Competitive Imperatives of Compensation

Compensation is what employees receive in exchange for their contribution to the organisation. Generally, employees offer their services for three types of rewards. Pay refers to the base wages and salaries employees normally receive. Compensation forms such as bonuses, commissions and profit sharing plans are incentives designed to encourage employees to produce results beyond normal expectation. Benefits such as insurance, medical, recreational, retirement, etc., represent a more indirect type of compensation. So, the term compensation is a comprehensive one including pay, incentives, and benefits offered by employers for hiring the services of employees. In addition to these, managers have to observe legal formalities that offer physical as well as financial security to employees.… Read the rest

Equity and Fairness of Employee Compensation Systems

Compensation is key to organisational strategy. It has an impact on attracting and retaining employees and ensuring optimal performance in meeting the organisation’s objectives. The economic importance of compensation is that it should allow the organization to maintain a cost structure that enables it to compete effectively and efficiently in its markets.

Adams equity theory suggests that once an individual has chosen an action that is expected to satisfy his or her needs, the individual assesses the equity or fairness of the outcome. Three attitudes are possible; an individual may feel equitably rewarded, under rewarded, or over rewarded. When individuals feel under rewarded or over rewarded, they will do something to reduce the inequity.… Read the rest

Types of Financial Rewards in Modern Organizations

Financial reward can be seen as a motivational factor, where employees may benefit, either from promotion or a bonus, it could be seen as an appraisal system.  Mainly there are three types of financial rewards within organisations; individual performance related pay, profit related pay and skill based pay are the fundamental for both organisation and employees.   Every organisations aim is to save cost at all expense but retain a better performance from employees, whereas employees seek to earn extra more from the organisation. It is an obvious fundamental for employee’s lifestyle as their contribution and duties to perform their job effectively and expectation are to be met due to their hard work, however such individual performance related pay as well as skill based pay and profit relative pay is all beneficial to employees as performance and productivity is enhanced, thus motivation is increased and cost is made, as well as saved.… Read the rest

Global Compensation Practices

For many companies, maintaining a domestic compensation program  that supports the strategic goals of the organization and meets the needs of  employees is a difficult challenge. This challenge is intensified when a similar  program must be designed to operate in multiple countries with different  cultures. For organizations competing in a global marketplace, managing compensation requires a through understanding of the taxation of compensation  and benefits, differing state social systems, differences in living standards and  employee values and expectations.

Some of the most challenging questions in  compensation practices are following:

  1. How does a company pay expatriates from difference home countries  brought together to work on a project?
Read the rest

Wage Issues under Collective Bargaining

Almost all contract negotiations pivot upon, and most grievances and  arbitration procedures thus ultimately deal with, four major areas : (1) wages  and issues that can be directly related to wages; (2) employee benefits or  economic “fringe” supplements to the basic wage rate; (3) “institutional” issues  that deal with the rights and duties of employers and trade unions; and (4)  “administrative” clauses that treat such subjects as work rules and job tenure.

Probably no issues under collective bargaining continue to give rise to  more difficult problems than do wages and wage-related subjects. When  negotiations reach a stalemate, they frequently do so because management and trade union representatives are not able to find a formula to resolve wage disputes.  … Read the rest

Profit Sharing as an Incentive Scheme

Profit sharing is the most popular method rewarding the employees.  Under profit sharing incentive plan, the employees are paid in addition to the regular wage, a particular  share of the net profits of the business as incentive.

Characteristics of Profit Sharing Incentive Plans

The key features of profit sharing incentive plans may be stated as follows:

  • It is based on an agreement between the employer and the employees.
  • It is a payment made after ascertaining the net profits of the business. It  is not therefore, a charge on profits.
  • The amount paid to the employees is over and above their normal pay.
Read the rest