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Role of employee remuneration in human resource management

This is the 21st century and we human beings, are living in a world which has diversified in all its aspects. The present era has witnessed immense growth and development in all fields, taking into consideration the trend of globalization. The countries in the world have integrated their economy with the rest of the world and this phenomenon has brought about huge change to the companies and organizations. Most of the organization in the world has laid down to its employees a certain set of rules or guidelines which must be abided by to achieve the required goals and objectives. Throwing light on a vital factor - employee remuneration, it is that sect of human resource management which focuses the management to be in accordance with the well being of the employees for overall performance and diversity (Stone, R.J. 2008).

Remuneration is what employees receive in exchange for their work. Includes pay and benefits (total remuneration) or just pay i.e. cash remuneration (Stone, R.J. 2008). Remuneration is one of the most important HRM functions. It can help to reinforce the organization’s key culture and key values and to facilitate the achievement of its strategic business objectives (Stone, R. 2008).Compensation of employees is thus an efficient and effective tool for motivating the employees and obtaining higher level of job performance as well as enhancing the organization’s overall effectiveness. Employee remuneration is of various types for e.g. the piece rate method, time rate method, employee stock ownership plans (ESOP’s), organizational incentives etc. (Siengthai, S. 2008). However, remuneration of employees is a factor that is always not beneficial or even feasible for the human resource department and has its cons. For instance, It is a method of compensation in which remuneration is paid on the basis of units or pieces produced by an employee. In this system emphasis is more on quantity output rather than quality output. The drawback of this system is that it is not easily computable, leads to deterioration in work quality, wastage of resources, lesser unity of employees, higher cost of production and insecurity among the employees. (Siengthai, S. 2008). The time rate method on the other hand, under which remuneration is directly linked with the time spent or devoted by an employee on the job leads to tight supervision, indefinite employee cost, lesser efficiency of employees as there is no distinction made between efficient and inefficient employees, and lesser morale of employees (D. Welch. 2008). Illustrating the other employee remuneration systems such as the group incentives, it’s considered unfair and is less motivating for the higher producer and additionally the organizational incentive plan in which misunderstandings and employee rancor can arise over the question of what is a “normal” ratio (Dowling, P. & Schuler, R. 1994). Nevertheless, all these incentives give scope to an employee to perform better and enhance improvement and job efficiency in the long run.

An organizations general approach to remuneration must be consistent with its overall strategic business objectives. Strategic remuneration on the other hand involves the remuneration practices being aligned with the achievement of the organization’s strategic business objectives (Beardwell, I & Holden, L 2001). Remuneration or incentives to employees can be generally of two types. In certain organizations the non-monetary incentives such as recognition, responsibility performance feedback etc. is a source of motivation whereas for the others the direct rewards such as allowances, bonuses, commissions etc. are more influential. Additionally, the company follows a remuneration program which aims at attracting and keeping the desired quality and mix of employees. As the global financial crisis unfolds, it is the time for the firms to take a balanced approach to reward their employees executively which will be a base for supporting the strategy for human capital.  Remuneration programs must be competitive enough to attract and retain the right talent, and incentive plans must focus executives on the most critical priorities of the business (Carpenter, G. & Wyman, O. 2008). Let’s move on to a country which has abundant amount of skill labor and is one of the fastest developing nations in the world, India. Indian companies are projected to reward employees with an average pay hike of 10.9% next year, a survey has found, marking the return of double-digit salary increases and optimism about the future (Times of India, 2010). Mercer, which is an HR consulting firm conducted a survey that showed that the companies have commenced hiring employees keeping in mind what the last year had brought for them which led to a trimming in the workforce levels in order to cut costs and provide a solid base for competition (Times of India, 2010). Companies should keep in mind that the remuneration program or system is biased may lead to a series of conflicts between the employee and the HRM. The policy of ‘pay secrecy’ in which the pay kept confidential between the employer and the employee should be abolished as it may cause hindrance eventually in the long run to the organization as a whole. It is evident that employees have a major concern over equity in remuneration. Lawler suggests that the secrecy over pay can generate mistrust of the remuneration program, reduce employee motivation and inhibit the organization’s effectiveness (Lawler III, E. 1981). Nevertheless, pay secrecy remains the norm in most private-sector organizations, with some organizations requiring employees to sign confidential agreements. As a result, the organization can introduce a pay compression which comes into force when workers perceive that the pay differential between their pay and that of employees in jobs above or lower them is too small (Fisher, C.D., Schoenfeldt, L.F., & Shaw, J.B. 2003). On the contrary, there are several other criteria on which the employees can be remunerated as the pay secrecy is mainly adopted by organizations that do not have an objective and defensible remuneration program (Lawler III, E. 1981). The merit pay for e.g. in which an increase in salary based on their performance develops a productive, efficient and effective organization enhances employee motivation and performance (Hoevemeyer, V.A. 1989). In addition to that, the skill- based pay – as system that compensates employees on the basis of job-related skills motivates the employees to gain additional skills, competencies and knowledge that will increase their personal satisfaction and value to the organization (Lockyer, C. 1992). Taking into account a Google, a company which has a rep for providing employees with benefits and perks elaborates the whole issue and is one of the main reasons for it being in the top of the market. The tech industry companies in Silicon Valley offer a range of perks and benefits to attract and keep employees. Several offer on-site benefits, which have the added bonus of keeping the employee workforce in the office more often. These industries give employees enough reasons to stick around and eventually notice a hike in the productivity (Strickland, J. 2010). Google employees when signed on at the googleplex get considerable amount of perks. For instance, an employee can schedule an on-site haircut free of charge if there seems to be a trouble during coding sessions. Moreover, employees can head over to the gym which is fully equipped or can play each other in a quick game of pool, billiards or foosball (Strickland, J. 2010). It provides a gentle transition from the academic world into the corporate environment. Most of the Googleplex's facilities and programs continue to attract potential employees. The Googleplex and its programs help put Google at the top of Fortune magazine's 100 Best Companies to Work For list in 2008 (Fortune, 2008). All these factors and issue stated here and above determine the well being of an organization as it may be a sole factor which motivates employees, enhancing productivity and thus meeting its targets and accomplishing the desired goals and objectives.

Remuneration is thus a very critical part of the strategic HRM. The policies and practices should be able to reinforce the behaviors of employees that will help achieve the organization’s strategic business objectives as well as implement the desired culture. Though differences can arise due to remuneration and employees in some circumstances may lose morale, there is may not be a specific system for remunerating employees which is perfect as it deals with the human judgment and may vary in different workplace situations. Nevertheless, a systematic approach to remuneration helps to attract and retain the employees as without it an organization will have difficulty monitoring cost-effectiveness, legal compliance, pay equity etc. (Stone, R.J. 2008). In conclusion, rewarding human resource through the medium of employee remuneration is a very vital instrument of influence as it is possible for the HRM to determine the future goals of an organization with regard to proportional increase in productivity and above all can be of great significance in an employee’s career.

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