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Compensation Research Essay

2158 words - 9 pages

Business Research Report
Manufacturing Compensation Strategies

Assessment Code: RWT1
Student Name: T
Student ID:
Mentor Name:

Table of Contents
Executive Summary 3
Introduction 4
Research Findings 4
Merit Pay 5
Job Based Pay 6
Skill Based Pay 7
Recommendations 8
Conclusion 8
References 9

Executive Summary

After examining several distinct compensation strategies utilized in the manufacturing industry, I have prepared this report to explore three specific plans; Merit Pay, Job Based Pay and Skill Based Pay. When considering a compensation plan, more than just pay ...view middle of the document...

I have provided specific steps in the recommendations section below to ensure success.


As the manufacturing industry shifts over this next decade, it will be critical for our organization to remain competitive in the marketplace. In order to do so, we must successfully manage our greatest asset, human capital. How we compensate our employees will define the quality of our products, the level of service our customers receive, and ultimately our profit margins.

As a small to mid-size organization, with 120 employees, we compete regularly with larger conglomerates for talent. Successfully adopting a strong compensation strategy will aid in positioning us as an employer of choice in our region. Additionally, research has shown that well targeted compensation plans are linked to reduced turnover, increase productivity and a reduction in workplace injuries.

As requested, I have thoroughly researched available compensation strategies and have prepared my findings on Merit Pay, Job Based Pay and Skill Based Pay. I have compared and contrasted each strategy and closely examined the benefits and drawbacks associated with their implementation.

Research Findings

After reviewing existing research, I believe the following three compensation plans offer several valid options:

Merit Pay

Merit Pay, sometimes referred to as performance pay or pay-for-performance, is a compensation strategy that that links pay and potentially other forms of compensation such as bonuses, benefits, and vacation time to an employee’s measured output or overall performance.

The theory behind this approach implies that employees are motivated by compensation and that employers can increase productivity and performance by paying for it. By placing a market driven value range on each specific position, the employer determines the level of opportunity for each employee. The employee’s production or performance determines the exact pay rate within that range that they will receive (Greene, 2010).

Merit Pay has been widely utilized in organizations for years throughout the United States. Despite complaints that it is difficult to administer, many of the Malcolm Baldrige Award winners employ Merit Pay as their principal form of compensation (Greene, 2010).

This form of pay can be modified to reflect the overall goal or mission of the company. As an example, rewarding employees for increasing productivity, valuing time and doing their part to ensure a safe work environment (McPhie, 2006). Furthermore, companies can fine tune struggling departments by providing incentives for improvements in meeting quotas and building stronger teams. They can highlight the traits and qualities they value in their employees by providing higher pay to those employees that exhibit them and not to those who don’t.

When implementing, it’s important to establish specific, measurable goals or key indicators of the desired output an organization is...

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