Understanding Employee Compensation

It is a well established fact that employees look at what they take home seriously.

At the end of the day, their remuneration is what they take home to their families.

Economic times have changed, sometimes for worse, but currently things are looking up.

Firms had to cut down on the amount they spend on wages and

salaries due to the global economic slam that was with us a few years ago.

This meant that there was very little chance for employers to increase salaries.

Things are far much better now, and companies definitely have to evaluate their compensation strategies.

Performance Linked Compensation

It makes a lot of sense for a company to pay that particular employee whose performance has contributed significantly towards the revenue and
the growth of the business more than other employees.
That is what per performance pay refers to.
A basic pay may exist as a common platform for all employees,
but those employees who go the extra mile to ensure the company attains its goals and objectives are paid more.
The only tricky bit lies in measuring performance. Objective measures should be applied to avoid bias.
This approach is indeed what most companies are currently resulting to, though many firms had put it on hold during the fore-mentioned adverse times.
It has the benefit of ensuring that only those whose performance is beyond average get the perks, though critics argue that it is discriminatory.
It is a good model to use, as long as objectivity is maintained.
It is worth noting that performance appraisals can be very useful in determining the performance of an individual.
HR software with performance review capabilities should be employed where necessary to ensure that the pay of an employee is commensurate with his or her contribution to the business.
Even though there are quite a few different packages in the market, BreatheHR is one of the best in terms of value for SMEs. For bigger organisations Peopleres offer some great packages.

Across the Board Increments

This is an older approach whereby employees’ salaries are increased across the board. It does not in any way take into account the individual’s performance.
Employees’ salary is increased en masse without considering performance. The raise is usually percentage based, in the range of 1 to 10%.
All employees benefit from this approach. Most companies are however moving away from this approach in a bid to strategies that increase productivity.
Many argue that employees are not motivated to go an extra mile, because they know the increase will be automatic.
Others further argue that it demoralizes the best employees in the firm because they work so hard to achieve organizational goals,
yet no one appreciates their contribution. If anything, they think that other employees ride over their glory.

Effect of Culture

Organizational culture has an impact on the approach adopted by the management.
Some businesses would like to depart from across the board increments but the culture in existence has made it difficult to break away from the traditional way of doing things.
However, the management styles should strive to ensure that merit based approaches are used in determining how much an employee takes home.
Organizations should be flexible enough to adopt an approach that suits the existing economic times.
This post was written by James Ross who has spent the last 5 years in HR Management.
James has teamed up with HR Management company to bring you the best knowledge in HR.
James likes writing, cycling and travelling in his free time.
He is hoping to raise money for a local charity which helps disabled children.