A compensation plan is one of the most vital elements of success for today’s organizations. Being an overall strategy to influence organizational success, it becomes important to ensure that it is in harmony with all other business elements, especially involving human resource management in firms. The compensation plan sets out the level to which organizations appreciate the efforts of their employees to achieve the set strategic and organizational goals. It acts as a pathway for the organization to reflect a pro-employee image by recognizing the efforts they provide in the firm. Furthermore, the compensation plan is a key indicator of the bond between performance and the way employees benefit from it. The compensation plan also has a direct correlation with employee motivation in an organization. Recognizing the efforts of the employees by rewarding it, through the compensation plan, is a major way to enhance their motivation. A motivated workforce is also linked to better individual and organizational performance. In order to benefit optimally from the implemented compensation plans, firms look for strategies that will equip it with major elements of compensation and employee benefits. Firms also assess their compensation plans contrasting them with those of their competitors with the aim of enhancing them to achieve the best benefits. Wells Fargo needs to conduct an evaluation of its existing compensation plan and pay structure to come up with an improved version that will achieve better benefits for the employees and, ultimately, the organization.
Existing Compensation Plan
Organizations conduct regular reviews of their strategies so that they can improve and keep them in line with the dynamic conditions in their business environment. Wells Fargo has an existing compensation plan that includes a wide range of components. The company’s compensation plan is based on its principles of compensation, which include encouraging long-term shareholder value creation, pay for performance, foster risk management, as well as the attainment of high-end executive skills and talents (Wells Fargo, 2019).
The company’s compensation program is composed of a variety of pay elements, including base pay, which metrics are fixed and takes the form of cash. The main aim of this pay element is to achieve a system where there is fixed compensation for the services provided to the firm, which in term reflects the responsibilities and experience levels of the employees concerned (King & Lawley, 2016).
Another key element of the compensation plan adopted at Wells Fargo is the annual incentive reward that is also given in the form of cash. Its metrics are devised in such a way that is based on the objective performance framework that emphasizes on some form of pre-established objectives such as expectations on what should be achieved, as well as how it will be achieved. The annual incentive award can be earned within limits between zero and 100% of an employee’s base salary (Wells Fargo, 2019). From another point of view, the award is given with the purpose of rewarding good performance, risk management and accountability, as well as effective management and leadership.
The company also offers long-term compensation to its employees, and it takes the form of performance shares. The company offers performance shares to develop a direct relationship between the firm and its share-price performance. The amount offered for this form of compensation usually varies based on the net operating profits realized within the financial periods. Long-term compensation by way of performance shares plays a key role in aligning the interests of the shareholders and those of the management. Consequently, it leads to the development of a performance-based culture. Employees will be working with the interest on the performance shares that are issued on the achievement of better performance. The compensation also benefits the company and its employees by developing a strong long-term incentive to achieve high performance, which indicates that the company will achieve its employee retention goals using it (Tasa, McShane, & Steen, 2017). In addition to this, the company gives a substantial portion of the compensation to the CEO and other high-ranking managerial staff in terms of performance-based equity that is long term. Tying the managerial compensation to the long-term performance is aimed at helping in the improvement of the company’s capability to achieve the retention of high-end talent and experience (Jansen & Bal, 2016).
The appropriateness of the compensation plan adopted by Wells Fargo can be viewed in terms of its wide variety of forms of compensating employees. Through the use of the base pay, the company can compensate employees in terms of financial incentives as a way of recognizing their efforts. Furthermore, the company is able to peg compensation to employee performance through the use of the annual incentive pay. Such is a good way of ensuring that employees and management are motivated to achieve optimal performance that will lead to the maximization of the rewards they receive from the company. It is also essential for creating an opportunity for employees to take more time with the company to maximize their compensation. Ultimately, it will help the organization in the achievement of long-term employee retention.
From another point of view, the long-term compensation further enhances the chances of the company to retain top-end talent. This compensation is offered in terms of performance-based shares in the company. As such, it acts as a vital tool for the company to achieve long-term performance as employees get motivated to stay in the company longer to improve their ownership of the long-term shares (Jansen & Bal, 2016). An evaluation of the compensation plan adopted by Wells Fargo indicates that it is appropriate, especially by way of its relation to aspects that are highly linked to the long-term success of the company. The forms of compensation that are adopted by the firm are highly likely to bring in more motivation and retention of employees and top talents in management that are vital for the sustainability of the company and its ability to make more profits. Additionally, the compensation plan ties compensation to the performance of the employees, which also an effective strategy to motivate employees to perform better. Regardless of the appropriate features of the compensation plan taken by Wells Fargo, it is still reasonable to consider evaluating it more while comparing it with those of employees to make changes that will improve the performance of the employees and, ultimately, the organization.
Internally and Market Consistent Compensation Systems
It is vital for firms to select the most beneficial ratios of the internally and market consistent compensation plans. A market consistent compensation system would be the most beneficial for Wells Fargo. It is critical to note that compensation plans that are internally consistent place value on the jobs and compensation from an internal point of view. As a result, jobs with more duties and responsibilities and require high qualifications become the best paid according to the company policies. Consequently, jobs with lower qualifications and duties have proportionately low compensations. In the internally consistent compensation plan, the organization’s management sets the salary levels for the employees, while determining the benefits that they are awarded. A job analysis is, therefore, conducted to develop a compensation structure that defines the job contents and the attached rewards across the organization (Jansen & Bal, 2016). As such, employees join organizations that they believe offers them the best jobs and compensation. The internally consistent compensation system has less chances of building a highly competent workforce.
In this context, Wells Fargo needs to apply the market consistent compensation system that will enable the company to make market and industry comparisons with its competitors. As a result, the company will make compensation plans that will be competitive as compared to the competitors in the market. The consistent market system will enable Wells Fargo to compare its offers with such competitors as JP Morgan Chase, Bank of America, and State Street. Adopting a highly competitive compensation system will attract and retain highly competent and qualified employees to the company (Thite, 2012). The company will also be able to compare its system with that of rivals in its industry, which gives it an opportunity of determining its competitive advantage over other firms in the job market.
Current Pay Structure
The current pay structure at Wells Fargo emphasizes pay for performance, especially to attract and retain highly qualified and competent employees. The pay elements differ with the purpose. The company offers a basic salary that is fixed and based on the responsibility and experience of the employees. Additionally, there is an annual incentive award that is based on an individual’s performance while focusing on the expected targets. Consequently, the organization provides long-term compensation that awards performance in the form of shares (King & Lawley, 2016). The performance shares are aimed at encouraging high performance among the employees. Employees tend to benefit from the benefits offered to them through the shares they acquire in the organization. Wells Fargo also ensures that the basic salary remains flat and is only changed when the management deems fit, especially based on the performance of the firm.
The evaluation of the current pay structure applied by Wells Fargo indicates that the compensation is strictly based on the performance, with the exception of the basic pay that is fixed. As such, the recognition of employee contributions is only done through different forms of compensation. The contributions of the employees are recognized through the annual incentive award and the performance shares that recognize the efforts of the employees in the organization and rewards them accordingly according to their performance (King & Lawley, 2016). The recognition of the contribution of employees indicates that the company appreciates their efforts and seeks to encourage them to achieve optimal performance with the assurance that it will be rewarded.
Recommendations
The effectiveness of the company’s discretionary benefits can be improved in different ways. One of the ways is through the formulation and implementation of a satisfaction survey. Through it, employees will be assessed on their views of the current compensation plan and the rewards and benefits it offers. It will also focus on the elements of the compensation plan that they perceive as fully satisfying, as well as those they find less valuable (King & Lawley, 2016). Consequently, the human resource department should evaluate the findings of the survey to determine changes that they can make the existing compensation plan to optimize its benefits and outcomes on both the firm and the employees.
Another recommendation that can be made is the conduction of an internal assessment of the human resource management programs and policies across all of its branches. It will help in leveraging the compensation plans across the globe. It will also seek to identify the basic needs and views of the employees across the globe to revise the policies to accommodate all of the employees fairly (Jansen & Bal, 2016).
Employer-Sponsored Retirement Plans
Wells Fargo implements an employer-sponsored retirement plan that requires employees to track their different stages and the contributions they make. All the contributions made to these plans are part of the employee compensation at the company, which mainly comes from the basic pay (Wells Fargo, 2019). On the other hand, JP Morgan Chase, one of its main competitors through a company-paid scheme, especially on the pension and retirement benefits. The fully covered plan by JP Morgan Chase gives employees a foundation to make individual contributions to their plans (JP Morgan Chase, 2011). As such, the competitor offers better retirement and health insurance programs as compared to Wells Fargo, which could threaten the company’s ability to attract and retain competent and experienced staff.
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