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Creating Compensation Packages That Work By Sarah L. Fogleman, Extension Agricultural Economist, Southeast Area Kansas State University Research and Extension Many managers struggle with the question: "Just how much should I pay my employees?" That is a good question but it isn't one that necessarily benefits the business. Creating an effective compensation package isn't an issue of money--it's about meeting the employees' needs. Employers today do not have unlimited cash resources that they can use to "buy" the best employees. What they do have, however, is the ability to be flexible and innovative in order to build a compensation package that carries the right message. That message is important. Compensation packages can be linked to business structure, employee recruitment, retention, motivation, performance, feedback, and satisfaction. Compensation is typically among the first things potential employees consider when looking for employment. It is important, therefore, to give a lot of consideration to your business's compensation structure. After all, for employees, compensation is the equivalent not to how they are paid, but ultimately, to how they are valued. It's easy to think "dollars per hour" when thinking about compensation. Successful compensation packages, however, are more like a total rewards system, comprised of cash wages and benefits. By combining many of these compensation alternatives, progressive managers can create compensation packages that are as individual as the employees who receive them. Ask ten different people what a fair wage is and you'll get ten different answers. While there are no hard and fast rules in determining a fair wage, the importance of the task is obvious. So, what constitutes a fair wage? A few phone calls to other employers in similar businesses can determine the "market" value for a specific job. An agricultural manager can do informal surveys of other agricultural producers to determine the "going rate" for labor or modify existing studies of non-agricultural businesses to compare employees not by job title but by skill sets. For example, operating a forklift in a factory and driving a tractor may require similar skills and, therefore, can be compensated similarly. The general consensus of recent studies is that pay should be tied to performance to be effective. Successful managers must search for things the employees influence and base performance objectives on these areas. The more production data your business has, the easier this is to accomplish. Measures such as feed conversion rates and death loss can offer great sources for performance incentives and allow opportunities for employees to take ownership over their work. In a tight labor market, indirect compensation becomes increasingly important. Businesses that cannot compete with high cash wages can offer very individualized alternatives that meet the needs of the people you want to employ. Such creative compensation alternatives are the small business's competitive advantage. Some indirect compensation elements are required by law: social security, unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working parent may take a lower-paying job with flexible hours which will allow more time to be spent with his or her children. A recent graduate may be looking for stable work and also an affordable place to live. Both of these individuals have different needs and, therefore, would appreciate different compensation elements. Successful agricultural producers rely heavily on common sense when it comes to management decisions. The area of employee compensation should be no different. If you want your employees to be innovative--reward them for new ideas. If you want your employees to stay with you for a long time instead of training new employees every season--offer bonuses or tie their wages to their tenure. If you need employees that show up on time, work hard, and can be trusted with the most challenging of tasks--recruit those people; reward those people; promote those people. The future of your business could depend on it. To learn more about all aspects of employee management, plan to attend K-State Research and Extension's Employee Management for Production Agriculture Conference on August 2-3, 2001 in Kansas City. More information is available at www.oznet.ksu. edu/employee or by calling 620-431-1530. |
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