A pay is a statement of an employee’s worth by an employer. An employee is given compensation based upon the contribution of that particular employee to the organization.
Pay is a perception of worth by an employee. The employee shall also feel his worth thanks to his pay. This must not be confused with the least earning employees are worthless, but the priority, importance and the level of hierarchy must also be taken into consideration.
Compensation is directly linked to the mission, objectives, philosophies and culture of the employees. It serves to mesh the monetary payments made to the employees with specific functions of the HR program in establishing a pay for performance standard. It is also a way to motivate employees through compensation.
Employees are compensated because of the following reasons.
- To reward the past performance of the employee.
- To remain competitive in the labor market.
- To maintain salary equity among employees.
- To mesh employees’ future performance with organizational goals.
- To control the compensation budget.
- To attract new work force.
- To reduce unnecessary turnover.
Compensation that an organization provides can be either above the industry standard, equal to that of industry standard or below to that of the industry standard. The ability of the compensation must be such that the employees must be motivated to perform to the best of their abilities. The level of compensation also determines the differential between recruiting new employees or working with senior employees. The pay scale raise and revision is of significant importance in an organization and will be subjected to the merit and seniority of the employees. The pay levels needed to facilitate the achievement of a sound financial position in relation to the products and services offered.
The basis for compensation
- Hourly work: Work paid on an hourly basis.
- Piece work: Work paid on the number of units produced.
- Salary workers: Employees whose compensation is computed on the basis of weekly, biweekly or monthly pay periods.
- Pay for performance: Refers to a wide range of compensation options, including merit-based pay, bonuses, salary commissions, job and pay banding, team/group incentives and various gain sharing programs where managers tie compensation to employee effort and performance.
Motivating Employees through compensation
- Pay Equity: An employee’s perception about the compensation received is equal to the value of work performed. Motivation theory explains that an employee under situations will respond to the compensation they have received by thinking over paid, or under paid.
- Expectancy Theory: A theory of motivation, this theory thinks that an employee in order to receive a good compensation must work hard to achieve it. They must also believe that good performance is valued by the employer will reward by providing expected compensation.
- Pay Secrecy: It is an organizational policy prohibiting employees from revealing their compensation information to anyone. This creates misconceptions and creates distrust in the employees about fairness pay and pay for performance standards.
Watch detailed explanation of Compensation & Rewards for Employees
Factors influencing Wage Mix
- Internal Factors: Compensation strategy within the organization, the worth of the job, relative worth of the employee and the employer’s ability to pay.
- External factors: Conditions of labor market, area wage rates, cost of living, collective bargaining, legal requirements.
Job Evaluation Systems
The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
- Job Ranking System: Oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.
- Job Classification System: A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades. Successive grades require increasing amounts of job responsibility, skill, knowledge, ability or other factors selected to compare jobs.
- Point System: It is quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it. Permits jobs to be evaluated quantitatively on the basis of factors or elements that constitute the job.
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