Human Resource Management: Employee Compensation Guide Most managers are busy asking: “What do I have to pay to . . .?” That is not an easy question to answer. A better question might be: “What do I want my compensation package to say?” It is already saying a lot, whether you realize it or not. Compensation can be linked to business structure and to employee recruitment, retention, motivation, performance, feedback and satisfaction. It is typically among the first things potential employees consider. For employees, compensation signifies not so much how they are paid, but how they are valued. What is a Compensation Package? It’s easy to think “dollars per hour” when thinking about compensation. However, successful compensation packages go a lot further and can be considered total rewards systems that contain non-monetary, direct and indirect elements. Non-monetary compensation: Any benefit an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, flexible hours, opportunity for growth, praise and recognition, task enjoyment, and friendships. Direct compensation: An employee’s base wage, which can be an annual salary or hourly wage, and any performance-based pay that an employee receives, such as profit-sharing bonuses. Indirect compensation: Far more varied, including everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, childcare or moving expenses. All types of compensation are important. Employers have a wide variety of compensation elements to choose from and are limited as much by their own preconceptions about compensation packages as they are by budget restraints. By combining many of these compensation alternatives, progressive managers can create packages that are as individual as the employees who receive them. The general consensus of recent studies is that pay should be tied to performance to be effective. However, with greenhouse and nursery jobs, that is not easily done. A manufacturing company may offer a bonus for meeting a performance objective, but nursery performance is affected by many factors over which employees have no influence. Successful managers must then search for areas the employees do influence and base performance objectives on these areas. Your business may benefit from offering tenure bonuses for long-time employees, equipment repair incentives to encourage good equipment maintenance, or bonuses for arriving at work on time. Direct Compensation Alternatives Base pay: Cash wage paid to the employee. Because paying a wage is a standard practice, the competitive advantage can come only by paying a higher amount. Incentive pay: A bonus paid when specified performance objectives are met. Incentives may inspire employees to set and achieve higher performance levels and motivate them to accomplish farm goals. Stock options: A right to buy a piece of the business, which may be given to an employee to reward excellent service. An employee who owns a share of the business is far more likely to go the extra mile for the company. Bonuses: A gift given occasionally to reward exceptional performance or for special occasions. Bonuses can show that an employer appreciates his or her employees; they ensure that good performance is rewarded. Indirect Compensation Alternatives Flexible working schedules Elder care Retirement programs Moving expenses Insurance (health, dental, eye) Subsidized housing Paid leave (sick, holiday, personal days) Subsidized utilities Tickets to events (ball games, concerts) Magazine subscriptions Boots and clothing Laundry service Wellness programs Use of company trucks or machinery Cellular phones, pagers Child care Use of greenhouses or nurseries The perks green industry employers provide give them a competitive edge over other employers. Certain indirect compensation elements are required by law, such as social security, unemployment and disability payments. Other indirect elements are up to the employer. For example, a working mother may take a lower paying job with flexible hours so that she can be home when her children get home from school. A recent graduate may be looking for stable work and also an affordable place to live. Both of these individuals have different needs and, therefore, would appreciate different compensation elements. Determining the Cash Wage Ask ten different people what a fair wage is and you’ll get ten different answers. While there are no hard and fast rules for determining a fair wage, the importance of the task is obvious. Research indicates that employees expect wages to: cover basic living expenses; keep up with inflation; provide some funds for savings or recreation; and increase over time. Discussing wage expectations with employees can help determine what your compensation package should look like. The first thing employers should consider when developing compensation packages is fairness. It is vital that businesses maintain internal and external equity. Internal equity refers to fairness between employees in the same business, while external equity refers to wage fairness as compared to other nurseries or businesses. No matter the compensation level, if either internal or external equity is violated employees may become dissatisfied. This becomes apparent through decreased productivity, absenteeism, or employees leaving the business. So, what constitutes a fair wage? One approach to determining a fair wage is a market survey. This is a fast and easy way to establish compensation guidelines for many businesses. A few phone calls to other employers in similar businesses can determine the “market” value for a specific job. Unfortunately, this technique is not necessarily well suited for the green industry. A manager can do informal surveys of other producers to determine the “going rate” for labor, or modify existing studies of non-agricultural businesses to compare employees by skill sets rather than job titles. For example, operating a forklift in a factory and driving a tractor may require similar skills and therefore can be compensated similarly. Job evaluation is another technique that can be used to establish an equitable wage rate. This method is a more systematic and rational approach to internal equity where the jobs in an organization are evaluated according to compensable factors such as education, skill, experience and responsibility. Skill-based pay is an approach that bases the wage rate on the qualifications of the individual doing the job, rather than on the job itself. It is typically accomplished through skill classes that determine pay levels for jobs. Grouping employees with similar skills together, regardless of job title, forms these classes or grades. This technique can be applied to green enterprises rather easily. Broadbanding was used in a Cornell University study. Five competency levels were developed to classify employees according to their decision-making authority, skill level, and supervisory capacity. Every employee was classified as being in one of the following five competency levels: Level one: Employees who are either very new to the industry or have no advanced skills. Level two: Very specialized individuals who perform from one to many specific tasks that require training. Level three: Employees who are very skilled in at least one specified area and have supervisory capacity and decision-making authority over a very limited portion of the business. Level four: Employees with exceptional skill levels, who make decisions that affect entire areas of the operation. These people have potential for broad supervisory and decision making authority. Level five: These are the most skilled and qualified full-time employees. They have complete supervisory authority and the most decision making authority given to any full-time employee. By using a competency scale, each employee can be cross-referenced by job title and competency level or studied solely within either category. Employees of similar skill levels, or competency, are taken together in compensation “bands,” regardless of job title. These bands then compensate similar employees at similar rates across the entire organization and maintain both internal and external equity.

Based on information from Human Resource Management: Employee Compensation Guide by Sarah L. Fogleman, Dean McCorkle and Robert Schwart and the Texas Agricultural Extension Service. http://trmep.tamu.edu/cg/factsheets/rm8-5.pdf