Biz Wisdom

Companies don’t just compete for customers; they also compete for employees. Compensation is one of the main marketing tools companies use to attract qualified employees, and it is one of the largest operating costs for many organizations. The long-term success of a firm – perhaps even survival – may depend on how well it can control employee costs and optimize employee efficiency. For example, service organizations such as hospitals, airlines and banks have recently struggled with managing high employee costs. This is not unusual since these firms are considered labor intensive. That is their primary cost of operations is the cost of labor.

Manufacturing firms in the auto and steel industries have asked employees to take reductions in wages to make the firm more competitive. More employees have agreed even union employees who have traditionally resisted such cuts. They now that not to do so is to risk going out of business and losing their jobs forever. In other words, the competitive environment is such that compensation and benefit packages are being given special attention. In fact, some experts believe that determining how best to pay people has replaced downsizing as today’s greatest human resources challenge.

A carefully managed compensation and benefit program can accomplish several objectives:

• Attracting the kids of people needed by the organization, and in sufficient numbers.
• Providing employees with the incentive to work efficiently and productively.
• Keeping valued employees from leaving and going to competitors, or starting competing firms.
• Maintaining a competitive position in the market place by keeping costs low through high productivity from a satisfied workforce.
• Providing employees with some sense of financial security through insurance and retirement benefits.