Question

The purpose of this assignment is to choose a compensation philosophy that is appropriate for a life coaching firm and articulate a rationale for this selection.

There are two aspects to this assignment. First, describe the risks and benefits with leading, meeting, and lagging the market in overall compensation and benefits. Next, choose the appropriate strategy (lead, meet, or lag) for your firm, and provide rationale about why this is appropriate. There is a minimum requirement of 500 words for the compensation purpose and strategy document. Consider some of the following factors in your assignment: 1. Payroll expenses are usually the highest expense at most firms. If you lead the market, this expense can be taxing. 2. If you are pursuing top talent in human capital rich industries (e.g., software engineering), lagging the market may keep you from competing for market share against your competitors. 3. If you meet the market, paying average will generally not attract top talent, and in addition, you will not have the labor-cost savings of a lag-the-market strategy.

Answer 1

The risks and benefits with leading, meeting, and lagging the market are:

Matching the market

Setting pay levels relative more or less equal to those in the existing players in marketplace is a common compensation strategy, played by most of the companies. Benefit is its ability to attract and retain top talent on different levels. Although this approach allows employers to better manage employee costs, need not to worry much about even if the employees keep coming and going, they get paid at same figures. Risk can be quite high attrition due to such thought process, which will finally deplete the value of brand in minds of applicants and existing employees. Company may/ may not survive long

Leading the market

Here a company chooses to offer higher compensation than other players in the prevailing marketplace. Benefit may result in increase in the incoming candidates/applicants, increase in selection rates of qualified applicants. It will also increase the morale and productivity of existing employees and new ones to join from the beginning itself, decrease employee attrition. Risk associated can be an increase in overall labour/ employee costs/ related tax costs. A company should be able to judge its Break-even point and benefits, before implementing this pay strategy, as it may hurt Bottom line, if not well executed.

Lagging the market

Here a company implements compensation strategy that lags the marketplace. They may not have the financial resources to pay higher rates or it’s just they don’t want to pay to employees and enjoy the profits. It can lead to high attrition rate and even unwillingness of people to join such companies, difficulty in even attracting plus retaining good qualified candidate. It is a great risk. However the companies can reward employees in nonmonetary ways to minimize dissatisfaction and turnover.