Table of Contents

1.      Introduction. 3

2.      Costco Overview.. 3

3.      Compensation & Benefit Design Process. 3

3.1.       Assessment for Compensation. 4

3.1.1.         Internal Assessment. 4

3.1.2.         External Assessment. 5

3.2.       Design Incentive/Compensation Plan. 6

3.2.1.         Determining Incentive Level 6

3.2.2.         Performance Measures. 6

3.3.       Implementation Plan. 7

3.4.       Evaluation of Compensation Plan. 7

4.      Elements of a good Compensation Plan. 8

4.1.       Compensation philosophy Alignment. 8

4.2.       Legal Alignment. 9

4.3.       Cultural Alignment. 9

4.4.       Workforce Preferences Alignment. 10

4.5.       Equity alignment. 10

4.6.       Global alignment. 11

4.7.       Diversity and inclusion consideration. 12

5.      Final recommendations. 13

6.      References

1.     Introduction of Reconstructing the Compensation & Benefit Designs of Costco
2.     Costco Overview
3.     Compensation & Benefits Design Process of Costco
3.1.           The first phase of designing the compensation plan
3.1.1.      The compensation professionals will perform the internal assessment
3.1.2.      External the compensation professionals compare the corporation
3.2.           Design Incentive/Compensation Plan
3.2.1.      Determining Incentive Level of Costco Corporation
3.2.2.      Performance Measures of Costco Corporation
3.3.           Implementation Plan of Costco Corporation
3.4.           Evaluation of Compensation Plan of Costco Corporation
4.     Elements of a good Compensation Plan of Costco Corporation
4.1.           Compensation philosophy Alignment
4.2.           Legal Alignment according to the labour laws
4.3.           Cultural Alignment of Costco employees
4.4.           Workforce Preferences Alignment of Costco employees
4.5.           Equity alignment of Costco employees
4.6.           Global alignment of Costco employees
4.7.           Diversity and inclusion consideration of Costco organization
5.     Final recommendations
6.     References of Reconstructing the Compensation & Benefit Designs of Costc

The aim of this paper is to provide deep insights regarding the compensation plan of Costco.  Costco is a fortune 500 organization and has a presence in many parts of the world, which include Japan, Spain, Taiwan and South Korea. According to the statistics of 2018, the corporation has employed approximately 245000 employees. The paper provides an overview of how the compensation plan is being created and how they lead the corporation toward the path of success.

Costco is a major multinational corporation. Costco is among the world largest retail corporations, and its headquarter is located in the city of Issaquah USA. According to the 2015 statistics, it was the world’s largest retail corporation after Walmart. Costco is also considered the largest seller of organic food, prime beef & rotisserie chicken. Costco is a fortune 500 organization and has a presence in many parts of the world, which include Japan, Spain, Taiwan and South Korea. According to the statistics of 2018, the corporation has employed approximately 245000 employees. Over the years, the corporation has immense gain growth and have earned a significant amount of revenue.

Costco pays special focus on corporate social responsibilities & sustainability. In Its CRS programs, the corporation has given special focus on its employees because the employees are the utmost priority of the corporation. Apart from CRS programs, the HRM has created many strategies which focus on employee development & growth. Costco provides many incentives to its employees, which include disability insurance, life insurance, Reimbursement for elderly care & medical expenses etc. However, in this paper, the whole compensation & benefits design process of Costco Corporation is reconstructed and explained as follows:

The first phase of designing the compensation plan is the assessment phase. In the assessment phase, the goals of the business are analyzed, and the compensation professionals outline the goals which they want to achieve through implementing the compensation. In simple words, the compensation professional’s analyze what the corporations want to achieve and whether the goals which the professional compensation set are aligned with the goals of the corporation or not. The assessments which the corporations usually perform are of two type’s internal assessment & the external assessment. In creating the compensation plan of Costco, both types of assessments will be performed by the Compensation professionals

First, the compensation professionals will perform the internal assessment. For conducting internal assessment, the compensation professionals will perform a series of interviews with both employees & management personals. Through the interviews, the compensation professionals will get a clear idea of the responsibilities & roles of the staff members of the corporation. For setting compensation, it is highly important to analyze the severity of the job and what roles each member of the corporation is performing.

After conducting the interviews, the next thing which the compensation professionals will perform is the analysis of the current compensation practices that exist in the market. It will help the professionals to set such a compensation plan, which is according to the latest rules & regulations and help the corporation to compete with its major competitors. The next thing which the professional will assess is the performance management program of the Costco Corporation. Through this, the professionals will get the idea about the performance of the staff members and whether the performance program has contributed to increased performance of the corporation or not.

In the internal assessment phase, the co9mpensation professionals will develop a communication strategy through which they are going to communicate the compensation plan to the employees of the corporation. The communication strategy has huge significance for making the compensation plan successful because if the employees are not going to be communicated about the plan that they might not understand the policies of the organization and ultimately might reject the compensation plan. The last thing which the compensation professional perform an internal assessment to generate feedback report which helps them for the creation of the overall plan (Benjamin, Tawiah, & Arsonval, 2014).

In the external assessment, the compensation professionals compare the corporation with the other corporations who are performing in the same industry. The individuals who are implementing the plan choose the external benchmark jobs for evaluation. They run the competitive analysis to understand how other corporations are setting the compensation plan and how this would affect the corporation for which they are creating a plan. It is highly important for the organization to understand what other corporations are doing because if the compensation plan is not going to be according to the latest trends, then it might decrease the motivation of the employees and the turnover in the corporation might occur (Albrecht, Bakker, Gruman, Macey, & Saks, 2015).

In this phase, the professionals will determine the structure of Costco’s compensation plan in light of the external factors. The professionals will evaluate the level of the employees’ compensation and create the compensation plan, which will not only motivate them but also enhance their current performance. The pay/compensation has a huge impact on the performance 7 motivation of the employees. If the compensation professionals are going to set low compensation than it would have a negative impact on employees, however, if high compensation is going to be set than it would have a negative impact on the cost of the corporation, therefore the right amount of compensation is the need of today’s corporations.

The second phase of constructing compensation is the design phase. In this phase, the compensation plan is going to be created by keeping the long term & short term strategies of the Costco Corporation in mind. As the Costco Corporation pay special focus to its employee's such compensation plan will be created, which reflects this strategy of the organization. In this phase, the compensation professionals will evaluate the appropriate level of the incentives, which is going to be paid to the employees. Determining the appropriate level of incentive is a tough task because several factors have to be considered while setting the incentives. In this phase, the professionals will determine the incentive which will help the Costco to standout in the market without increasing the cost burden on the organization (Hendry, 2012).

            While determining the incentive levels, the compensation professionals will choose the performance measures as well, which would help them for providing incentives to the employees. Usually, the incentives in the organization are given on the basis of their performance. Those employees get the incentives who have performed exceptionally well in a specific period. In this phase, the performance measures are identified through which the performance of the employees will going to be measured, and on the basis of that performance, the incentives are going to be given.

            After determining the performance measures, the compensation professionals design the incentive formula through which the incentive of the employees is going to be created. The incentive formula includes the factors on the basis of which the incentive is created. In the last, the professionals will consider all the other alternatives which are available to them. It means that through this, the best incentive plan will be created.

After designing the incentive & compensation plan, the next phase is the implementation phase in which the newly constructed incentive plan is implemented. The compensation professionals usually hold a meeting in which the staff members are briefed about the compensation plan. The compensation professionals communicate the plan to the employees of the corporation so that they know what the policies of the corporation are and how they are going to be assisted by the corporation. The compensation professionals make sure that they have communicated all the policies of the compensation plans effectively (Guest, 2017).

The last step is the evaluation step in which the compensation professionals evaluate the success of the compensation plan. If the performance of the employees of Costco shows improvement and overall efficiency of the organization increases, then it means that the compensation plan has become successful. However if the organization performance decline after the implementation of the compensation plan and turnover in the organization increases than it means that there is a need to change the compensation plan so that the motivation of the employees can be increased and the organization can achieve its desired goals. If the compensation plans did not help the company to achieve its goals, then this means the plan needs to be constructed again (Benjamin, Tawiah, & Arsonval, 2014).

The following are the elements that define a good compensation plan:

The compensation philosophy is usually in the statement form, which provides information about the compensation which it provides to its employees. The compensation philosophy is created by the Human Resource department of the organization. The compensation philosophy of any corporation depends on various factors which include the financial performance of the company, the size of the company, the culture and business objectives of the corporation. The compensation philosophy motivates its employees and provides brief information about the corporate objectives and how it is fulfilling them.

It is highly important that the compensation plan should be reflected in the compensation philosophy of the organization. The compensation philosophy should be aligned with the goals and overall objectives of the company. The compensation philosophy of Costco reflects what the goals of the corporation are how the corporation is rewarding its employees. It can be said that Costco’s compensation philosophy is reflecting the compensation plan effectively & aligned with the goals of the company. The compensation philosophy of Costco has the potential to motivate its employees and help the corporation to retain the talent it has (Anthony‐McMann, Ellinger, Astakhova, & Halbesleben, 2017).

The compensation plan which the compensation professionals have created should be according to the rules & regulations. It means that the company’s compensation should be according to the labour laws and other laws that apply to the organizations. In simple words, the organization cannot create such incentive plan which does not align with the legal requirements because if the organization do this not only it will have to face legal consequences but also the reputation and employee satisfaction will experience a drastic decline. However, Costco’s compensation plan is created by keeping the legal requirements in mind.

The incentives which Costco provides to its employees are according to the labour laws, which means the organization is fully compensating its employees. As discussed earlier, the employees are the utmost priority of Costco, so the compensation plan is designed to meet the core objectives of the corporation. The compensation plan of Costco contains all those things which an effective compensation plan contains. Overall the compensation plan of Costco is aligned with the laws which the government of different countries have created (Guest, 2017).

It is highly important to create such a compensation plan which is aligned with the culture of the corporation. The culture of Costco is strong and heavily focus on the welfare of the employees. Therefore the compensation plan of Costco includes such factors which strongly reflects the culture of the organization. Costco’s provide various incentives such as life insurance, health insurance and other incentives. Furthermore, the corporation’s culture highly focused on continuous improvement and high performance, which also shows in the incentive plan. The incentives of the employees are based on the performance of the employees’. If the employee's performance increases, then it means that incentive will be given to such employees.

Many employees at the workplace have their own preferences and different goals which they want to achieve by working in the organization. It is important that the compensation plan which the organization set should help the employees to achieve their goals. The compensation plan of Costco is set in such a way that it fulfils the preferences of its employees. It does not include any such rule or policy which is not aligned with the preferences of the employees. The compensation plans in the corporation are created to meet the needs of the employees and if the compensation plan unable to deliver this than it can be said that the compensation plan has failed to achieve its objective (Bauer, 2012).

Equity is the main part of the life of every person, and in the world no one can move without currency. In the business field, it also has its own importance and the growth, scaling, and for monetizing the equity is very much important. Companies handle the equity matter s in the form of converted debt capital, retained earnings, investor capital and paid in founder capital. The employed equity capital must be utilized smartly that provide a higher return in the same equity and keep happy all the stakeholders of the company. Manager of the company wants to align all the benefits of money with the stakeholders and owners that also support the company to sustain in long terms growth. The aligning the interest of partners is very helpful in determining the failure and success of the company. There are normally three critical elements that are going to involve in any project that is; quality, money and time to align incentives. Every leg of the stool must be connected with three-legged otherwise stool fell down and no use for the future. Equity is the incentive alignment that handles these three elements. If the balance of other incentives does the right things, fairly treat the people and create long term perspective for the organization, then the power of equity must be managed in a proper way. In the form of compensation to motivate the executive and employees, the classical management theory also cites the use of equity. In the point of view of literature, the equity is going to use an employee placed in the right job with the right skill set, other monetary and non-monetary incentives, collaborative culture and also balancing the suitable vesting period as motivational tools. To motivate the management to align interest with other stakeholders, the same equity compensation, balanced with cash and a good culture fit (Aguirre, 2005).

All the tools revolve around the equity of the business that is available to the owner to align interest in the corporate settings. As incentive alignment tools and substitute of cash, different uses are related to the equity, and that is; through capital raises in exchange of equity or convertible debt  instead of straight debt align the interest with investors In long terms, with a mix of cash, equity and non cash incentives motivate the management, when working capital constraint the use of equity as partial substitute of cash and by paying the portion of consulting fees with equity help to reduce churn and administrative costs of multiple consulting arrangement. (Hales, 2016)

Global alignment is also very much important for the business point of view. For operating worldwide successfully is related to the understanding of different languages by using the right terminology in making the marketing teams all around the world. On an international basis, the truly global is the seizing the opportunities to win and also compete for the market.  On behalf of customers globally, the successful globalization includes working with champions to enhance the globalization. The champions help the organization to set the goals and prepare roadmaps according to the need of the department and to make sure that all ideas, programs and projects accepted across countries, supporting the globalization across the organization. Working is a corporate setting and leading a globalize team at centralized. Companies are going to prepare a good geo alignment strategy and without having cross-checked the push the product internationally.

Tight alignment must be required in all headquarters in order to successfully enter a specific country of key accounts that help in going globally. The headquarters of corporate is going to be set and prepare a place where the executive management and CFO discuss all the responsibilities and take decision-related to the organization. It is assumed the most prestigious place for the organization where all the major decisions are going to take. Global headquarters are those places where the lustre of countries and governs a full geography state with all settings. If the product going to be successful at the international level , for this, you have to prepare a proper plan that includes the time of export, enter, promote, place and information of the customer that demands the product. These plans are a stick, supportive and show steady growth in the manner of market. For making successful and capture the market ,the headquarters need to land on that location, and then observe all the factors, elements and issues regarding that market and then prepare a proper plan in launching the product successfully because if the program could not compete for the local ideas, then it never obtains the required objective.

It is not easy to develop a plan that is going to be successful at the international level, but proper geo alignment programs must be used in this regard. After making a strong plan if your product is not working successfully t international then verify why this could happen and find out the reasons. Proper program is going to used that support the key issues related to geo alignment. Many issues like the lack of advertising budget, the support centre is not open enough hours, licensing and pricing issue of the product. Following checklist must be go through to determine the effective global strategy and marketing of product at international level; create a suitable roadmap, executive business center presentation and executive visit for launch time, agree on training for making program successful, agree on asset or bills of material needed for launch, disclosure of plans and significant program timing, and mapped program must be global that cover all areas ad all requirements. (Schlegel, 2018)

To create the workplace more reflective of current demographic trends, diversity and inclusion in the workplace are going to be more important. According to different surveys, with a diverse workforce, the organization can obtain more than 35% return above industry medians. To meet the compliance obligation and generate high morale among many employees, the organization can also use diversity inclusion programs. A diverse workforce is very much important in this regard as it offers many job opportunities and diversity and inclusion program attract more and more new and talented employees. The inclusion and diversity programs help companies and provide them with opportunities that help in strengths the workforce of the companies. When the diversity and incorporating embracing in the overall culture of the organization that it will give many benefits. From various background to the workplace, the introduction of a broader perspective informed by the personal experience of employees. Companies also give competitive advantages when they are employing a diverse workforce in hiring new and talent and attracting customers. HR professionals need to secure buy-in from senior management in order to a diversity and inclusion program to succeed. HR professionals obtain buy in to determine that usage of diversity and inclusion program for the strategic goals of the organization and also determine the cases of business in an effective manner.

All involved parties understand their roles and expectation from then when once they buy-in secured, roles and responsibilities will be assigned to diverse stakeholders. From all levels, the HR professionals want to develop a committee or diversity council composed of employees. I must include all type of goals related programs, holding stakeholders accountable for outcomes and promoting diversity and inclusion in the workplace. The employer explains clearly the budget, expectation or performance goals and clearly defines the mission. When the diversity and inclusion committee is absent, then the employer appoints a specialist of diversity and inclusion hiring in the organization. Proper internal and external factors must be determined in case of implementing the diversity and inclusion programs and determine all the major areas of concern that are playing important role implementing the diversity and inclusion program and also measure the diversity outcome in the organization that supports the organization in an effective manner. (peoplescout.com, 2019)

In our final recommendation, we provide better information to company Costco that these all are the main elements that are helping the organization to become successful in all areas and handle all the issue related to business. For better reconstruction the program of organization and benefit design process, it is very important o determine that design of the organization, what are the ways to implement the designs , determine how to value the program, what is the compensation philosophy used in the organization, what are the main legal alignment of the organizations, what are cultural alignment of the organization that support to working at international level, what are the preferences related to workforce that support the organization, what is the usage and benefits of the equity alignment of organization, what are the alignment of organizatio9n at global level and what considerations are important  implement the diversity and inclusion program within the organization. In simple, all elements are very much important to reconstruct the organization and determine what benefits and usage of the different programs in the organization that support the working and run the business in the successful path at an international level are.

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