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In any company, there are employees to carry out the various responsibilities. These employees need their compensation so as to motivate them and also continue doing their job and also meet their personal needs. The people in charge of the company must come up with their level of salary, which must be fair and meeting the expected standards.
There must be certain criterion that is used to ensure that the employees are content and the company achieves its optimum goal of maximizing profits. This is because failure to pay adequate salaries could result in the employees being poached into the other companies. The criterion should clearly describe all the details on the mode of payment, terms of payment and any additions and how they are arrived at.
Statement of the problem
The problem that is very big when dealing with coming up with the amount of compensation is hugely subject to constraints of the financial crisis. When determining the form of compensation, there is also the risk of the fact that the marketing manager may not be comfortable with the choice of the other forms of compensation apart from cash. The company may choose to pay some amount in form of stock but the manager may not be in agreement with that choice.
The other major problem is ensuring that the salary that is to be paid to the manager is competitive and within the reach or ability of the company. The compensation should be such that the goals of the company are achieved; the main goal is profit maximization. The human resource manager needs to ensure that there is a balance between these factors. This is where the concept of equity theory comes in. the amount paid to the manager should tally with the contribution that he makes in the company but should also ensure that the company still makes profits.
There also exists the problem of estimation due to the fact that the company is new and the determination of the compensation is based on estimates of how much the company expects to be making. The compensation that they estimate may be lower than the actual revenues that they earn once they are already in business. The problems could be both long term and short term. Short term problems are at the initial stage for example, when introducing the product in the market, there could be resistance from the consumers before they get to know the product. This may therefore result in low returns. Long term problems include the competition from already established companies that are already prosperous in the market. Competition will always exist since each businessman wants to maximize profits.
However, the human resource manger still needs to come up with a figure of the amount of compensation payable. He should therefore consider all the constraints and should be guided by the figures that are currently operational in the market. Currently, marketing managers are earning between $6 million and $10.5 million annually. The salary should therefore be within this range.
Causes of the problem
The root of all problems experienced by human resource managers when determining salaries is the fact that they have to balance all the factors despite the fact that they work against each other. They therefore must study carefully all the laws binding the level of wages. A cause of this problem is also the fact that they are tempted to give large salaries to attract competent employees yet they have to ensure that the company’ profits are maximized.
Another major cause of the problems is the fact the estimation method used to determine the level of expected revenues may be ideal and therefore provide ideal statistics. The manager may also not agree with being paid in form of stock because the shares are of little value and there may not be any signs of growth. This may cause the manager to be dissatisfied with that form of compensation.
From the above analysis, it is evident that managers need to heed to the findings of the theories that have already been put to book. They should also follow the suggested models based on the success achieved by companies that applied the models in carrying out the managerial responsibilities.
Decision criteria and alternative solutions
In choosing the best solution for a company, there are several factors that need to be considered. The time that will be used in the implementation process is a major concern. If the timeline is too long, it implies that the decision will not be profitable to the firm. Much as in the long run the decision will benefit the firm, the benefits may be too small to be considered. If the limitations outweigh the benefits, the manager should implement the particular decision.
The manager should also consider the tangible costs. If the cost of implementing the decision is too high, the eventual benefit might be negative. A manager should only apply a decision if it brings profits to the firm. After all, this is the optimal goal of the firm. If the there are no gains, the manager should seek alternative lines of action. He should also consider whether the decision he makes is acceptable to the management. If the decision does not complement the other strategies that the firm has undertaken, the manager should not implement it. If the decision that has been implemented does not work towards achievement of the company’s goals, it should not be applied. If a decision is not in line with the accepted ethics, it should not be applied.
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There are many solutions in coming up with the compensation of the manager. This could be based on the workload that the manager is meant to deal with. There could be extra pay for extension of working hours. This would act as motivation though in the end the company’s workload is completed in good time. The compensation could also be based on the average wage being paid in the industry. This is to ensure that the company has competitive advantage. This is based on the dashboard method which is based on the comparisons between wages offered in the other companies in the same industry.
The economic conditions that are persistent in the economy at the location of the company, which in this case is Canada, are also of huge importance. This is to ensure that the employee can survive in those conditions. The manager should be able to meet his needs adequately. This is based on equity theory. The employee compensation should match his contribution to the company. These are all possible solutions from which the manager’s compensation may be determined.
Recommended solution, implementation and justification
Having analyzed all the responsibilities that are in the hands of any manager, including a marketing manager, a strategy that ensures that both parties’ needs are catered for must be developed. There needs to be a solution on who is to be held responsible in the event that a decision is made and as result things do not go as planned. Determination of the amount of compensation that is paid to the manager is a criterion that would ensure that he acts accordingly on behalf of the company. Having established that the location of the company, which is in Fort McMurray, Alberta, Canada, it means that there is huge competition as there are very many software companies in the region.
I would propose that the salaries be based on equity theory. The compensation should range between $180000 and $190000 as the rates are in the market. There should be a package that ensures that the employees are fully compensated. The compensation could be in terms of long term and short tem incentives. There could also be perks like health insurance beside the base salary. This way the needs of the manager and the profit maximization goal will also be achieved. This is whereby the amount of salary is equivalent to the contribution that the manager makes in the company. However, this does not mean that they pay huge salaries at the expense of the shareholder’s profits. There should be a balance. Failure to do this would create the risk of loosing the manager to other companies. The base salary should be determined by the board of directors after carrying out a survey to establish the salaries of other managers in companies in the same industry. There should also be laid out terms on how bonuses are given. Giving a bonus boosts the morale of the manager and if it is based on performance, there is likely to be good results from the managers. This ensures that the goals of the company are met and that the manager is aware that he will be held liable in case he makes careless decisions.
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The company may also apply long term benefits as motivation for employees. For instance, they could give performing managers a part of the shares or sell the shares and stocks at a lower cost. This will motivate the managers towards achievement of the set goals. When coming up with the compensation plan the board of directors must comply with the laws that govern such plans for example retirement plans and stock options. They must also comply with the set ethics as not to pay too high salaries with the intention of poaching employees from other companies in the industry. There is also the need for the company to consider the dashboard method. It compares the total pay mix breakdown and the competitors. The bonuses, the long term benefits should meet the standards and be competitive as compared to those of the competitors. The company should make sure to enjoy competitive advantage.
The level of compensation for the managers should however not be too high as this will be against the laws that govern such matters. It is therefore the role of the human resource manager to make sure that they abide to the laws, ethics of the business and also adequately meet the needs of the employees. Guided by the equity theory and the dashboard method of compensation, the managers should be well equipped in determining the levels and exact amounts of compensation for the marketing managers.
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This recommendation is based on the equity theory and dashboard method that ensures fairness for both parties. The compensation rate should be based not only on the base salary but also all the other incentives that are implemented in the company. This ensures that the comparison between companies is conclusive enough. The company should therefore follow the strategies that are set out in it so as to achieve the set objectives.