Detailed Report: Analysis of UPS Compensation System

This report provides a detailed analysis of the compensation system at United Parcel Service (UPS). It examines the current state of the compensation system, which includes both financial benefits like salary, bonuses, and stock options, and non-financial benefits such as health insurance and flexible timings. The report analyzes the compensation of special groups like directors and executives, highlighting the use of equity, stock options, and golden parachutes. It also discusses the role of trade unions in negotiating wages and the complexities of international compensation, including the balance sheet approach. The report emphasizes the importance of compensation packages for employee retention and attracting potential employees, including incentives, insurance, and career benefits like mentoring and coaching programs, study reimbursement, and recognition programs. The analysis concludes that the compensation system plays a crucial role in increasing workforce productivity, employee motivation, and job satisfaction, ultimately contributing to employee retention and the achievement of business objectives.

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Title: Compensation System of UPS
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Contents
Current State of Compensation System of UPS.........................................................................2
Analysis of the Compensation of Special Groups......................................................................2

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Current State of Compensation System of UPS
Compensation given to the employee for their working hours in the organization
includes both financial as well as non-financial benefits and rewards. The financial benefits
include salary of the employees, bonuses, commissions, employee stock options. Whereas,
the non-financial benefits include health insurance, flexible timings, life insurance policies,
travel allowances (Juneja, 2019). The current state of the compensation system of United
Parcel Services is that the incentive established a link between its business objectives and the
incentives and compensation that it pays to its employees. This indicates that the organization
has performance-based compensation system, where the employees are been motivated to
perform in alignment with the business objectives. The organization has formed a Committee
which establishes the Management Incentive Program (MIP).
Analysis of the Compensation of Special Groups
The special group in the organization can be defined as the group of people who are
strategically important for the organization and they have an inevitable role in the
achievement of business objectives. They are directors, supervisors, management executives.
This leads to pay variation in the pay structure of the organization. The directors of the
company are compensated with equity, stipend and other insurance. The executives’
compensation package consists of basic salary, stock options and golden parachutes (Noe,
Hollenbeck, Gerhart & Wright, 2019). The golden parachutes are basically larger financial
compensation given to company executives if the company is taken over by another firm.
The compensation system of United Parcel Services for the executives includes cash
compensation, total equity and long term incentives. The UPS paid its CEO total
compensation which includes: bonus, non-equity incentive comp, base pay; stock award
value and option award value; and other compensation (Abney, 2019). The trade unions play

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an important role in negotiating and bargaining the wages on behalf of the workers. Trade
unions have played an important role in the compensation system related to UPS. The Union
of UPS is called as Teamster. The organization has agreed that they will now discuss any
increase in the future package with the Teamster (Ciepliński, 2018).
International compensation system is a system in which the organization designs
compensation packages for its employee who is given an international assignment.
Developing a compensation package for such an employee is a little complex as it is related
to the host country. The major element of the international compensation is: taxes, salary,
incentives, benefits, incentives and long term benefits. The organization engages in setting up
a compensation package that can compensate for the differences in the expenditure in the
home as well as the host country. Under this system the company pays allowances based on
the assessed or accrual basis. The company also makes sure about the education of the
expatriate’s children by giving them education allowance. Other benefits that are provided
are: pension plans; medical coverage; social security benefits; and emergency provisions
(Aldea, 2015). There are two main approaches to international compensation: one is the
going rate approach and the other is balance sheet approach. The company uses the balance
sheet approach which is based on: goods and services; housing and income tax. This
approach helps in maintaining the equity between expatriates of same the nationality.
Compensation packages are a broad combination of perks and benefits that are given
by the organization to its employee. Extraordinary compensation package are aimed for
employee retention and to attract potential employees to the organization. This package
includes: proper insurance packages; timely incentives; vacations, and other allowances and
perks. Some organizations also indulge in giving child and health care benefits to an
employee’s child. The most important factor of a good compensation package is the regular

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and good salary. Salary increment is the most important factor for extraordinary
compensation.
The organization engages in this compensation system as it provides increment to its
employees. The company has a performance based compensation system and it makes sure
that its employee gaols are in alignment with the business objectives. Therefore, the company
wants to make its business goals and objective clear through its compensation packages
(Mukherjee, 2019). The company engages in providing its employees with stock options,
health insurance, stock units and bonuses for special achievement. The key impact of such
type of compensation is that it has helped the organization in retaining valuable employees.
The biggest advantage of this compensation package that the company offers is that of
career benefits. They have mentoring and coaching programs for its current employees as
well as hands on coaching program for the new employees so that they can adjust easily into
the work culture of the organization. The tools of career planning that the organization uses
for its employees helps its employees to develop their potentials and gain new insights of
their industry. The study reimbursement is also available for the employees who want to get a
certificate or diploma related to their work (Wang & Singh, 2014).
The company also has Recognition program that is aimed to recognize the hard work
of its employees. It is a way to make sure that their employees know that they are being
appreciated. It offers heath care insurance not only to its employees but also their family
members. The company also has a 401(K) plan in which the employees can enjoy as many
perks that come with it. This plan is great for employees who want to have financial stability
in later years of their lives. The company values its employees and their work in this way.
The organization by providing this type of compensation system not only helps retain
its key employees but also helps employees to secure their future requirements through

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bonuses and after retirement financial benefits (Madhani, 2015). It increases the productivity
of the employees and they want to bring out the best effort in their work.
Therefore, it can be said that compensation packages have a huge role to pay in
increasing the workforce productivity. It increases the motivation level of the employees and
creates job satisfaction among them. The compensation is one of the most strategic tools for
employee retention not only at the lower level of the organization but also at the level of
directors and executives.

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References
Abney, D. (2019). Notice of 2018 Annual Meeting of Shareowners and Proxy Statement.
Retrieved from
https://www.sec.gov/Archives/edgar/data/1090727/000120677418000849/ups3287141-
def14a.htm
Aldea, B. (2015). The Compensation and Benefits System: Private Companies vs. Budgetary
System. European Review Of Applied Sociology, 8(11), 31-39.
Ciepliński, Ł. (2018). Three-Phase Ups With Active Parallel Compensation. Elektronika -
Konstrukcje, Technologie, Zastosowania, 1(11), 6-9.
Juneja, P. (2019). Development of Compensation System. Retrieved from
https://www.managementstudyguide.com/development-of-compensation-system.htm
Madhani, P. (2015). Salesforce Control and Compensation System. Compensation & Benefits
Review, 47(4), 190-202.
Mukherjee, B. (2019). Employee Compensation Structure Ensures Business Growth, Says
This CEO. Retrieved from https://www.entrepreneur.com/article/294376
Noe, R., Hollenbeck, J., Gerhart, B., & Wright, P. (2019). Human resource management.
New York: McGraw-Hill Education.
Wang, G., & Singh, P. (2014). The evolution of CEO compensation over the organizational
life cycle: A contingency explanation. Human Resource Management Review, 24(2),
144-159.

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