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The Effects of Compensation on Employees Work Performance
HRM strives to achieve organizational goals and employee goals through effective personnel programs policies and procedures. Successful performance of employee functions can greatly increase the bottom line of any organization. Staffing practitioners, however, are challenged by a changing and more demanding workforce that has higher expectations about the workplace today than at any time in history. At the same time, rapidly advancing technologies and outside influences are changing the nature of our work. Thus it is very important and more difficult to maintain a work environment that motivates and satisfies the human resources.
Edward Flippo says: “Planning, organizing, directing and controlling the acquisition, development compensation, integration, maintenance and separation of human resources to meet individual, organizational and social objectives is called personnel management.”
According to Wayne. F. Cascio “Compensation that includes direct cash payments, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity. Top management philosophy regarding collective bargaining, government laws and pay and benefits”
Compensation can be defined as money received for job performance and various types of benefits and services that organizations provide to their employees.
Compensation is compensation, reward, remuneration, or salary given by an organization to an individual or group of individuals in exchange for work performed, services rendered, or contributions to the achievement of organizational goals. Wages, dearness allowances, bonuses and other allowances are examples of monetary compensation, while good housing, children’s education, transport facilities, subsidized ration of essential items etc. come under non-monetary compensation. In short, wages paid to collar workers or wages paid to white collar workers can be classified as compensation.
A good compensation package is a good motivator. Therefore, the primary responsibility of the HR manager is to ensure that the employees of the company are well paid.
Objectives of Compensation:
To attract competent applicants. To retain current employees so they don’t leave. Employees are motivated to perform well. Reward desired behavior. To ensure equity. To control costs. Facilitate easy understanding by all staff operating managers and HR staff.
Remuneration paid to an employee/worker periodically, for service of labor in production. Remuneration means any financial compensation paid by an employer to his workers under a contract for services rendered by them. Generally, the wages of production and maintenance workers refer to hourly rates paid to groups such as family allowances, relief, salaries, financial assistance, etc.
Salary is influenced by the size of the company by the specific industry, and partly by the present’s contribution to the decision-making process. Salary refers to the weekly or monthly rates paid to clerical, administrative and professional staff. Salary is determined by mutual agreement between the individual and the employer.
An incentive scheme is a plan or program to stimulate industry or group performance. An incentive program is often made monetary, but it can also include various non-monetary prizes or awards.
Effective use of incentives depends on three variables. They:
2. Working conditions.
3. Incentive Scheme.
Factors Affecting Compensation:
1. Organization’s ability to pay
2. Industry Prevailing Salaries and Benefits:
3. Compensation and availability of specially competent personnel in the industry
4. Flexibility, i.e. types of competences and abilities in managers:
5. Individual performance/productivity/responsibilities.
6. Be a leader or pay the prevailing rate as per the organization philosophy.
7. Qualifications and relevant experience.
8. Stability of employment and advancement opportunities.
“Compensation literally means to counterbalance for an offset, and to make up for it. It implies an exchange. Compensation translates to different meanings across countries and even overtime.”
According to GT Milkovich and Bloom, “Perceptions of compensation also vary across countries. Some in society may see pay differentials as a measure of justice.
For a stockholder, executive pay is of particular interest. In the United States stock options are generally believed to tie executives’ pay to a company’s financial performance.
An employee may view compensation as an exchange for services rendered or as a reward for good work. For some, compensation reflects the value of their individual skills and abilities, or reimbursement for the education training they have acquired. The remuneration an individual receives for the work he or she does is generally a major source of personal income and financial security and therefore an important determinant of personal economic and social well-being.
Managers also have a stake in compensation: it directly affects their success in two ways. First, it is a major cost competitive pressure both internationally and domestically, forcing managers to consider the affordability of their compensation decisions. Studies show that the labor cost of many enterprises is more than 50% of the total cost. In some industries, such as service or public employment, the number is even higher.
In addition to treating pay as an expense, a manager also treats compensation as a potential effect on employee work attitudes and behaviors and their organization’s performance. The way people are paid affects the quality of their work, their attention to customer needs, and their willingness to be flexible and learn new skills, to suggest innovations and improvements, and to take union or legal action against their employer.
Total compensation includes payment received directly in cash (eg, base salary, merit raises, incentives, and cost of living adjustments) or indirectly through benefits and services (eg, pension, health insurance, paid time off). An unlimited number of employee compensation programs can be designed, and a single employer typically uses more than one program. Major categories of compensation include basic wages, merit pay, short- and long-term incentives, and employee benefits and services.
A basic wage is the basic cash compensation that an employer pays for work done. Base wages reflect the value of a job or skill and typically ignore differences for individual employees. Some pay systems set a basic wage as a function of the skills or education the employee has; This is common for engineers and scientists. Periodic adjustments to base wages may be made based on changes in the overall cost of living or inflation, changes in what other employers are paying for similar work, or changes in employees’ experience/performance/skills.
Incentives link pay directly to performance. Sometimes referred to as variable compensation, incentives can be long- or short-term, and can be tied to the performance of an individual employee, team of employees, combination of individuals, team of employees, total business unit, or some combination of individuals. , joint unit. Performance objectives may be defined as cost savings, production volume, meeting quality standards, revenue, return on investment or increased profitability; The possibilities are endless.
Long-term incentives are intended to focus employee efforts on multi-year results. Top managers or professionals are often offered stock ownership or bonuses to focus on long-term organizational objectives such as return on investment, market share, return on net assets and so on. Coca-Cola awards shares of stock to selected “key contributors” who have made an outstanding contribution to the firm’s success. Microsoft, Pepsi, Wal-Mart and Procter & Gamble offer stock options to all of their employees. These companies believe that having a stake in the company supports a culture of ownership. Employees will behave like owners.
Incentives and merit pay are different. Although both can influence performance, incentives do so by offering a payment to influence future behavior. Merit, on the other hand, recognizes past excellence. The difference is a matter of time. Incentive systems are offered before actual performance; Merit payments, on the other hand, are usually not communicated in advance.
The National Labor Commission makes the following recommendations regarding incentives:
(a) The use of incentive schemes should generally be selected and limited to industries and occupations where the output of workers or groups of workers concerned can be measured on a consensual basis and a reasonable degree of control over its quality can be maintained. .
(b) Incentive schemes should embrace as many employees of the enterprise as possible and need not be limited to operative or direct workers.
(c) A careful selection of occupations should be made to initiate the incentive scheme with the help of a work-study team under the command of the confidence of both employers and employees. The incentive plan needs to be simple so that employees are able to understand its full implications. Employers need to ensure that incentive schemes are not adversely affected by external factors such as availability of raw materials and components, difficulties in transportation and stockpiling.
(d) There should be a provision of full back wages as a safeguard against the production not giving incentive wages on one day and unemployment on the next day.
(e) According to Subramanian, there are several pre-conditions for effective establishment and operation of payment system:
a.) It should be developed and introduced with the involvement of the concerned workers in a harmonious environment of industrial relations.
b) Prior to establishing work-study incentive programs.
c) Before formulating the incentive plan, the salary structure should be rationalized based on job evaluation.
d) An effort should be made to define the objectives to be achieved through incentives and to choose a plan that is suitable for completion accordingly.
Benefits and Services
Fringe benefit systems are said to provide a sense of personal security against life’s risks and problems with the aim of developing an environment for healthy employer-employee relations, minimizing excessive labor turnover costs and ultimately increasing employee loyalty to the company and improving productivity.
M.Chandra clearly describes the fringe benefits provided by employers to their employees under statutory provisions or on a voluntary basis. The social services provided in the manufacturing industries under the Factories Act, 1948 include canteen, rest house, crèche, storage or lockers, accommodation, bathing and washing facilities and other facilities including appointment of welfare officer during festivals, year-end. Profit sharing, attendance and production bonus, safety equipment, free supply of food items at subsidized rates. The Social Security System provides benefits such as Provident Fund, Employees’ State Insurance (ESI) Scheme, Exemption Compensation, Employment Injury Compensation, Maternity Benefit, Gratuity, Pension, Dependent Allowance and Contribution to Pension and Gratuity Claims.
Apart from this, other facilities enjoyed by the workers include medical and health services, restaurants, cooperative credit institutions and consumer shops, company accommodation, house rent allowance. Recreational and cultural services, clubs, cash assistance. Some employers also provide education, transport facilities and transportation allowances.
Lakshmi Narayan explains that fringe benefits are an integral part of the reward system in public sector undertakings and are related to management motivation like basic compensation.
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