Compensation Plan for a bank’s credit card division

FINAL PAPER 9

CompensationPlan for a bank’s credit card division

Backgroundinformation about the company

Thecompany is the section of a major bank that deals with credit cardtransactions. The company is headed by the president and four otherexecutives namely: the chief executive officer, the chief oftechnology, the chief marketing officer, and the chief financialofficer. The company’s workforce is approximately one thousandemployees. 75% of these employees are non-exempt. Of these 75%,majority are part-time workers who are either students or casualworkers. Given that 75% of the workforce is not permanent, theirremuneration is a minimum wage. The remuneration policy allows for araise of a dime per month for the employees. This raise translates toan increase in wage by a dollar per hour in ten months. So far, onlythirty-five employees have managed to achieve that increment.Although the company’s management would like to have employeescommit to reasonably longer terms of service, the employee turnoverhas been high.

Thefirst thing to check in the process of developing a compensation planfor the credit card division is adherence to the Fair Labor StandardsAct (FLSA). All non-exempt employees are entitled to overtime paymentequivalent to one and a half times their regular rate per hour. Thisentitlement is applicable if the employee works more than forty hoursa week. In this company’s case, there is only a mention of aminimum wage and a monthly raise, no overtime compensation ismentioned (Flannery et al, 2002).

Fora company that has a thousand employees, the fact that onlythirty-five employees have managed to work progressively for tenmonths to achieve the increment of a dollar per hour indicates a highturnover. Remuneration is usually a huge determinant of an employee’scommitment, more so for casual workers. There is a possibility thatif this company does not pay overtime, it is a possible contributingfactor to the high turnover rate (Flannery et al, 2002).

Company’svision

Asa credit card operator, the company handles a variety of operations.Typical operations include issuing new cards and replacing lost ones,managing credit card transactions, and handling customer queries andcomplaints. These operations cut across sales and marketing, financeand customer relationship management. Most of these operations relyheavily on technology. This explains the presence of an IT executivealongside the president, chief executive, marketing, and financeofficers (Flannery et al, 2002).

Themanagement’s vision for the company is to attain a monthly revenueof one million dollars and above. That is only achievable withincreased efficiency in service delivery, more market penetrationgenerating new customers, and enhancing card security to minimize onlosses related to fraud. These efforts collectively are capable ofdelivering the targeted increase in revenue. Also, the success ofthis vision rests in the management’s ability to make theirworkforce part of this vision (Flannery et al, 2002).

Compensationand incentives for non-exempt employees

Thecredit card industry is fairly consistent, and services foroperations can be approximated with a high degree of accuracy.Therefore, the company ought to budget for the projected salary andwage expenses, to guarantee all employees prompt payment. Budgetingis important because it enables the company to offer employees aconsistent pay despite changes in the company’s financialperformance. Apart from the minimum salary or wage depending on theemployee’s category, there should be other financial incentivesavailable. At the most basic level, all non-exempt employees shouldbe paid for all their extra hours. Besides overtime payment, thecompany could introduce performance bonuses depending on theemployee’s job description (Flannery et al, 2002).

Forinstance, employees in the sales department could be entitled to acommission that can be directly derived from their sales. For theother employees whose work does not relate to direct revenuegeneration, there can be a bonus that is dependent on the totalrevenue the company makes. This bonus could be disbursed at the timeagreed upon, monthly, quarterly or annually. Such bonuses issued onthe basis of profit made motivate employees to work harder becausethey feel part of the company’s success.

Thecompany’s president has a goal to make more employees work longerbefore leaving the company. Compensation strategies to make thathappen need to be long term. One such strategy is having a strongretirement plan. When the employee perceives that the company isinvesting substantially in their future welfare, they are more likelyto stick around. Another employee retention strategy is having atuition reimbursement plan. When an employee can advance their careerby furthering their studies with the help of their employer, theirloyalty to the company is expected to increase (Flannery et al,2002).

Inaddition to commissions and bonuses, the company can explore otherincentives. For instance merit incentives. Performance appraisals area good way of knowing an employee’s productivity, and from thatdecide on how to reward them accordingly. Some employees change jobsdue to family-related issues. It is of utmost importance for acompany to understand their workforce and see their needs in thisregard. Efforts such as having childcare services within the workpremises, or offering daycare reimbursements would be a goodincentive especially for motivating and retaining female employees(Flannery et al, 2002).

Anemployee’s physical wellness is key to the achievement of thecompany’s goals. If the budget allows, incorporating a health planin the employee benefits portfolio would also be a good incentive. Ahealth plan could take either of two dimensions. One would be awellness program, where the company would create a facility offeringphysical exercise opportunities and expert nutritional advice. Thesecond option would be an employer-funded health cover. Althoughemployees may still contribute a certain percentage towards eitheroption, the company’s initiative, and contribution would berewarded by employee loyalty (Flannery et al, 2002).

Compensationfor professional staff and company executives

Thedifferent categories of the employees in the company should besubject to different pay structures. In this case there are thenon-exempt employees and the exempt employees constituting of thefive executives and the professional staff that makes up 25% of theworkforce. Typically, professional employee’s remuneration is notcalculated at an hourly rate but from their duties andresponsibilities, and the market range for a similar position. If aprofessional staff’s duties change temporarily, the employee shouldbe entitled to a temporary pay increase. If the responsibilitieschanges permanently, their salary should be reconstituted (Flanneryet al, 2002).

Compensationfor the executives ought to feature their monthly salary, annualincentives, perquisites and benefits and long term incentives. Theircompensation based on performance is mostly in the form of companystock options. Their contribution towards the realization of companygoals and objectives should also be duly rewarded per individual’seffort. The best executive compensation plan is one where the biggerportion of their compensation is performance-contingent. This meansthat their pay will be constituted depending on the achievement ofspecific results or accomplishment of precise strategic objectives(Flannery et al, 2002).

Thecompany’s preferred compensation strategy

Thecompany’s president has explored and thought a broad bandcompensation plan may be the best option for them. A broad band paystructure requires consolidation of a large number of job grades intoa few but broader pay ranges. This company is a good candidate for abroad band pay structure since it does not have a sophisticatedmulti-grade organizational structure. The three main levels ofhierarchy are distinct, that is the executive, professionals, andcasual workers (Flannery et al, 2002).

Thepros and cons of a broad band pay structure

Tothe employer’s advantage, there will be less pressure forpromotions within a broad band pay structure. The emphasis is more ondeveloping employees’ skills that can bring about a pay increasewithout necessarily demanding for promotions. The second advantage tothe company is that the salaries within a broad band pay structureare not sensitive to market pricing and the changes. Salary computingtools such as the compa-ratio cannot be used because there is nomidpoint in a broadband pay structure. In the long run, thisstructure becomes easier to manage and costs less to administer thana traditional pay structure (Flannery et al, 2002).

Accordingto Flannery et al (2002), a broad band structure reduces the numberof hierarchical layers in the company. This will make it easy forinformation to flow top down from the management to the lower rungs.With such a smooth flow, implementation of strategies will becomeeasier. Also, this structure facilitates employees’ internalmobility. The probability that one’s current job has the same paywith an alternate job. The employee can make a decision for a lateralmove without salary being the influential factor. Therefore, theemployee can change job positions to take up developmentalassignments that will add onto their career growth. However, it isgood for the management to note that a broad band pay structure comeswith several limitations as well. To begin with, the management isalmost entirely responsible for determining the employees’salaries. Vesting so much power in the management creates anopportunity for the management to be criticized in case of anyhitches related to the pay structure.

Puttingso much trust in the management diminishes the power of the hiringmanager. If the flexibilities of a broadband structure are notmanagement, they can result in serious inequalities. For instance,two people having the same level of responsibilities could be earningsalaries that are thousands of dollars apart. If such informationleaked to employees, it would be a huge demotivation. The otherscenario is that the difference between one job level and another isso high, promotion is not a primary motivation. Thus, therelationship between salary growth and developing skill for the nextlevel becomes weak and ineffective as a motivator (Flannery et al,2002).

Decisionmaking guideline

Afteranalyzing the nature of the company, the incentive alternatives andthe pros and cons of their preferred pay structure, the managementcan make a decision that is favorable for the company. Designing theactual compensation program may need a compensation committee. Theirassignment would be to conduct a job analysis of the company anddetermine salaries accordingly for the various categories. The keydecision on whether the company should pay below, at or above themarket rate lies with the company’s executives. The final step isto ensure the compensation plan is well communicated to the employeesto avoid resistance, and smoothly integrated into the company policy(Flannery et al, 2002).

References

Flannery,T. P., Hofrichter, D. A. &amp Platten, P. E. (2002). People,Performance, &amp Pay: Dynamic Compensation for ChangingOrganizations.New York: Simon and Schuster.