What is the Purpose of Your Compensation Package?

by Michael Haberman on March 7, 2012 · 0 comments

In American business, as in many other places in the world, people are paid for work they perform. That is the basic purpose of a compensation package. It is a financial return for the effort expended. The concept is that the more valuable you are to your organization the more you will be paid. There are all kinds of variations on compensation packages and varying arguments on the effectiveness of each of those variations. But the basic premise is that the purpose of your compensation package is an exchange of cash for labor.

Some people do not see compensation as an exchange of money for labor and do not agree that the more valuable you are to the organization the more you should be paid. Case in point is Robert Reich who makes the comment is his post Bye Bye American Pie: The Challenge of the Productivity Revolution, where he makes the statement “But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the ‘talent.’”  To me, profits should be going to the owners, they are the ones that took the risks and to the “TALENT”, they are the ones that provided the “extras” that made the company successful. And we have comp plans set up to reward that kind of effort and behavior. Other workers, who I assume Mr. Reich would label as “non-talent”, should be compensated fairly in proportion to their contribution. However, I do not see the compensation system as meant to be an even distribution of money throughout the organization ignoring individual talents and efforts.

Mr. Reich believes that not evenly sharing is the downfall of our country. One of his solutions is “… higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.” As you may have guessed that is not a solution I would offer. But his post is an interesting read and certainly offers a different point of view of the purpose of compensation than many of us are used to. All that performance evaluation, increases based upon effort, profit sharing plans, 401(k) contributions, etc. are not really important. We will all be better off in an even distribution world.

I do wonder if Mr. Reich gets paid the same as his secretary? Or does he make more money because he is the “talent?”

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