How to develop a Global Total Compensation Model

Throughout the history, employers have been challenged with attracting, motivating and retaining employees.

During the past decade, the Compensation topic has continued mature. Increasingly, it has become clear that the battle for talent involves much more than highly effective, strategically designed compensation and benefits programs.

The evolution of Rewards

The most successful companies have realized that they must take a total rewards approach, emphasizing attraction, motivation and retention.

In this article we want to show the variables to taking into account to design develop and implement a Global Total Compensation plan successfully. We consider this as the previous step before to develop the whole Total Rewards Model, including concepts as “Performance & Recognition” and “Development & Career Opportunities”.

GLOBAL TOTAL COMPENSATION MODEL

Global Compensation Model_Borja Burguillos

4 phases and steps to consider

fixed pay

FIXED PAY

Fixed or base pay, also known as base pay, is nondiscretionary compensation that does not vary according to performance or results achieved.

It’s usually determined by the organization’s philosophy and pay structure.

  • Base pay

Fixed or base pay is the compensation paid to an employee for performing specific job responsibilities:

  • The definition of base pay can vary by country.
  • Base pay levels need to take into account variations in equivalent monthly salaries vary by country.
  • The bottom line to fixed pay practices need to be based on a competitive strategy for each country.
  • Types of Base pay

Once pay structures are built, the organization must determine how employees will be paid:

  • Salary: paid on a weekly, biweekly or monthly basis rather than by the hour, generally to higher level positions.
  • Nonexempt / hourly rates: paid by the hour for a job being performed. An individual’s annual pay is dependent on the number of hours worked during the course of the year.
  • Piece rate: payment is based on an individual’s rates production. A payment is received for each piece or unit work produced.

variable pay

VARIABLE PAY

Incentive or Variable pay, also known as pay at risk, is compensation that is contingent on discretion, performance or results achieved.

Much of the innovation in compensation is occurring in the variable pay element. Companies are making greater use of variable pay programs by expanding them to a significantly broader portion of the workforce that they have in the past.

These schemes are adopted by many corporations in order to improve the employee morale and increase the motivation to work for the employees. Based on performance measures and metrics defined by the human resources of the specific organization incentive plans are devised and the specific mode of incentive is decided.

  • Bonus or Incentives

Bonuses or Incentives are delivered through plans that predetermine a performance and reward schedule. The incentive can be paid in an accounting period (month, quarter, year, multi-year) or upon an event (reaching an objective, completing a project, etc)

Organizations that seek to create a closer link between employee compensation and the risks of doing business have increased the prevalence of group/team incentives.

  • Commissions

Commission is a sum of money that is paid to an employee upon completion of a task, usually selling a certain amount of goods or services. Commission may be paid as percentage of the sale or as a flat dollar amount based on sales volume.

Employers often use sales commissions as incentives to increase worker productivity. A commission may be paid in addition to a salary or instead of a salary.

Commissions are cash payments, based on predetermined performance and reward schedule. They are typically based on sales or profit margin on those sales. Commissions are usually for sales employees.

Sales incentive plans matched to type of responsibilities: Customer identification, customer service or customer persuasion.

  • Profit-Sharing Plans

Profit- Sharing is a form of variable pay provided to all employees based on the profits of the company. Companies usually have predetermined goals and formulas for determining the amount that will be allocated to employees.

Profit- Sharing are typically implemented to achieve employee participation and identification with the organization’s success.

  • Performance-Sharing Plans

A variable pay plan that bases rewards on the performance of a combination of quantitative and /or qualitative measures. The objective increase employee identification with the organization’s success and increase employee understanding of what is important to the organization and communicate the basis upon which success is measure.

benefits

BENEFITS

Benefits are a core element of the Total Rewards Model. Benefits include Health and Welfare plans, Retirement plans and programs providing pay for time not worked. Over time, employee benefits have evolved from basic fringe benefits of insurance coverage and a few perquisites to wide a range of benefits designed to strike a balance between an employee’s personal and professional life.

  • Healthcare

Healthcare systems are influenced by the beliefs, values, culture and perceptions in different regions regarding the role of government in providing health care to its citizens.

The employers commonly supplement the government health programs with health care plans influenced by corporate objectives, competitive practices and the limitations of government programs. Limitations government-sponsored programs may include restricted access, limits on services/facilities, payments, reimbursement and gaps in coverage.

We can find as components of Medical Plans:

  • Medical coverage for dependants.
  • Dental plan.
  • Optical plan.
  • Hearing plan
  • Welfare

The factors that influence health and retirement benefits may also affect other benefits such as life insurance, disability and time off.

Depending on the type of benefit, statutory requirements, coordination with government programs, collective bargaining agreements and other influences may shape or define the final program, limiting employer flexibility in plan design.

In addition, offer wellness programs to employees are very useful to increase the satisfaction and healthy life.

  • Retirement and Investment Plans

Qualified retirement plans include both the traditional defined benefit (DB) pension plans and defined contribution (DC) plans

    • DB; is based on a formula that considers pay and service (i.e. one percent of compensation for each year of continuing service). Provide better benefits to employees with long service.
    • DC; characterized by employee and employer contributions made to individual participant accounts
    • Hybrid plans; combine elements of defined benefits and defined contribution plans.
  • Other benefits
    • Housing Allowance
    • Transportation Allowance
    • Meal Allowance
    • Phone Allowance
    • Training Allowance

work-life

WORK-LIFE BALANCE

Work – life is composed of offerings in the Total rewards package that address the unique individual needs of the employee. These offerings are important to the employee but may be less tangible than compensation and benefits.

Categories which support work – life could be:

  • Caring for depends
  • Supporting health and wellness
  • Creating a workplace flexibility
  • Flexible Work Hours
  • Financial support programs

After we have our Global Total Compensation model successfully implemented in our company it´s time to think about “Performance & Recognition” and “Development & Career Opportunities” thus completing the corporative Total Rewards Model required to get business goals.

Borja Burguillos & María López

The Original Post Link
How to develop a Global Total Compensation Model

Extensive experience in all of the Human Resources functions, My primary career objective is to balance the needs and goals of both the company and the workforce. I am a strong believer that HR strategies can affect the organization's profitability, as the company workforce is one of the most important assets that drive a company's success.

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