patient Protection and Affordable Care Act of 2010
• Time-off benefits: vacation, sick, holiday, and leave of absence pay
• Insurance benefits: life and income protection and disability insurance
• Other benefits: educational , flexible spending accounts, employee assistance programs, wellness programs, and other services

Tuesday we will discuss how to build stronger employee relations