Synopsis
Employee compensation is considered to be any form of reward that workers receive as a result of offering services to employers. The refund takes different ways, such as salaries, wages, incentives, or payment based on commission (Thibault, Schweyer, & Whillans, 2017). However, the total compensation approach includes cash rewards accompanied by other benefits that the company has listed in the employment agreement. Every employee compensation approach has advantages and disadvantages, indicating that the best strategy depends on the type of structure that works best for an organization or project.
Different methods of Compensation
There are different types of compensation that organizations apply to appreciate the work and services offered by employees. In most cases, organizations use both salaries and other bonuses as rewards designed to compensate workers. In large organizations, companies usually use wages and commission to motivate employees.
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Hourly Compensation
Some companies compensate employees by using pay per hour as the appropriate method. This process is preferred in situations where there is a set number of hours that should be taken to complete a particular project. The advantageous part of this approach is that it creates an opportunity for flexibility, indicating that managers can decide on how many hours pay based on the allocated budget (Hameed, Ramzan, & Zubair, 2014). The main disadvantage of this compensation method is that an employee has to pay for extra work that requires overtime. Overtime is usually one, and a half times the base hourly hires.
Bonus
Organizations apply bonus in an attempt to ensure that employee receives bonus incentives for exceptional outcomes. Bonus compensation plays an essential role in motivating team effort to increase productivity among workers. In situations where a team produces outstanding results, bonuses each individual should receive also increases.
A bonus is disadvantageous because it becomes difficult to identify the person to receive a reward in situations where the outcome is for a team (Thibault, Schweyer, & Whillans, 2017). In circumstances where there is evidence that bonus will or will not be paid, it is evident that there is a tendency for effort and intensity of performance to drop off among the individuals and team members.
Commission
Pay based on commission plays a critical role in motivating employees, especially those who produce more sales for a company. Therefore, companies that offer attractive commission percentages increases productivity in the company. A well-designed commission works well without affecting the organization’s profits.
Commission compensation is disadvantageous because a low commission rate would not be attractive to employees. This may minimize the level of loyalty by employees as workers will not be in a position to leave if a competitor provides higher commissions.
Salary
The salary compensation process is a compensation method where employees have rewarded salary improvements rather than using other forms such as rewards. Salary is essential because it creates an opportunity for employers not to pay for overtime because the budget for completing a particular project is based on salary agreed before the start of the project (Hameed, Ramzan, & Zubair, 2014). From the view of employees, wages are promising because workers enjoy income security.
Salaries also cause challenges to employees because they do not understand the mechanisms they can apply to make their work appealing to attract a bonus. Employers have to offer other services such as health insurance and flexible working hours to make salaries attractive.
In conclusion, compensation methods have to be evaluated for their suitability in achieving the designed goals. In most cases, employers consider the payment mechanisms applied by competitors before deciding their compensation strategy. This information indicates that compensation methods can be a source of competition, especially in circumstances where it attracts talented workers and motivates employees to increase productivity.
References
Hameed, A., Ramzan, M., & Zubair, H. M. K. (2014). Impact of compensation on employee performance (empirical evidence from banking sector of Pakistan). International Journal of Business and Social Science, 5(2).
Thibault Landry, A., Schweyer, A., & Whillans, A. (2017). Winning the war for talent: Modern motivational methods for attracting and retaining employees. Compensation & Benefits Review, 49(4), 230-246.
