Employee compensation consists of three parts: Base pay, pay incentives compensation and benifits. Wages are a big part of the total costs in a company. While employees are dependent on there salaries to survive and develop socially, personally and economically. Depending on the economical situation and the job-market companies can chose to pay a job-based wage or a skill-based wage. In skilled based compensation people with higher degrees or skills get a bigger compensation. Most companies use a job-based compensation where people are payed according to their function in the company.
According to Maja-gomez, Balkin and Cardy (2016) there are several compensation systems:
- Internal Versus External Equity Will the compensation plan be perceived as fair within the company, or will it be perceived as fair relative to what other employers are paying for the same type of labor?
- Fixed Versus Variable Pay Will compensation be paid monthly on a fixed basis—through base salaries—or will it fluctuate depending on such preestablished criteria as performance and company profits?
- Performance Versus Membership Will compensation emphasize performance and tie pay to individual or group contributions, or will it emphasize membership in the organization—logging in a prescribed number of hours each week and progressing up the organizational ladder?
- Job Versus Individual Pay Will compensation be based on how the company values a particular job, or will it be based on how much skill and knowledge an employee brings to that job?
- Egalitarianism Versus Elitism Will the compensation plan place most employees under the same compensation system (egalitarianism), or will it establish different plans by organizational level and/or employee group (elitism)?
- Below-Market Versus Above-Market Compensation Will employees be compensated at below-market levels, at market levels, or at above-market levels?
- Monetary Versus Non-monetary Awards Will the compensation plan emphasise motivating employees through monetary rewards such as pay and stock options, or will it stress non-monetary rewards such as interesting work and job security?
- Open Versus Secret Pay Will employees have access to information about other workers’ compensation levels and how compensation decisions are made (open pay), or will this knowledge be withheld from employees (secret pay)?
- Centralisation Versus Decentralisation of Pay Decisions Will compensation decisions be made in a tightly controlled central location, or will they be delegated to managers of the firm’s units?
(Maja-gomez, Balkin and Cardy,2016)
Secondly there is performance based compensation. Here employees and management get rewarder for their performance on the job. A salesperson who hits the sales targets can get a bonus. Companies use performance based compensation in order to retain highly skilled and motivated employees but also to hit strategic company wide targets.
Performance based compensation does have some issues:
- Employees might focus too much on the set goals.
- People could cut corners hitting the goals in the short term but neglecting long term benefits.
- Setting the necessary KPI’s is difficult as they need to be un biased and relevant to the companies performance.
- Divisions and employees might not reach the goals if they don’t have the necessary support from other divisions or management.
- Creates unwanted competition between departments and employees.
- Increases stress levels as the goals increase, creating unhappy employees.
(Gómez-Mejía, Balkin & Cardy 2016.)
These negatives can me negated by applying several different methods and practices:
- Give different incentives in different situations, not just monetary incentives.
- involve the employees in building an incentive plan to help create support and trust.
- Have realistic goals.
Performance based compensation can be done on and individual level, group-level or organisational level.
On an individual level, compensation is focused on raising the employees skill and performance. Individual performance compensation can motivate people to create a more productive working environment. These compensations can be for one time-goals or repeating goals that have been set. A repeating goal could be X-amount of sales per year. Once this is hit the employee gets a bonus. You can build upon this with different levels of reward depending on the set goals. This can lead to a more individualistic approach where employees won’t work as well in teams. This narrows the focus and can be be counterproductive in certain circumstances.
Team-based compensation can be viewed in two ways. Either a team/department or one physical location of the company. These requirements try to promote team-work and efficiency. These goals are easier to measure as you measure an entire unit instead of a single person. It is also a bit more objective than an individualistic approach. However, this can lead to freeloading. Talking about a single production side these goals are often focussed on productivity or other savings such as material waste or defects.
Company wide compensation means that the goals are set for the entire company. This can mean several things some use share prices as a measurement. Where the company wants to increase its values. Companies can adjust the rewards according to current situations. Some companies give their employees shares which promotes commitment to the company goals and gives a good way to compensate employees.
The puzzle of motivation (Dan Pink)
Dan talks about the discrepancy created between 2 groups, one group was told they would get a reward if they hit a certain target. the other group was told that they are being timed while they work. Contrary to what people think the group who was offered a monetary reward was slower. The experiment was repeated multiple times yielding the same results.
The experiment proved a key flaw with the current compensations systems. When performing repetitive and or production tasks incentives work well however, in the current environment where these tasks get outsourced this doesn’t work anymore. In order to solve this issue an employer so focus more on engagement and autonomy to increase performance. Latter experiments showed that higher autonomy created more engagement and productivity.
What Is Employee Engagement (kruse, 2012)
In this article Kruse talks about how employee happiness and satisfaction does not necessarily constitute higher productivity. Happy employees doesn’t mean that they will stay in the company or work harder. Focussing on engagement works a lot better. Engaged employees have an emotional connection to their job and the company. This makes them more loyal and work better. They will do more than the minimum and deliver higher productivity.
How To Establish A Culture Of Employee Engagement (Kappel, 2018)
Kappel talks on how to increase employee engagement. Employee engagement is necessary to keep your employees on board and increase productivity. He gives 5 ways on how to do it. Employee engagement is the level of commitment, passion, and loyalty a worker has toward their work and company. (Kappel, 2018)
Providing new employees with a good training helps remove frustration. When the new staff know what to do they will work better. Secondly onboarding helps with team integration. New employees need to be integrated properly in their respective teams. This increases teamwork and productivity. Company goals need to be set and communicated. It is key that these goals are are clear and unambiguous.
Acknowledge your employees performance. If they underperform offer training and let employees develop them selves. Acknowledgement and engagement help employees feel valued. Combined with clear goals and the training help engagement. Lastly autonomy is necessary staff don’t like it when they are being micromanaged. This leads to frustration and contributes to a feeling of being unwanted or a liability.
Refrences:
Gómez-Mejía, L.R., Balkin, D.B., Cardy, R.L. 2016. Managing Human Resources. Eight edition, Global edition. Pearson. London
Kappel, M. 2018. How To Establish A Culture Of Employee Engagement. Forbes. URL: https://www.forbes.com/sites/mikekappel/2018/01/04/how-to-establish-a-culture-of-employee-engagement Accessed 7.10.2020
Kruse, K. 2012. What Is Employee Engagement. Forbes. URL: https://www.forbes.com/sites/kevinkruse/2012/06/22/employee-engagement-what-and-why Accessed 7.10.2020
Pink, D. 2009. The puzzle of motivation. TED. URL: https://www.ted.com/talks/dan_pink_on_motivation Accessed 7.10.2020
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