Employee Compensation
- Meaning of terms used in employee compensation
- Importance of employee compensation
- Factors that determine or influences the levels of employee compensation
- Components of an employee compensation package
- Methods of employee compensation
EMPLOYEE COMPENSATION
Over compensation is a vital part of human resource management. Wages and salaries [flute a very large component of operating cost and most disputes relate to remuneration.
Compensation is the total amount of monetary and non-monetary pay provided to an employee by Employer in return for work performed as required. Financial compensation includes bonuses, profit l sharing, overtime pay, sales commissions, savings plans etc.
Non financial compensation includes housing, medical facilities, stock option, car loans etc.
Characteristics of a good compensation system
1. It should attract the right employees who have the right skills.
2. It should encourage staff to make full use of their abilities and develop their potential; it should reward employees according to the value of their contribution.
3. It should minimize loss of morale;
4. It should encourage retention of employee
5. It: should be competitive in the job market – salaries should be in line with salaries for similar ob in other organizations.
6. It should have internal equity. There should be a proper relationship between wages paid for different jobs within the company e.g. if the salary of a clerk is lower than that of a cleaner there is lack of internal equity,
7. it should link part of the pay with productivity.
8. The salary plan should contain incentive to motivate employees program better.
Factors determining pay
A wage or salary is influenced by many factors. These include the following;
1. Supply and demand
When the supply of a particular type of labor is scarce, its price i.e. salary rises and vice versa. This is however affected by
➢ If people are willing to move to another area.
➢ If training for a new occupation takes some years.
➢ If pay is not the only reward gained from employment.
2. Demand of the job
It is generally agreed that jobs which require a high level of intelligence, experience , knowledge or skills deserve a high rate of pay.
3. Unpleasant working conditions
4. Productivity/merit/length of service
The compensation system should link salary to productivity e.g. annual increment.
5. Ability’ of organization to pay
It should have adequate cash flow
6. Prevailing wage rate or market rate
Employees compare their pay with similar players in the industry.
7. Bargaining power of trade unions
A well organized trade union exerts pressure for higher wages and allowances through collective, bargaining strikes, mediation etc.
8. Give legislation
National, regional or international loss may demand a certain level of compensation to protect employees interest e.g. minimum wages, allowances like hardship and medical.
9. Cost of living / inflation
Salaries should not only meet basic needs but should be sufficient to keep one healthy both in body and mind. Due to inflation, wages decline affecting the purchasing power of employees.
WAGES PAYMENT POLICIES
1. They should attract, retain and motivate employees.
2. They should encourage productivity.
3. Should enable employees to share in the growth of the organization.
4. Should ensure that the cost of labor is controlled.
METHODS / TYPES OF WAGE PAYMENT SYSTEM
1. Time rate system
In this system payments are made at predetermined rate per branch per work. Its not based on efforts made or results obtained by the employees. It is common in paying casual workers.
Advantages
i) It is simple to operate
ii) Labour cost can be controlled.
iii) Labour output can be predicted.
2. Payment by result/piece rate
Pavement is directly tagged/dependant to output e.g. the no of items produced at an agreed rate per item. It is commonly used in sales and payment is given in relation to work output.
3. Combined temperate and piece rate
In this system the employee is assured of some basic pay irrespective of output e.g. 75% of basic performance is guaranteed with pay but the remaining 25% pay is determined by employees direct output.
Advantages
a) Employees are secured against bad times e.g. sickness, inflation.
b) Competent employees may utilize their efforts.
4. Companywide incentive scheme.
Bonuses are paid to all employees on the basis of productivity achieved within the organization as a whole. It relies on group collaboration and does not encourage individual competition.
5. Single status schemes
It is a scheme meant to remove, discriminate between workers and white coloure employees. It is meant to create harmony at work and climate inequalities. The employee enjoy similar privileges and working conditions e.g. holiday pay, access to medical care.
6. Skills based pay
It’s common in Japan
Pay is limited to the skills that employees have and can use at the work place. An organization benefits through reduced turnover and administrative cost since employees enjoy using their many skills.
OBJECTIVES OF COMPENSATION (POLICY)
1. To ensure remuneration is enough to meet employee’s financial commitments.
2. To improve union, management relations. It reduces grievances arising out of wage Inequalities.
3. To improve the public image of the company i.e. that it is a progressive employer.
4. To control cost through a sound wage and salary administration so that costs are kept in line With the ability of the company.
5. To improve productivity.
6. To retain employees.
7. To attract competent persons.
8. To reward adequately for effort put in.