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"If we were all paid the same amount for working, life would be very straightforward, but not many of us would be satisfied with the arrangement!"(Torrington,D & Hall, L & Taylor,S 2002)
In today's market, organizations obviously looking for better quality with reduced costs. The economy is going very tough so meanwhile employers are looking more and more from workers and vice versa. So that employee rewards and recognition is necessary to motivate employees for achieving the maximum output of productivity from them.
Human resource management (HRM) is the department of the company that works for recruiting people, managing the labor, and giving the direction for the employees belongs to the company. Employees are the main asset of the organization. The organization with the best employees can lead the market. Employees decide the success of the organization. That's why it is very important for the organizations to utilize their human resources properly and efficiently. Every employee will be paid by their own skills and knowledge. Managers will obviously get more than the supervisor. It is very important that every employee should be paid what they produce. There are many reward policies available that can be applied for the pay and benefits.
"The objectives of a policy towards payment could be described as ' to remain competitive for labor whilst rewarding good performance and adopting a position on pay which controls costs and is felt to be fair by all employees'"(Tyson & York, 2000)
Pay and benefits is the important factors that affect relationships at the work. The standard of distribution of pay and benefits play a significant effect on the output of any organizations and also influence considerably on the morale of the employees. That's why it is important for the organizations to develop the best suitable reward systems for the employees to retain them.
Obviously employees look for the organizations with the better reward system. It is said that,
" You get more of the behavior you reward. You don't get what you hope for, ask for, wish for or beg for. You get what you reward."
- Michael le Boeuf
In modern organizations reward management schemes accounts a major part in motivating employees. Higher the value of employee reward packages, higher the motivation & employee's loyalty in productivity. These reward approaches & strategies in return gain remarkable profits for the organization.
Employee reward packages comprising of incentives, bonuses, promotional awards, perks & allowances going beyond standard remuneration are of mainly 2 kinds -
a) Monetary (financial) rewards
Financial Rewards - Compensation
1. Base Salary
2. Pay Incentives
3. Employee Benefits
b) Non-Monetary (non-financial) rewards
1. Intrinsic Rewards - centers on the work itself
2. Praise, recognition, time off and other rewards given to the employee by peers
or superiors leeds-faculty.colorado.edu
Financial rewards of payment relates directly to monetary in cash incentives in the form of base salary, pension's, compensation, bonuses, discount packages performance - based or competence - based pay share ownership (holding equity bonds & securities in the company), insurance (medical, health & safety).
Base salary - It is the amount of money promised to an employee who is entitled for a specific position for an agreed period of time.
2) Performance - based pay/competence based pay - These pays are paid to
measure the employees quality performances & skills for the output associated to
derive the targeted goals.
This reward strategy is useful in improving the efficiency & skills of the employee
based on organizational objectives. It acts as an additional incentive to the base
salary & the employee is entitled for his extra performance evaluation. These skill
based increments places/pays a greater emphasis in retaining & also increasing
the ability to succeed time to time, thereby giving recognition on the action &
attitudinal performance for the company's objectives. These type of pay ensures
& boosts the staff productivity & motivation leading to company's hierarchy of
success & loyalty. The performance based pay also varies on the type of target &
the level of work that an individual employee inputs in.
PROS & CONS OF PERFORMANCE - BASED PAY/COMPETENCE BASED PAY
a) During the period of low inflation, productivity & skill improvement of an employee
proves as the positive aspect for an increase in pay.
b) Compensation considered as a highly added-value element attracts peers &
subordinates in building a quality team management promoting the company's
c) This type of reward helps in recruiting top managerial skilled executives due to
which gives rise to new responsibilities, policies & objectives.
a) This pay concentrates on the inputs to the organization, rather than on the
outputs for the organization in skill acquisition is favorable only if in return it
can converted to generate profits/sales or incurring the cost manually, e.g.
company investing in training programs for the employee's in learning &
instructors, program designs & planning, time management schedules, materials,
administrative core oriented objectives for smooth running of the organizational
management during inflation & deflation.
b) It is not applicable for some employment sectors wherein quality & personal
services are considered for uplifting development policies & appraisal.
1) Lincoln electric the world leader's in providing design, development &
manufacturers of advanced welding & cutting technologies to world's class
major industries/transportation, fabrication, construction etc follows performance
based pay system. They are one of the oldest " pay of-performance'' systems &
results a benchmark by other businesses & studied by academics around the
world. They reward their employees for their excellent performance.
2) National crushed stone, sand & gravel association, the major producers of
construction aggregates - sand, gravel, crushed stone & the largest mining
trade association in the world follow competency based pay system with the aim for achieving the increase in growth & enhancing the quality & productivity.
3) Baytech plastic company located in the largest plastic producing area of north
American Ontario which engineers, manufacturers, finishes & assembles high-
quality, custom-moulded plastic components for domestic & international markets
follow competency skill based pay system for achieving employees retention &
4) Volkswagen group one of the largest German automobile manufacturing
company in the world develops vehicles, passenger cars & car marques. This
company reaches it's employees flexibility & potentiality through competency
based pay system.
Bonuses & Cash Incentives
These pays are based in the form of variable pays related to the performance
such generating more productivity to meet the marginal utility. The employers
use this method to motivate their staff to achieve a specific goals e.g. in sales.
It is a kind of reward for their hard work. This form of bonus is calculated for a
Pay period for the employee in addition to his base salary, e. g. holiday bonus,
sales bonus, Christmas bonus. This creates a strong bonding between the
organization & the employee.
Bonus schemes are used generally to award the employees contribution towards
company's productivity, profitability, teamwork, safety, quality & other-related
contributions towards organizational success throughout the year, e.g. Christmas
bonus, holiday bonus, dividends & in profit sharing etc.
Bonus is classified as a gratuity payment by the employer to the employee as a
recognization for a well-performed job without affecting the base pay.
Pros & Cons
1) Employers have greater control over remuneration therefore does not affect
His base salary.
2) Higher payments are potential when he gives his best performance output for
The target achieved.
1) Bonuses may be unpredictable & vary. Lower the target, lower the bonus &
vise versa. Bonuses are even halted/stopped due to economic fluctuations.
2) Develops envy among employees as performance depends from person to
3) Does not attract pensions or other contributions, non-consolidated payments
must be re-earned, employees are not suggested to be dependable on bonuses
Therefore payment of bonuses/cash incentives may be either linked to the
quality & / or quantity of work, on an individual or collective basis, or upto the
calculative measures of the company performance therefore profit levels.
Cash incentives are paid in the form of cash award to motivate the employees
for their hard work, e.g. discount vouchers, dinning out vouchers, fuel price
Employees can use money for their own purpose.
2) It is often an initial or impulse choice which do not deal with merchandise
1) Not effective for long run due to the variations in economic fluctuations. To
bear the incentives the company should experience larger amount of profit to
cover up the employee expenses.
2) Cash bonuses are the most appreciated by the employees as the employees
has many options to utilize cash in many ways & considered the most easiest
form of bonus.
3) Employees end up spending money on necessities rather than indulgence
& saving where as other benefits are remembered & valued.
Example for Bonus
Intel an IT multinational corporation company located globally concentrating
software & hardware engineering has introduced giving a 'special Thank You'
bonus amounting to $500 to $1000 depending on the country. Employees in India were paid $500, employees in U.S, Australia, France, Germany & Canada
were paid $1000. The bonus is a mark of appreciation for the employee's outstanding work for the year 2009. This bonus was given in addition to the annual 'employee bonus' & the 'employee cash bonus'.
A leading software technology & consulting company SAP providing software
applications & business support services globally offers quarterly bonuses &
are-off cash incentives to encourage staff to meet the demanding targets &
goals & employee's contribution.
Individual based - scheme
In this method the payment is offered by determining & measuring the employee's
performance individually. The main advantage is that it directly influences the
individual's performance & is not shared among others. Such types of scheme
include, sales commission, holiday trip, e. g. of Individual based scheme.
Kwik Fit financial services - Edinburgh an insurance company voted in one of
Best 100 companies in the U.K, dealing in the areas of customer services, insurance premiums & covers etc, honoured Maureen Paterson with pounds
1000 prize as the insurance intermediary employee of the year. In addition
38 employee were too awarded for their hard work & commitment to the company in an award ceremony.
Perks are allowances & perquisites valued by the employer to retain & motivate the
employees. These are non-way compensations received during in addition to their
normal salaries in kind form. They are also called as fringe benefits. These benefits
include retirement benefit plans, pension, life insurance coverage, health & care
benefits, dental, housing, disable, education, leisure activities etc. An employee
receives perks & allowances at a seniority position.
Pros & Cons
The employer acts as a sponserer to the employee's who are not able to incur &
afford expenses for medical, health, life etc are benefited from these scheme.
It helps in building healthy competition in the organization boosting their morale
& work ethics.
They forfeit & lose their right to file a claim against their employer for any
Misdeeds & exploitations committed to them.
Not all employees are benefited as they have to strive hard to reach the position
With such benefits, higher the position, more the benefits.
Payments by results
These bonus earnings depend on the measured quantities or values of output for individuals or groups, usually based on work studied time units. These include overtime payment, attendance, working on some holidays etc. This payment arises when the employees receive extra earnings for the same level of output.
1) Today's emphasis in pay is concentrated not only on performance of the goals (the finalresult output achieved) but also the input (what the employee contributes to achieve the final result) for example-
a) Healthcare in Britain is undergoing & introducing new concepts of payment on result. The clinicians, managers are paid for the caring delivered. The outcome depends on the measures & process of activity (inputs) as well as in treating the patients with quality services (output).
Cash paid for each unit of output. This is the old form of payment, more common in carpentry & designing industry, sales industry.
Plant /Company based pay
These bonus earnings or pay are based on the measured quantities or rate of output of the organization as a whole. Overall profitability of an organization subjects to the external organizational behavior depreciation, economic changes & productivity improvements by total work force, eternal organizational behavior. Sometimes they are most effective when the organizational turnover profitability is more than marginal utility.
1) The overall profitability of organization makes the employees more aware of the
Contribution & efforts they have input.
2) The pay is the direct link between employee & the organization.
3) This pay encourages greater flexibility & develops ways of working to increase
efficiency for more productivity.
1) This direct pay incentive is also weak in the long run, employees may receive
payments quarterly or annually or when the company is in profit.
2) This pay also affects the employees holding the shares vastly, either allowing
to buy or giving them directly.