Compensation Purpose and Strategy Document
The purpose of this assignment is to choose a compensation philosophy that is appropriate for AMAZON and articulate a rationale for this selection.
There are two aspects to this assignment. First, describe the risks and benefits with leading, meeting, and lagging the
market in overall compensation and benefits. Next, choose the appropriate strategy (lead, meet, or lag) for your firm, and provide rationale about why this is appropriate.
There is a minimum requirement of 500 words for the compensation purpose and strategy document.
Consider some of the following factors in your assignment:
- Payroll expenses are usually the highest expense at most firms. If you lead the market, this expense can be taxing.
- If you are pursuing top talent in human capital rich industries (e.g., software engineering), lagging the market may keep you from competing for market share against your competitors.
- If you meet the market, paying average will generally not attract top talent, and in addition, you will not have the labor-cost savings of a lag-the-market strategy.
Compensation Philosophy that is appropriate for AMAZON
With the advancement of technology in the world today, most advertising firms such as Amazon are migrating to the digital generation where they widely incorporate the internet to reach to more customers and to ensure that there are efficiency and effectiveness in their operations. Amazon being an American multinational based in Seattle, Washington is increasingly facing competition from other organizations in the electronic commerce and cloud computing industry. However, in recent days, the company has been criticized for its poor compensation plan, and strategies were losing key members of their team to competitors. To get maximum benefits from a tram, the company needs to come up with a favorable and an appropriate compensation plan (Bebchuk, 2009). This assignment will largely focus on shedding more light on compensation purpose and a strategy document of the company.
Often, direct costs are used to decide advantages and risks associated with a company’s compensation plan, especially when there are fluctuations in prices of goods and commodities in a country. In leading the market, Amazon is likely to benefit from new markets as their customers will be readily available to try their new processes and techniques. On the other side, in the case of failure of the new operation technique, the company is likely to lose the trust of their loyal customers as well as target customers. Moreover, when meeting the demand of a market, the company is likely to enjoy from certainty considering that it will focus on implementing already tested method and techniques, thus minimizing chances of loss and failure. However, this technique is likely to increase competition from other companies and organizations considering that they have an idea of the techniques and operations used by the company. Finally, if the company decides to go for lagging, it is likely to enjoy from cut cost and prices of goods and services if the prices fall. However, on the other side, if the price increases, the company is likely to make losses considering that they have to incur extra cost to meet their production as well as meet the market demand.
Given the power and authority to choose an appropriate strategy, I would choose lagging. Market lags widely to deal with the time gap between the actual payment of an obligation and the date it was constructed. A lagging indicator would be appropriate to measure economic changes that result from the economic trend in a country or region. Lag would be beneficial to the company since it indicates the actual situation of the country’s economy and the company will not be forced to incur extra costs and charges in the case of changes in prices of raw materials. Moreover, lagging helps to reduce and tame competition that may creep into the industry (Ip, 2008). The trend of the economy dictates the status of the company as well as the pay package and the pay scale of the employees. However, the company may also be prepared to incur extra costs when the cost unrepentantly rises beyond the company’s expectations. Paying averagely to the employees based on the economic status of the company may not appeal to talented workers.
Bebchuk, L. A. (2009). Pay without performance: The unfulfilled promise of executive compensation. . Harvard University Press.
Ip, E. &. (2008). Compensation of dispersion and nonlinear impairments using digital backpropagation. Journal of Lightwave Technology, 26(20), , 3416-3425.