Compensation Plan for Pratt Veterinary Hospital
When deciding on a compensation plan for a new company, it is important to realize that every company is different and requires an individualized compensation plan for that company. As VP of Human Resources and talent acquisition, it is my responsibility to choose a compensation plan that is attractive to perspective employees to obtain and maintain employees, suitable for the job in questions, and is affordable, so the company is capable of continuously paying compensations. Compensation planning “is now about engaging and motivating employees and allowing them to perform with drive and satisfaction that is required to produce top notch results” (Sharp, 2017, para. 1). This is important because employees need to feel like their job matters and know that they have a role in the company’s success. An employee that is happy and satisfied with their job, has a higher probability of not leaving their job.
There are many different types of compensation plans to choose from, but in my opinion the two types that seem to be based on the employee and how well they do their job are merit pay and incentive pay. These were the two I had a rough time choosing between because they are similar in ways, but overall, they give the employee a reason to work hard and do the best work that they can and in return they are rewarded with compensation. “Merit pay programs assume that employees’ compensation over time should be determined, at least in part, by differences in job performance” (Martocchio, 2017, p. 57). The main part of merit pay is that there is a permanent increase for the employee based on their job performance. On the other hand, incentive pay is “compensation, other than base wages or salaries that fluctuate according to employees’ attainment of some standard, such as a preestablished formula, individual or group goals, or company earning” (Martocchio, 2017, p.77). This type of compensation is not permanent and the amount varies for the amount of work the employee does. Ultimately, I have decided that a merit pay compensation plan would be best for the veterinary hospital.
I chose the merits pay program over the incentive pay program for the veterinary hospital because I think that it will benefit the company, the employees, and the clients the most. Merit pay allows the company to see who their top performers are and make sure they are rewarded appropriately. This pay program is best for the company because “merit pay is the best way to reward the employees that you most want to keep” (Heathfield, 2018, para. 2). This ensures that the hospital will have the employees that work hard and are good at their job. This will also benefit the clients because they will be constantly receiving the best care the hospital has to offer. I also think that a merit pay program benefits the employees because they are rewarded for doing their job well.
As a veterinary Hospital, we want to make sure that we are giving the best care possible on a consistent basis. Having a compensation plan that shows the managers who is performing well and who is not, is a great way to ensure that this happens. This not only allows us to reward the employees that are doing well, but also allows the managers to talk to employees that are not doing as well. Open communication between employees and management is a key component to successfully having a merit pay system. With this open communication and having regular performance appraisals, employees are able to improve on the things that they are not doing well. Having this communication is important to show employees what you as a company are wanting them to do and what they should not do.
As far as legal considerations for merit pay programs go, there are not very many. “Your company’s merit increases and performance evaluations aren’t under the direct control of the Department of Labor or the act, unless you’re using them to reward or penalize employees reward or penalize employees unfairly” (Mayhew, 2017, para. 1). Basically, when using a merit pay program you need to make sure that you are evaluating employees fairly and rewarding or disciplining employees equally. It is also very important to make sure to keep a record of all merit increases. “Information concerning wages, raises and increases, hours worked, pay stubs and personal data about employees classified as non-exempt must be maintained for at least 3 years (Mayhew, 2017, para. 6).
Performance appraisals are a critical part in having a successful merit pay system. Managers need to make the commitment to give employees accurate performance appraisals and to reward employees based on the appraisals. To make the merit pay effective, the performance appraisals have to have subjective and objective performance indicators that will best demonstrate the qualities that the company wants in their employees. The managers will sometimes require extra training on how they need to effectively evaluate employees. They will also have to learn how to effectively communicate with employees what they are doing well and what they need to work on. Another critical part in having performance appraisals is choosing the appropriate frequency of the appraisals. You want to have the appraisals far enough apart to give the employees time to improve on what they need, but not too far to make them ineffective.
There are different types of performance appraisals that a company can choose to use. For my company, I am stuck between a trait system and a goal-oriented system. In a trait system “raters evaluate each employee’s traits or characteristics (e.g., quality of work, quantity of work, appearance, dependability, cooperation, initiative, judgement, leadership responsibility, decision-making ability, and creativity)” (Martocchio, 2017, p. 60). I think that these are some great qualities to rate employees and will show the employer who is working hard and who needs to work harder. The only problem I have with this type is the grading can be subjective depending on the manager performing the evaluation. A goal orbited system has “supervisors and employees determine objectives for employees to meet during the rating period and employees appraise how well they have achieved their objectives” (Martocchio, 2017, p. 64). This seems like a great way to measure the work of employees and allows the employee to rate themselves. I think that it can sometimes be difficult to find goals for employees that are able to be completed in that time period and is something that is useful for the company. I do not think that labor unions are involved in merit pay programs because the agreement on the job responsibilities and the performance appraisals are between the employer and the employee directly. There is a need for direct communication in this pay program, so I do not think labor unions are useful in this program.
To set up a merit pay compensation plan I think that it is important to first talk to managers about the merit pay program. We need to set up training for the managers to perform effective appraisals and to effectively communicate with their employees. The next step is to establish an effective performance appraisal method that will rank employees based on what the company finds most important. If the appraisal method is not effective then the program will not be successful. Then, “managers interested in establishing a merit pay system must determine merit increase amounts, timing, and the type of merit pay increase” (Martocchio, 2017, p.179). The most important things to consider when developing a merit pay compensation plan are that effective communication and effective performance appraisals are key to success. Merit pay programs are “used to recognize and reward employee efforts and contributions and confirms what you most value from employees” (Heathfield, 2018, para. 2).