Compensation Practice



Accordingto Heneman (2002), compensation strategy is a practice within theHumanResource(HR) strategy that seeks to encourage the workforce improves theirproductivity. It is a motivational scheme that rewards throughmonetary and non-monetary stuffs. The strategy has significantimplications on both the running costs and performance. Ordinarily,the strategy describes the pay market and the desired level ofoutcomes. There exist compensation components that are used by anorganization. It is expected that the strategies need to conform tothe business strategies, particularly the HR strategies. Theexecutives on regular basis to ensure the right schemes are used tomotivate the employees should monitor it closely. Being part of HRstrategy, compensation practice is generated to business operationsand selling capabilities of an organization. The paper seeks toexamine the compensation strategy for Procter &amp Gamble.

Thecompensation practices in many organizations are changing by the dayto conform to the current needs. Many firms have now formalized theirpay structures and compensation programs. In most cases, thecompensation practice is guided by the performance managementstrategies. Compensation of employees in most firms takes the largestshare of the operational expenses. Sometimes, it is difficult tomanage the compensation plan due to the need to ensure smooth runningof other operations within an organization. On its part, Procter &ampGamble has sought to apply discipline in their compensationapproaches. The goal is to ensure that the company’s objectives aremet while at the same time the interests of the employees areappropriately considered. Procter &amp Gamble has recentlyredesigned its HR strategies to conform to the current global needsand dynamics. Appropriate remuneration practice at P&ampG has led tojob satisfaction, employee integration, increased motivation andcommitment among the employees.



Foundedin 1837, Proctor &amp Gamble (P&ampG) is a global leader in themanufacture of user merchandises such as personal care products andcleaning agents. Over the years, the firm has utilized strategicapproaches in their operations that have sustained its globalexpansion (Gong, 2013). The company operates several subsidiaries andsegments to meet its objectives. With over 118,000 employees, thefirm generated revenue of over 83 billion dollars in 2014. Severalmedia outlets such as FortuneMagazinehave ranked Proctor &amp Gamble as one of the most admired firms inthe world. The company continues to transform its business model toconform to the changing dynamics and needs.

Proctor&amp Gamble (P&ampG) enjoys the presence of strong, effectiveleaders who facilitate incessant coaching and mentoring of youngemployees to identify with the vision of the organization. Thecompany’s workforce always align their goals to those of theorganization and work closely with leaders to realize overallorganizational goals. The firm is known to have low turnover ratesdue to effective measures aimed at creating an enabling workenvironment for all employees. Consequently, there are high levels ofjob satisfaction among employees hence making them stay in thecompany. Low employee turnover rate enhance the stability andproductivity of the employees. P&ampG has intensive training andtalent development program for its employees.

Traditionally,HR departments possess diverse skills in managing issues ofemployees’ compensation and benefits. On the contrary, aprocurement department cannot play a similar role effectively becauseof its knowledge and concentration in procurement activities. The HRdepartment of P&ampG should consider taking the responsibility ofemployees’ compensation and benefits as its mandate. This willensure the HR department addresses monetary issues effectively andprevent potential challenges such as employee strikes and go slows.

CompensationStrategy Analysis

P&ampGhas an elaborate approach on the development of long-term incentives.Primarily, the management of HR at Proctor and Gamble follows astrongly organized framework aimed at ensuring the employees acquirevarious skills needed within the company. According to Phillips andFox (2003), the organization of employees is a crucial step as itensures proper management of operations and the development ofemployees. As such, the workforce easily understands both the presentand future roles that enhance their productivity. With appropriateincentive plan, the firm has remained a global leader in themanufacture of personal care items and cleaning agents (Lafley &ampMartin, 2013).Compensationpractice at P&ampG depends on several factors, including educationalqualifications, job experience, job station, job position andresponsibilities, among others. Ordinarily, the firm recruits newgraduates and trains them to conform to the firm’s objectives andneeds. It has low preference for external recruitment. GlobalHuman Resourcestrategy of P&ampG Company has created global competencies thusfacilitating effective implementation of global operation strategy.The integration of operation and human resource in P&ampG hasresulted in the achievement of three competencies (Gong, 2013). Theapproach has led to appropriate harmonization of the compensationpractice. Good remuneration approaches have played a significant rolein the addressing the employees’ needs. Ultimately, the approachhas increased the firm’s competitive advantage and consistentlyenables the company to supply the customer with its products andservices (Carey, 2008).

Withgood remuneration, the employees are motivated to increase theirproductivity hence drive the firm’s business agenda. Motivation interms of talent development has improved the competencies of theemployees. Moreover, the compensation practice within the company hasled to continuous performance improvement with all the departments.However, compensation practice generates negative effects on thefirm’s operational plans. With high number of employees, employees’compensation takes significant share of the company’s expenses.Scholars identify that the highly paid and long-tenured employees canthreaten the financial standing of an organisation. Whereas somefirms have been hesitantto alter this traditional approach, the financial implications haveforced the companies to retreat their employment strategies. Theshareholders are also likely to see reduced revenue in terms of thevalue of returns. Other stakeholders such as the society mayexperience reduced activities on social responsibilities.

P&ampGis guided by the American law and other laws where the firm hasopened operations. The legal regime in each country has significanteffects on the compensation plan adopted by the organization. It is arequirement in every jurisdiction that the firm observes the laws andregulations that guide the HR practice. In the US, for instance, thefirm has to comply with the minimum regulations proposed by thefederal government. The labor unions influence the compensation planfor many organizations. Ideally, labor unions advocates for therights of the employees. P&ampG allows its employees to join laborunions to champion for their rights including working conditions andremuneration. The unions have great influence on the compensationpractice since they are created to ensure that employees are awardedgood and fair pay. The firm has to observe the regulations andlegislations within every operational area. It is through these lawsthat the firm has avoided law suits and backlash from lobby groupsand authorities. Through an appropriate compensation approach, thefirm has acquired exceptional performance that is backed by both theorganizational and HRM systems. It is hence important for the firm tocreate good relationship with the authorities and lobby groups byadhering to the established laws and practices regarding employeecompensation.

Jobdescription and station is an important factor that is considered ingenerating the pay for the company’s employees. Senior managershave increased responsibilities and resources at their disposal hencethe high remuneration. Low-cadre employees are rewarded with respectto their experience, qualifications and time worked in theorganization. P&ampG has an intake of only fresh graduates, which isrisky. The new employees are awarded pay with the consideration ofthe entry level, job station and academic qualifications. Recruitingyour next Chief Marketing Officer from within is far less expensiveand far less risky than luring that person from another organization.The traditional practices HR departments have become the gatekeepersfor whom and how many to hire. At P&ampG, this has been eliminatedif they are only hiring fresh graduates. With such cadre ofemployees, the firm can easily dictate the nature of remuneration forthe employees. Nonetheless, the firm offers great incentives to theemployees through training, talent development and rewards asevidenced by the low turn-over rates. Eventually, this helps toreduce turnover while at the same time encouraging the employees tostay longer within an organization. In fact, the firm is reported tohave low turn-over due to the enviable employee motivation andretention strategies (Ireland, Hoskisson &amp Hitt, 2012).

Predictiveanalytics have proven instrumental in supporting the human resources(HR) decisions. One important decision made by Proctor&amp Gamble was to transform the HR analytics that sought to improvetheir capacity in productivity. With the current changes necessitatedby the globalization and changing, the needs of the staff changeswith time. As discussed above, P&ampG has appropriate compensationpractice that follows the current HR standards. The benefits ofproper compensation plan have seen the firm realize positive outcomesin its business objectives. Elaborate workforce planning in thecompany focus on both the internal and external components andempowerment of employees and proper decision-making mechanisms.Fair and standard compensation practices ensure reasonablerecruitment, performance appraisal, remuneration and promotionpolicies. This ensures that all the employees are adequatelysatisfied within their organisation.It also enables the interested groups to brainstorm their ideas aswell as enhance greater cooperation (Lauby,2005).


Thegoalof HRM strategies in a firm is to get the right people with therequisite skills to perform tasks assigned as well as offering theman environment that improves their skills. It is through suchstrategies that an organization competes satisfactorilywithin the market. Good HR strategies help a company to adhere to theestablished standards and business practices. In the compensationpractice, the firms need to develop appropriate strategies that willenhance fair remuneration for the employees. The criteria forcompensation need to adhere to the best HR practices and standards.As such, an organization pools its resources towards effectivemanagement of the human resources. Proctor and Gamble has elaboratelyentrenched an appropriate compensation strategy within all itssubsidiaries. The benefits realized by the firm are evident in thesales and revenue generated every year. P&ampG has set a goodexample on how the workers should be compensated for their duties.


Carey,J. A. (2008). A resource-based look at compensation strategy:Application and implementation of competitive advantage.Journal of Business and Management, 14(2),131-147.

Heneman,R. L. (2002). Strategicreward management: Design, implementation, and evaluation.Greenwich, Conn: Information Age Publ.

Ireland,R. D., Hoskisson, R. E., &amp Hitt, M. A. (2012). Understandingbusiness strategy: Concepts plus.Mason, OH: South-Western Cengage Learning.

Lauby,S. J. (2005). Motivatingemployees.Alexandria: ASTD Press.

Phillips,L., &amp Fox, M. A. (2003). Compensation strategy in transnationalcorporations.Management Decision, 41(5),465-476.