Balancing the Compensation Equation
21 May 2009
Considering the value employees place on certain forms of compensation - relative to the cost to the employer - can lead to considerable business advantage. In light of the changing international and employment climate, these issues are now of substantial interest to many organisations.
As companies consider different employment practices and different ways of compensating their employees, it is increasingly important that they understand the true value employees place on each element of the compensation and benefits package. If the mix of compensation changes or certain beliefs are reduced, what are the likely consequences for employee effort, satisfaction and retention, or the likely consequences for firm profitability? Clearly, choice offers advantages to employees but introduces associated costs.
Furthermore, it is extremely difficult to properly elicit the true "value" employees may place on certain benefits and types of compensation, although this can be done. One way to do this is to just "ask" workers, but surveying employees has some disadvantages. There are, however, other ways to explore these issues and understand employee preferences.
In this session Professor Kevin Hallock discussed the costs and benefits of cafeteria-style plans; explored the potentially significant differences between how workers are paid and how they would like to be paid; drew on several case studies including one organisation which set total compensation for its employees and then observed their choices over the type or mix of compensation (eg. base pay, at-risk bonus, stock options) and across different employee groups (eg. men versus women, more senior versus less senior); explored recent research on how to measure the value employees place on stock options by observing actual employee stock option exercise behaviour.