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e-Sonic Compensation Project

Updated on February 13, 2017

History of Compensation

A good employer offers a fair employee compensation and benefits package in addition to respecting workers' rights. However this approach to a pro-labor workplace did not always exist. In order to create a fair compensation package that both attracts and retains employees it is important that employers understand the history behind modern compensation.

During the pre-industrialization period people treated the home and the workplace as one single unit, where the men and the woman would share tasks between them, but that changed with the rise of machines and factories. The industrialization caused a greater belief in stereotype gender roles and socio-economic hierarchy. This resulted in middle class families having the male head of the family working while the females stayed at home and did domestic work and raised the children. In poor families everyone was sent out to work in separate workplaces for often small salaries and no benefits.

Everything changed when the war happened; men joined the military and women were recruited into traditionally male dominated jobs, yet they were not provided with economic rights or protections. The long hours with little pay and no benefits led to organized protests and workers’ strikes. Eventually unions were formed as was the International Labor Organization (ILO) whose goal was to

promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue in handling work-related issues. The ILO encourages tripartism where representatives from state governments, employer organizations, and labor groups participate in consultations to identify ideal labor standards and policies (The Good Employer, n.d.).

It was the International Labor Organization and the formation of unions that eventually gave rise to the modern approach to compensation.

E-Sonic Executive Summary

The company known as e-sonic is a subsidiary of Sonic Records; as a subsidiary of Sonic Records e-sonic became responsible for creating an online music store that had the capability of competing with established players in the online music industry (Barcelona & Martocchio, 2015). E-sonic’s compensations systems have been evaluated utilizing a strategic analysis. The strategic analysis was completed with the purpose of acting as a guide for future decisions that will be made in relation to the compensation systems of e-sonic. The proceeding strategic analysis exposes the strengths, weaknesses, challenges, and objectives that e-sonic faces based off of the examination of: external market environment, industry profiles, competition, foreign demand, long-term industry prospects, labor market assessments, functional capabilities, and human resource capabilities.

Sonic Records was generating over $15 billion in revenues at five years of age; however, as of a few years ago Sonic Records found their revenues reduced by 30 percent due to CD burning, international piracy, legal online music purchases, and a shift in consumer preferences. The Recording Industry Association of America (RIAA) has been fighting pirate file-sharing websites as well as individuals who get pirated music through lawsuits and litigation; this has helped to deter illegal downloading.

One of e-sonic’s main weaknesses is the lack of employees with talent in software development, digital media, market analytics, and online management in their main company of Sonic Records. This will cause a need to either train current employees in new skill sets or the hiring of new employees with the required skill sets. In order to motivate current employees to gain new skills and to attract new employees to fill the required roles e-sonic would need to create a new compensation system.

E-sonic will also face competition from already established online music stores like: iTunes, AOL music, Amazon MP3, eMusic, Rhapsody, and Napster. In order set themselves apart from the competition e-sonic will need to establish their brand name and software platform as something unique from other online music stores in order to draw in customers. E-sonic should focus on expanding their consumer base to include Europe and Asia; According to the International Federation of the Phonographic Industry (IFPI) in 2014 Europe has the highest demand for digital music with $5.36 billion in revenues from online music, the United States has the second highest demand with $5.24 billion in revenues, and Asia has the third highest with $3.33 billion in revenues (IFPI, 2015). The current prospects for the digital music industry are positive and they are expected to continue to prosper in the future. In order to prosper e-sonic will need to understand that many of the employees that they will be training and/or hiring will need to either possess or learn different skill sets than those needed by Sonic Records. Employees at e-sonic will need to have skills in customer service, software development, digital media, market analytics, and online management. In order to encourage their employees e-sonic should make use of pay-for-performance as well as a pay-for knowledge programs; these programs would compensate employees who perform above expectations as well as employees who have the knowledge that the company needs (Barcelona & Martocchio, 2015). These programs would reward e-sonic employees for their efforts which would help to make e-sonic the world’s leading online music store.

Strategic Analysis

The company known as e-sonic is a subsidiary of Sonic Records; as a subsidiary of Sonic Records e-sonic became responsible for creating an online music store that had the capability of competing with established players in the online music industry (Barcelona & Martocchio, 2015). The identity of e-sonic’s industry is based on the North American Industry Classification System (NAICS); e-sonic’s industry identification involves two different NAICS codes: 516110 and 512220. The United States Census Bureau has categorized 516110 as “Internet Publishing and Broadcasting” and is comprised of

establishments engaged in publishing and/or broadcasting content on the Internet exclusively. These establishments do not provide traditional (non-Internet) versions of the content that they publish or broadcast. Establishments in this industry provide textual, audio, and/or video content of general or specific interest on the Internet. Internet content paid for by subscriptions, pay-per-view, membership fees, fees for downloads, and

fees for other forms of licensed access (U.S. Bureau of Census, 2002).

The second NAICS code 512220 has been categorized as “Integrated Record Production/Distribution” by the United States Census Bureau and it is comprised of

establishments primarily engaged in releasing, promoting, and distributing sound recordings. These establishments manufacture or arrange for the manufacture of recordings such as audio tapes/cassettes and compact discs, and promote and distribute these products to wholesalers, retailers, or directly to the public. Establishments in this industry produce master recordings themselves, or obtain reproduction and distribution rights to master recordings produced by record production companies or other integrated record companies (U.S. Bureau of Census, 2012).

E-Sonic’s External Market Environment

There are five elements of the external environment that the strategic analysis will examine within e-sonic. The five elements are: industry profile, competition, foreign demand, industry long prospects, and the labor market assessment (Barcelona & Martocchio, 2015). E-sonic was created as a subsidiary of Sonic Records due to the declination of the public’s demand for physical music CS’s. The lack of experience with software development, digital media, market analytics, and online management among Sonic Record’s employees could result in the need to either recruit new employees with talent in software development, digital media, market analytics, and online management or the creation of a training program for current employees. In order to motivate current employees to gain new skill and to attract new employees to fill the required roles e-sonic would need to create a new compensation system.

Industry Profile

Sonic Records was generating over $15 billion in revenues at five years of age; however as of a few years ago Sonic Records found their revenues reduced by 30 percent (Barcelona & Martocchio, 2015). Sonic Records found that this reduction in revenues was an effect of CD burning, international piracy, legal online music purchases, and a shift in consumer preferences. A recent market survey at colleges and universities across the United States exposed the fact that more than 80 percent of the students surveyed had not purchased a CD in the last seven years. The Recording Industry Association of America (RIAA) has been fighting pirate file-sharing websites as well as individuals who get pirated music through lawsuits and litigation. The fear of facing a lawsuit and litigations has helped to deter illegal downloading. The launch of legal online music stores has seen positive results from consumers. The success of these online music stores inspired Sonic Records to create e-sonic in order to adapt to consumer demands. However Sonic Record does not currently have employees with skill sets in software development, digital media, and online management, the results of this being that Sonic Records will need to either hire new employees or create a training program for those currently employed by their subsidiary company. The current lack of employees with the needed skill sets would make a pay-for-knowledge compensation program a good choice for e-sonic as it would offer incentive pay towards employees who learn the skills needed by e-sonic and who contribute to increase sales.

Competition

The fact that e-sonic is a subsidiary of Sonic Records means the company has an established brand name that is already known by the customers of Sonic Records. However e-sonic will have to establish a distinguishing feature in order to set them apart from other online music stores like: iTunes, AOL music, Amazon MP3, eMusic, Rhapsody, and Napster. In order to set themselves apart from the competition e-sonic needs to establish their brand name and software platform as something unique from other online music stores in order to draw in customers. While e-sonic’s mission might be to “create the world’s leading online music store; ensuring Sonic Records’ prominence in the record industry’s future” the company first needs to attract customers and keep them loyal so as to prevent them from resorting to piracy (Barcelona & Martocchio, 2015).

Foreign Demand

According to the International Federation of the Phonographic Industry (IFPI) in 2014 Europe has the highest demand for digital music with $5.36 billion in revenues from online music, the United States has the second highest demand with $5.24 billion in revenues, and Asia has the third highest with $3.33 billion in revenues (IFPI, 2015). As of 2010 Eastern Europe had 37.5 million paid music download users; it is estimated that in 2014 there were 69.5 million paid music download users (Research and markets: Eastern Digital Music Forecast, 2010). Asia has perhaps one of the largest demands for online music; however Asia also has the biggest black market in digital music with more than 350 million knockoff CD’s that are constantly being ripped, burned, and transferred to PCs and MP3 music players (Bremner, 2007). There is also a good amount of opportunity for online digital music stores like e-sonic in Asia with about 85 percent of the $4.2 billion in digital music sales in Asia being downloaded via music-enabled handsets devices; the introduction of Apple iPhones and iPods are expected to cause the demand for digital music in Asia to steadily increase. E-sonic could expand their revenues through expanding their company to include foreign countries, specifically Europe and Asia.

Long-Term Industry Prospects

The current prospects for the digital music industry are positive and they are expected to continue to prosper in the future. Digital music sales are expected to continue to increase as mobile music devices continue to be improved upon and become more prevalent than CD players, however with the rise in digital music downloads also comes the risk of music piracy. Steve Meyer, a former executive with Capitol and MCA Records advises that

labels need to accept the world we’re living in — people are downloading, and there’s no way to turn back the clock or stop the pace of technology. In addition to searching for new online models, Meyer recommends that firms and artists recognize that putting music on iTunes at least guarantees some revenue (Lawrence, 2010).

The digital music industry is expected to evolve to include not just pay per download, but also music subscription services.

Labor-Market Assessment

The goal behind a labor-market assessment to understand the current labor supply as well as future trends that may influence the level of obtainability of qualified employees for e-sonic. In order to understand the current labor supply e-sonic can study the employees at their main company, Sonic Records. It is important that e-sonic understand that many of the employees that they will be training and/or hiring will need to either possess or learn different skill sets than those needed by Sonic Records. Employees at e-sonic will need to have skills in customer service, software development, digital media, market analytics, and online management. E-sonic will need to understand the job worth of these positions and the training that these employees will need in order to stay current with online trends. E-sonic will need to understand the predicted job worth for the positions in the future, the availability with people who have the skills needed for the positions in the future, and the cost of training people to make up for a possible deficit in people with the needed skills.

Functional Capabilities

When considering the functional capabilities of e-sonic it is important to consider the goal behind e-sonic: to “create the world’s leading online music store; ensuring Sonic Records’ prominence in the record industry’s future” (Barcelona & Martocchio, 2015). Since e-sonic’s goals is to be the world’s leading online music store the company must set themselves apart from their competition. This fact ensures that e-sonic’s must maintain strong functional capabilities of research and development in order to create and maintain a unique image, talent acquisition and retention to allow e-sonic to have the employees they need in order to take their company to the next level, and marketing in order to ensure e-sonic and Sonic Records’ prominence in the record industry’s future.

Human Resource Capabilities

Human Resource capabilities are evaluated based on the strengths and weaknesses of e-sonic’s employees in order to create a compensation system that encourages employees to help make e-sonic the world’s leading online music store. In order to encourage their employees e-sonic should make use of pay-for-performance as well as a pay-for knowledge programs; these programs would compensate employees who perform above expectations as well as employees who have the knowledge that the company needs (Barcelona & Martocchio, 2015). These programs would reward e-sonic employees for their efforts towards the company which would help to make e-sonic the world’s leading online music store.

Job Descriptions

Software Engineer

Job Summary

The software engineer develops, designs, and modifies e-sonic’s software platform. In addition the software engineer may set operational specifications, formulate and analyze software requirements, and/or be required to design embedded systems software. The software engineer reports to the software project manager and must be comfortable working in a team environment.

Job Duties

  • Uses computers and computer systems to program, write software, set up functions, enter data, and/or process information
  • Analyzes information and evaluates results to choose the best solution
  • Develops, designs, modifies, or creates new applications, systems, or products
  • Manages information technology projects or system activities
  • Develops testing routines or procedures
  • Monitors computer system performance to ensure proper operation
  • Modifies software programs to improve performance

Worker Specifications

  • High School Diploma is required
  • Minimum four year computer science degree

Market Research Analyst

Job Summary

The market research analyst collects and analyzes data on customer demographics, preferences, needs, and buying habits to identify potential markets and factors affecting e-sonic product demand. The market research analyst must possess strong research, analytical, and interpersonal skills. The position reports to the director of market analysis.

Job Duties

  • Researches market conditions in local, regional, or national areas
  • Creates marketing campaigns
  • May gather information on competitors, prices, sales, and methods of marketing and distribution
  • Prepares reports of findings, illustrating data graphically and translating complex findings into written text
  • Devise and evaluate methods and procedures for collecting data, such as surveys, opinion polls, or questionnaires, or arrange to obtain existing data
  • Supervises e-sonic employees
  • Prepares research reports
  • Conducts surveys within e-sonic
  • Develops business or market strategies

Worker Specifications

  • High School Diploma is required
  • Minimum four year college degree in a business related discipline

Customer Service Agent

Job Summary

The customer service agent confers with e-sonic clients via telephone, e-mail, and live web chats; providing information about e-sonic’s products and services, opening and cancelling customer accounts, and keeping records of complaints. All customer service agents report to the director of customer service.This position requires excellent client relation skills, attention to detail, and some experience dealing with customer related concerns in a business enviornment.

Job Duties

  • Confers with customers by telephone, e-mail, or in person to provide information about products or services, take or enter orders, cancel accounts, or obtain details of complaints
  • Checks to ensure that appropriate changes were made to resolve customers' problems
  • Keeps records of customer interactions or transactions, recording details of inquiries, complaints, or comments, as well as actions taken
  • Collect deposits, payments or fees
  • Resolves customers' service or billing complaints by performing activities such as exchanging merchandise, refunding money, or adjusting bills
  • Coordinates operational activities
  • Completes contract forms, prepare change of address records, or issue service discontinuance orders, using computers.

Worker Specifications

  • High School Diploma is required
  • Experience dealing with customer related concerns in a business related environment is preferred

Copy Writer

Job Summary

The copy writer drafts advertising copy, both print and internet, for the promotion of e-sonic’s internet music portal. While many firms choose to outsource this function to an outside advertising agency e-sonic has chosen not to due to the importance of the marketing function to e-sonic’s business objectives.

Job Duties

  • Writes advertising copy for use by publication or broadcast media to promote sale of e-sonic’s goods and services
  • Writes to customers in their terms and on their level so that the advertiser's sales message is more readily received
  • Discusses advertising themes and methods, and any changes that should be made in advertising copy with e-sonic
  • Presents drafts and ideas to e-sonic
  • Writes advertising or promotional material
  • Develops promotional strategies or plans
  • Edits written material

Worker Specifications

  • High School Diploma is required
  • Minimum four year college degree in marketing, advertising, or creative function, coupled with a portfolio of related work

Job Structures

Administrative
Software Development
Sales and Marketing
Customer Service
Executive Assistant
Director of Software Development
Marketing Director
Director of Customer Service
Administrative Assistant
Software Project Manager
Director of Market Analysis
Customer Service Manager
Office Manager
Software Engineer
Creative Director
Customer Service Agent
 
Software Testing
Artist Relationship Manager
 
 
 
Marketing Research Analyst
 
 
 
Copy Writer
 

Determine Appropriate Pay-Policy Mix

In order to determine an appropriate pay-policy mix e-sonic would need to take a survey on the topic of what digital music companies are paying their employees so as to avoid over and under compensating their employees. An appropriate pay-policy mix should include base pay, benefit cost, short-term incentives, and long term incentives. A benefits package could include discretionary benefits such as: protection programs, pay for time not worked, and services; any legally required benefits would also be included in the package.

According to the U.S. Bureau of Labor Statistic

Total employer compensation costs for private industry workers averaged $31.70 per hour worked in December 2015. Private industry employer costs for paid leave averaged $2.18 per hour worked or 6.9 percent of total compensation, supplemental pay averaged $1.06 or 3.3 percent, insurance benefits averaged $2.54 or 8.0 percent, retirement and savings averaged $1.25 or 4.0 percent, and legally required benefits averaged $2.54 per hour worked or 8.0 percent. Supplemental pay costs for private industry workers in December 2015 averaged $1.06 per hour worked or 3.3 percent of total compensation. Supplemental pay includes employer costs for employee overtime and premium pay, shift differentials, and nonproduction bonuses (Employer Costs for Employee Compensation, 2016).

It was reported that the national average for wages and salaries was $23.06 per hour worked and accounted for 68.7 percent of these costs, while benefits averaged $10.52 and accounted for the remaining 31.3 percent (Employer Costs for Employee Compensation, 2016). When creating a benefits package it is important that e-sonic takes into account the national averages; e-sonic should also take care to create a clear description of the benefits packages that clearly shows and notifies the positions that are eligible and not eligible for the benefits packages.

Pay-Policy Level Decisions

Software Engineer

The software engineer that e-sonic is looking to compensate is considered software development III. This conclusion was drawn from previous research on the benchmarks and job descriptions of this position. The conclusion reached was that the position would require a total of 900 points in the compensable factors. According to Salary Wizard, the median hourly wage of a software developer III working in Los Angeles is $47 with median base salary being $98,517. The position of software engineer offers a median bonus rate of $4,279; the position offers a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off. The proposed base salary for this position should be $96,137 with possible bonuses of up to $4,000; the position should receive a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off.

Market Research Analyst

The market research analyst that e-sonic is looking to compensate is considered Analyst II. This conclusion was drawn from previous research on the benchmarks and job descriptions of this position. The conclusion reached was that the position would require a total of 750 points in the compensable factors. According to Salary Wizard, the median hourly wage of a market research analyst working in Los Angeles is $31 with median base salary being $ 63,611. The position of market research analyst offers a median bonus rate of $1,881; the position offers a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off. The proposed base salary for this position should be $59,236 with possible bonuses of up to $2,000; the position should receive a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off.

Customer Service Agent

The customer service agent that e-sonic is looking to compensate is considered Operations II. This conclusion was drawn from previous research on the benchmarks and job descriptions of this position. The conclusion reached was that the position would require a total of 775 points in the compensable factors. According to Salary Wizard, the median hourly wage of a customer service agent working in Los Angeles is $18 with median base salary being $41,477. The position of customer service agent offers a median bonus rate of $843; the position offers a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off. The proposed base salary for this position should be $46,098 with possible bonuses of up to $800; the position should receive a benefits package that includes: 401K/403B, disability, social security, healthcare, pension, and paid time off.

Implementation of Salary Survey Results

In order to create a compensation package that is budget conscious and meets the needs of all e-sonic employees, e-sonic will need to account for many different factors. E-sonic will need to take into account what their competitors offer their employees in both wages and benefits. E-sonic will need to look at online music stores such as: iTunes, AOL music, Amazon MP3, eMusic, Rhapsody, and Napster in order to create competitive wages that will attract new employees as well as assist in the retention of employees.

E-sonic will need to implement the research gathered from the compensation survey in order to pay their employees at a competitive rate; the compensation survey is based off of data from 2013 through 2016. The salary and benefits that e-sonic will offer their employees will be based off of the compensable factors chosen for each position as well as the degree to which each employee possess that skill, knowledge, or ability. The pay grades and ranges were created from research into current wages and benefit packages offered to employees in similar positions in other companies and organizations. Positions that require more specific training similar to that of the software engineer and the market research analyst should start with a higher base pay than the customer service agent who does not need the same level of specialized training. It is likely that e-sonic will have to alter the wage and benefit package that they offer in the future in order to keep up with the competitive rate as market trends change. To this end e-sonic needs to have a compensation system that is flexible and can change in order to align itself with current and future market trends.

Tailoring the E-sonic Compensation Package

I utilized research, strategic approach, communication, analytical skills, and problem-solving in order to create a compensation package that was tailored for the subsidiary of Sonic Records, e-sonic. I based my compensation package off of the fact that the lack of experience with software development, digital media, market analytics, and online management among Sonic Record’s employees could result in the need to either recruit new employees with talent in software development, digital media, market analytics, and online management or the creation of a training program for current employees. I used a strategic approach to research in order to find the average salary for employee positions in e-sonic’s competitors. I then used analytical and problem solving skills to come up with salaries that would attract employees to e-sonic. The benefits are based off of statistics gathered from Salary Wizard.

The compensation package that I created for e-sonic is based off of e-sonic’s need to attract and retain employees with desirable skill sets. The compensation package should be reevaluated in five year intervals to ensure that the compensation package meets the needs of the company and the employees as the company evolves and as the market changes in order to keep that package up to date with their competitors.

References

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http://www.whoi.edu/HR/page.do?pid=20300

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IFPI. (2015, April). IFPI publishes Digital Music Report 2015. Retrieved February 28, 2016, from http://www.ifpi.org/news/Global-digital-music-revenues-match-physical-format-sales-for-first-time

Lawrence, R. (2010). Can the Music Industry Adapt to The Digital Future?. Region Focus, 14(3), 26-27.

Martocchio, J. (2014). Strategic compensation: A human resource management approach (8th ed.). Upper Saddle River, NJ: Prentice Hall.

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The Good Employer (n.d.) Retrieved from http://researchedworks.com/history-employee-compensation-benefits.php

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United States Department of Labor. (2015). Bureau of Labor Statistic. Retrieved from http://www.bls.gov/news.release/ecec.nr0.htm

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