Compensation Management

The importance of compensation cannot be gainsaid as far as the
retention of employees is concerned. On the same note, scholars have
underlined the fundamental nature of pension plans in motivating
employees. Employers have come up with varied pension plans including
defined plan, defined contribution plan, and cash balance plan, each of
which comes with different pros and cons.
In defined contribution plans, the company would set aside a certain
percentage of money for the employee’s benefits with the employee
having no restrictions on when and how to withdraw the funds. The
advantage of the plan comes in its easiness of communicating and
comprehending, no requirement for actuarial evaluations, and the
easiness with which the employer can project future costs (Mathis &
Jackson, 2008). However, its benefits are not guaranteed, while the plan
provides little benefit for older employees.
Defined benefit plans underline an employer-sponsored retirement plan
in which employees is based on a formula where factors such as
employment duration and salary history are considered. This plan is
advantageous in the fact that it does not require the individual to do
anything other than showing up for work. In addition, the payment is
made throughout retirement thereby making budgeting easier (Mathis &
Jackson, 2008). However, the plan does not give the employee any say on
how the funds are invested, or even the capacity to increase the amount
invested in the plan.
Cash balance plan, like defined benefit plans, pays specific benefits
upon retirement on the basis of earnings and years of employment
(Henderson, 2006). The advantage of this plan rests in the fact that the
employee does not carry the investment risk, not to mention its ease of
comprehension and planning. In addition, it is financially efficient for
employers, not to mention that it balances the risk between employers
and employees (Henderson, 2006). However, the plan may have higher
administrative costs and requires a defined minimum annual contribution.
In addition, employees are required to have full vesting after three
years.
References
Henderson, R. I. (2006). Compensation management in a knowledge-based
world (10th ed.). Upper Saddle River, NJ: Prentice Hall
Mathis, R. L., & Jackson, J. H. (2008). Human resource management.
Mason, OH: Thomson/South-western.
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