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Case Study: Human Resource Compensation

Abstract

This research paper aims at discussing the current challenge that human resource compensation professionals are facing. The research paper also looks at the factors that have lead to this challenge, how they relate to benefits and compensation, and what can be done in the context of this challenge. Among the factors that have caused this challenge, there are outsourcing, offshoring, austerity measures, changes in taxation rates, globalization, high rates of unemployment and underemployment, automation, trade liberalization, capital and technology mobility, cuts on social spending, declining unionize rates, loss of well paid manufacturing, increased education costs, anger over the public sector pay and companies that received government bailout. The conclusion part provides an overview of the whole scenario and highlights a few suggestions about what needs to be done in order to put this situation under control. If left unchecked, the problem may affect a greater number of employees and result in numerous losses. Among the solutions to this problem, there is increased productivity, becoming innovative with a view to remain competitive, upskilling of both the unskilled and the semi-skilled.

Introduction

According to the Canadian HR Reporter, the current challenge facing Human Resource professionals around the world is the ‘race to the bottom’. This refers to a social-economic situation, in which organizations and countries compete with each other by offering very low benefits and compensation to their workers and also providing bad working conditions and the environment. The production of goods and services is also moved to locations where the organizations are guaranteed of paying very low benefits as the workers have few or no rights at all. On the other hand, governments compete with each other mainly in order to attract foreign investments either directly or indirectly. The governments mainly aim to achieve this by offering low taxes and other incentives to foreign countries or multinational organizations. However, the Canadian human resource reporter mainly concentrates on the race to the bottom that is taking place among various organizations. Various factors at play in this process are discussed below.

Outsourcing

According to Potrafke (2013), outsourcing is a type of arrangement between two or more organizations whereby one organization provides goods or services to another that could be or were being provided by in-house employees. This type of arrangement includes both local and foreign contracting. Such arrangements enable the organizations to concentrate on other areas of their businesses while leaving other details to be handled by other partners (Prakash & Potoski, 2006). Outsourcing is mainly undertaken by organizations with a view to reducing their operational costs. Most of the companies that offer outsourcing services are able to do so at a considerably less cost as they have specialized in each service, have an easy access to a technology that the other organization is not in a position to purchase, and do not have to give benefits and compensation to their employees (Olney, 2013). The organizations also have fewer overheads to take care of. This is a great challenge to the human resource compensation professionals since they do not know just how far they have to go downwards as the race to the bottom continues to intensify.

Off Shoring

According to Olney (2013), offshoring is another type of contractual arrangement between a local organization and a foreign one. In this kind of arrangement, one organization is required to provide services or goods that could be offered by internal employees. This is done with the aim of reducing the operational costs of the organization in question. If an organization is planning to expand to other nations and costs reduction is one of its driving goals, then offshoring is the best strategy to employ depending on the country and location of the company. This kind of arrangement enables the concerned companies not to pay benefits and compensation to its staff. In addition, this type of situation arises as countries try to compete with each other, with the aim of attracting foreign direct investments. This is also challenging to the human resource compensation professionals as they do not know how far the race will take their organization.

Austerity Measures

Austerity measures are actions that are put in place by an organization or the government during harsh economic times so as to reduce spending in a bid to control the costs of the company or reduce the public sector debt for the government. An organization can take such action by either reducing the benefits and compensation or by not offering any salary increments. This is a great challenge to human resource professionals as they have to strike a balance between the goals of the organization and the needs of the workers (Prakash & Potoski, 2006). Again, the challenge now becomes the competition between the organizations as they try to undercut each other.

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Changes in Taxation Rates

According to Chirinko and Wilson (2011), changes in taxation are normally meant to benefit foreign direct investment. This makes it rather difficult for countries to maintain higher tax rates as they try to undercut each other in a bid to attract investors. Once these multinational companies have established in a given country, the competition continues as they all have the idea of carrying out their operations at the least cost possible. This also becomes a great challenge to human resource compensation professionals.

Globalization

According to Potrafke (2013), globalization is a situation brought about by the interaction and integration among the people, organizations, and governments of different nations. It is aided by international trade, foreign direct investment, and information technology.

Globalization leads to the race to the bottom as different countries lower their standards in order to undercut each other. This takes place with a view to attracting multinational companies’ investments. In turn, this leads to unnecessary competition between the multinational corporations as they try to put up their organizations, with the main aim of reducing their overheads as much as possible. Therefore, workers are offered low salaries as human resource professionals try to reduce their overheads so as to remain afloat (Potrafke, 2013).

Loss of Well-Paid Manufacturing Jobs

The loss of well-paid manufacturing jobs has increased the competition for employment opportunities. Thus, in a bid to reduce their overheads, human resource compensation professionals have taken advantage of the readily available labor force to offer very low wages and compensation to their employees. As a result, this has led to a situation where the organizations are trying to undercut each other in order to remain in business. The reduction in compensation and benefit made persons slide into grinding poverty (Goetz, Partridge, Rickman, & Majumdar, 2011).

Declining Unionization Rates

Unionizable rates are rates, which are paid to employees who belong to a union. These rates are paid as a percentage of the benefits and compensation offered to the employees in the course of their employment. Over time, these rates have been going down hence availing an opportunity to the human resource compensation professionals to try to undercut each other in order to reduce their operating expenses. These have negatively affected the employees since they are offered very low salaries apart from benefits and compensation. Other factors such as deregulation, privatization of workfare and pension reforms have played a role in labor supply increase. On the other hand, reforms in the legal field have led to a reduction in the role played by the trade unions. This has led to a situation whereby the bargaining power of the trade unions has been decreased resulting in inequalities in benefits and compensation, and very low wages (Prakash & Potoski, 2006).

Automation

According to Goetz et al. (2011), Automation refers to the use of the machine in an organization to perform tasks, which can or were initially being undertaken by the in-house employees.

Due to improvements in technology, most organizations have automated most of their operations, which leads to a decrease in the demand for human labor. This has resulted in stiff competition for few available job opportunities putting the human resource professionals in a stronger bargaining position as far as benefits and compensation are concerned. As such, they have kept on reducing their packages for their employees.

High Rate of Unemployment and Underemployment

The high rate of unemployment is a situation whereby there are many people who are willing to be gainfully employed but are to find secure employment due to the limited number of job opportunities. On the other hand, underemployment refers to a situation, in which a person seems to be gainfully employed, but his skills and potential are not utilized to the full. What the person earns cannot meet his or her needs. Such a situation has put the employees in low bargaining power as compared to human resource professionals. Therefore, human resource professionals can afford to offer very low benefits and compensation to their employees in order to reduce their overhead expenses. This has led to competition between various organizations, with the aim to reduce their overheads by capitalizing on the fact that many unemployed people are willing to join the ranks of low-income workers (Prakash & Potoski 2006).

Cuts in Social Programs

Social programs are interventions that are put in place by the government in order to cushion the vulnerable members of society. When the government reduces its spending on such interventions so as to reduce its costs, the benefits and compensation to the beneficiaries are also reduced. As a result, they are forced to seek an alternative way of making ends meet by joining the ever-increasing workforce. Since the human resource compensation professionals of various organizations are eager to take advantage of this workforce, they end up in stiff competition with each other as they try to reduce the overheads of their organizations (Goetz et al., 2011)

Increased Education Costs and Anger over Public Sector Pay and Companies that Received Government Bailout

The increased costs of education have made this type of investment very expensive. Therefore, once a person completes his or her education, he or she expects to find a secure job that will compensate for the costs spent on education. However, since there is completion between organizations to reduce their overheads as much as possible, once employed, the person gets a low benefit and compensation compared to someone with lower qualifications. For example, a person can work hard and go to the university where he/she attains higher education and professional qualifications, but once employed, he/she earns less than a person with a high school or a certificate level of education.

According to Prakash and Potoski (2006), anger over public sector pay and companies that received help from the government made the human resource compensation professionals react by reducing the packages given to their workers. This was aimed at trying to remain competitive and survive in the business environment that had been created. It was generally felt that the organizations that had received the bailout were being favored by the government. This would have meant that they are in a better position to compete with other organizations. In fact, society has become mean-spirited and has started participating in the race to the bottom. This has been largely due to the fact that many people face challenges when it comes to making ends meet. Therefore, they find it very difficult to sympathize with people who lose their pension plans and are not given a pay rise when they already earn something for their unskilled labor.

General Increase in the Prices of other Factors of Production

According to Potrafke (2013) the increase in the prices of other factors of production, such as land and technology, has made the human resource compensation practitioners target the human resource as a factor of production due to its easy availability in their pursuit of cost reduction measures. This easy availability has largely been caused by the widespread unemployment and underemployment that is a situation, which continues to increase and lead to a great number of people joining the ranks of low-income workers.

Mobility of Capital and Technology

According to Goetz et al. (2011), capital and technology mobility refers to a situation whereby there is free movement capital and technology. In other words, one can be able to invest in a company from any part of the world, without any challenge. This makes the production of goods or the provision of a service or services throughout the globe very easy. In addition, this has led to a global race to the bottom as the most important goal of all organizations is to maximize their profits and minimize their costs of production. Therefore, organizations are moving all over the world in search of the cheapest labor force, the fewest health, safety, and environmental laws and the places where the governments have weak or no labor laws at all. If they are faced with any labor laws, then they are neither respected nor enforced. Once the organizations have set foot in a particular country, they engage in stiff competition as they try to undercut each other in order to improve their bottom line.

Trade Liberalization

Trade liberation refers to a situation whereby barriers to trade have been removed. This is done with a view to encouraging trade and economic development hence helping to create more job opportunities. In turn, the removal of trade barriers leads to competition among different organizations as they try to establish themselves. This occurs mainly because the organizations are profit-maximizers and costs-minimizers. Therefore, they rush to establish their businesses where the production costs are as low as possible. This leads to stiff competition among organizations. As a result, the race to the bottom is fuelled (Chirinko & Wilson, 2011).

Conclusion

Given that the modern economy is becoming increasingly globalized, organizations must increase productivity, become innovative and more efficient in their use of resources if they need to be and remain competitive in order to survive. However, they need to engage certain strategies to avoid being overhauled in the race to the bottom. The reason for this is the fact that all organizations can face the problem leading to immense loses to all the parties in the long run. The future prosperity will mainly be determined by the strategies applied to increase productivity and the up-skilling of both the unskilled and semi-skilled employees.

In such a way, the human resource compensation professionals really have to re-examine the policies of their organization in regard to benefits and compensation and advise accordingly. Again, this presents the human resource compensation professionals with yet another great challenge of preventing the loss of middle-income jobs as it can be seen from the Canadian human resource reporter.

Providing employees with numerous benefits and/or overcompensating them is also definitely not a sustainable step in the long run even if they are being compensated for some kind of hardship. In any case, those jobs are unionized and the union leaders have to learn to be considerate when making their demands.

As a society, people also need to reconsider how many certain workers in white-collar, managerial and other professional fields are being compensated in relation to other well paid blue-collar professions. It is interesting to note how much anger there is in regard to blue-collar workers being overcompensated for their services than the continuously widening gap between the pay of the chief executive officers and the lowest-paid employees in so many organizations. This situation has led to both fabulous wealth and grinding poverty, with very few people falling in between. This kind of scenario is typical for the developed, middle-income and less developed countries. In practice, human resource compensation professionals all over the world have lost their work.

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