Final answer:
The first step in developing a total compensation package involves understanding its components and assessing market conditions, job value, and individual employee attributes. Benefits may offset lower pay, and renegotiation potential can be an integral part of the package planning.
Step-by-step explanation:
The first step in developing a total compensation package is to thoroughly understand the components that make up the compensation structure. According to Table 1, wages and salaries constitute about three-quarters of the total compensation, with the remaining portion being benefits such as health insurance and vacation pay. When designing a total compensation package, it is crucial to assess the current market conditions, evaluate the job's worth, consider the employee's experience, education, skill, and talent, and be aware of legal requirements such as minimum wage laws and potential discrimination issues in the labor market. Additionally, the possibility of renegotiation within 6 to 12 months from the start should be factored in.
Rationale Behind Total Compensation
The purpose of a total compensation package is not only to provide a fair wage but also to attract and retain the best talent. It reflects the employer's understanding of the marketplace and competitive pressures. Companies might offer lower initial salaries but compensate with better benefits, which in some cases, can make up for lower pay. On the other hand, if the salary is non-negotiable or below market rate, potential employees may expect additional benefits to outweigh the deficit. Thus, when initiating the development of a compensation package, employers must make strategic decisions regarding pay and benefits balance.
Negotiating Compensation
When it comes to renegotiation, certain conditions or benchmarks are commonly set at the onset of employment that allows for the reassessment of compensation. Whether this is feasible or accepted practice may depend on industry norms, initial negotiations, and performance metrics set by the employer. Table 6.7 implies that compensation is often influenced by various factors, and these too could serve as legitimate grounds for future renegotiation of the package.