Compensation Strategy for Fit Stop: A Case Study Analysis

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CASE STUDY: THE FIT STOP
ASSIGNMENT – PART 2

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TABLE OF CONTENTS
INTRODUCTION............................................................................................................................. 2
BASE PAY AS AN ELEMENT FOR COMPENSATION MIX..................................................................2
ORGANIZATIONAL PERFORMANCE PAY PLAN...............................................................................3
STRATEGY FORMULATION PLAN....................................................................................................4
RATIONALE.................................................................................................................................5
BENEFITS OF INDIRECT PAY........................................................................................................... 6
CONCLUSION................................................................................................................................. 7

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INTRODUCTION
This assignment has been aimed at analyzing the compensation strategy for the Fit Stop. It is
very essential for organizations to ensure that appropriate and competitive compensation
benefits are being established for ensuring job satisfaction and retention of employees. The
organization must follow high involvement managerial strategy and also organizational
citizenship employee behaviour must be ensured.
BASE PAY AS AN ELEMENT FOR COMPENSATION MIX
Base pay is the amount of compensation which is received by the individuals based on the
amount of time invested by them for the organization. The base pay is an important part of the
compensation mix and is not dependent on the production output generated by the
employees. Base pay must be adopted as an element of compensation mix for the following
reasons:
 Base pay helps in supporting the managerial strategies. For instance, the high
involvement managerial strategy is being supported by the pay-for-knowledge base pay
technique.
 Base pay is efficient in depicting that the employer is concerned for the employees and
thus helps in ensuring greater commitment of employees for the organization.

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 Base pay must be provided to employees as it helps in encouraging the important job
behaviour which are required within employees and are not directly related to the
production output.
 Base pay is an important aspect of compensation, as it is not based on performance and
directs the employees in working as per the needs of the organization, by not confining
to particular behaviours.
ORGANIZATIONAL PERFORMANCE PAY PLAN
The organizational performance pay plans which are suitable for the organizations include
employee stock plan, profit sharing plans and also long-term incentives.
The plan suitable for the fit shop is the profit-sharing pay plan. This is a formal payment system
where the organization provides bonus payments to its staff based on the overall profits of the
organization. The two key elements of the plan are:
Current distribution profit-sharing plan
This ensures that the annual profits of the organization are being distributed as a bonus in the
form of shares or cash.
The deferred profit sharing plan

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This is a method where the bonus of the employees based on the profits of the company are
allocated to an account and are being paid only on retirement or termination of employees.
STRATEGY FORMULATION PLAN
Formulating a strategy plan is dependent upon a five-step process. Firstly, we need to define
the behaviour pattern of employees which is necessary for organizational success. Secondly, the
roles need to be defined which must be played by the compensation system and the reward
system. Thirdly, the most appropriate mix of the compensation components needs to be
determined. Fourth, policies need to be developed for establishing the total remuneration
which the employees of the organization are eligible to receive. Lastly, it is very important to
perform the pre-implementation evaluation process for determining that the remuneration
strategy meets the success criteria.
Compensation strategy
Job family: sales staff
Proportion of total pay
1. Base pay
a. Job evaluation
b. Market pricing
c. Pay for knowledge
50%
50%

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2. Performance pay
a. Individual performance pay
b. Group performance pay
c. Organization performance pay
30%
15%
10%
5%
3. Indirect pay
a. Mandatory benefits
b. Pension plan
c. Health and life insurance
20%
8%
4%
8%
RATIONALE
BASE PAY
The base pay is an important part of the compensation strategy as it is useful in covering the
most valued job behaviour. This also helps in boosting the managerial strategy by
demonstrating a significant amount of employer commitment towards an employee. This also
helps in signifying the importance of job profile to the employee. The base pay is usually based
on various labels such as the skill-based pay and the competency-based pay.
PERFORMANCE PAY
This component of compensation is helpful in signalling the key behaviour and motivating the
actions of the employees. This makes the employees more motivated towards contributing to

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organizational success. This also helps in establishing a link between the ability of the firm to
pay and the employee remuneration. This includes remuneration based on individual
performance, organizational performance and also the group performance.
INDIRECT PAY
The indirect pay is the benefits which are received by the employees as remuneration other
than the basic salary of the employees. By keeping a proportion of indirect pay in overall
remuneration, more employees can be attracted. These can be provided to the employees in
form of rewards rather than cash and also the organization can achieve economies of scale by
making purchases in huge quantities. The indirect pay comprises of the benefits which are
mandated by law, employee services and deferred income plans among others.
BENEFITS OF INDIRECT PAY
Competitive pressure
The employer must determine the benefits which are being offered to the employers of other
competitor organizations to its employees and also offer similar benefits to employees to
ensure that the employees can be attracted and retained.
Additional benefits

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The employer can provide additional benefits such as medical coverage, as it would be
beneficial for the employees. The employer can also avail the same at discounted and lower
prices by bulk buying.
Financial security
The employer can provide benefits such as financial security to employees, which would be
helpful in ensuring their peace of mind. This is also helpful in ensuring good employee
performance.
Specific benefits for promoting consequences
The employer can promote specific activities such as employee assistance programs, which
would be helpful in resolving personal problems of employees and reducing the negative
impact on work performance.
CONCLUSION
After the assignment, it can be concluded that the ‘fit shop’ must focus on adopting the profit
sharing pay plan for its employees, as would inspire the employees to contribute much on the
profit generation. Along with the base pay, the employer must also focus on providing
additional benefits to the employees, which would keep them motivated for working towards
the overall betterment of the organization. The remuneration strategy of the organization must
focus on all the components including the base pay, performance pay and the indirect pay.

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