Not only are employees more motivated to do a good job, but also, the longer people are with the company, the more they know and the more efficient they become. All of this leads to increased productivity. Creating the right compensation plan leads to stronger job satisfaction.
The right compensation plan includes benefits, along with all the other bonuses available. Employees often boast about holiday bonuses or they keenly watch how the company stock performs because they have stock options. The right compensation program invests employees into the work being done, which gives them a stronger sense of satisfaction when the company succeeds. They know they will be rewarded for their efforts; everyone likes to be appreciated. With more than 15 years of small business ownership including owning a State Farm agency in Southern California, Kimberlee understands the needs of business owners first hand.
When not writing, Kimberlee enjoys chasing waterfalls with her son in Hawaii. By Kimberlee Leonard Updated March 01, There are two basic types of compensation: direct and indirect. Direct pay is the wage or salary received by the employee; indirect pay consists of various employee benefits and services.
Employees are usually paid directly on the basis of the amount of time they work, the amount they produce, the type of work performed, or some combination of skill, time, and output.
An hourly rate of pay or a monthly salary is considered base pay, or an amount of pay received by the employee regardless of output level. In many jobs, such as sales and manufacturing, an employee can earn additional pay as a result of a commission or an incentive pay arrangement.
The accelerated commission schedule for a salesperson shown below indicates that as sales increase the incentive becomes increasingly more attractive and rewarding; therefore, pay can function as a powerful motivator.
Two other incentive pay arrangements are bonuses and profit-sharing. Employees may be paid bonuses for reaching certain monthly or annual performance goals or achieving a specific cost-saving objective. In this instance, employees are rewarded based on achieving certain goals. Employee profit shares are usually based on annual company financial performance and therefore are paid once a year.
With either a bonus or a profit share, an important incentive pay consideration is whether the bonus or profit share is the same for all employees or whether it is differentiated by level in the organization, base pay, or some other criterion. Choice Homes , a large-scale builder of starter homes, pays an annual incentive share that is the same for everyone; the president receives the same profit share or bonus as the lowest-paid employee.
Indirect pay includes pensions, health insurance, vacation time, and many others. Unemployment compensation provides former employees with money for a certain period while they are unemployed.
To be eligible, the employee must have worked a minimum number of weeks, be without a job, and be willing to accept a suitable position offered by the state Unemployment Compensation Commission. Some state laws permit payments to strikers. Social Security is mainly a government pension plan, but it also provides disability and survivor benefits and benefits for people undergoing kidney dialysis and transplants.
Medicare health care for seniors and Medicaid health care for the poor are also part of Social Security. Many employers also offer benefits not required by law. Among these are paid time off vacations, holidays, sick days, even pay for jury duty , health insurance including dental and vision , supplemental benefits disability, life, pet insurance, legal benefits , K contributions, pensions and retirement savings accounts, and stock purchase options.
Efficiency in relation to compensation starts with employees feeling appreciated which upturns motivation and reliability. Not only are workforces more motivated to do a good job, but also, stay longer with the establishment, the more they know and the more competent they become. All of this turns out into increased productivity. A number of elements need to be well-thought-out when designing a compensation strategy that is also well-matched to the employee demographic and financial bridles.
The subsequent should be comprised when planning a compensation strategy:. Irrespective of how you plan your employee compensation strategy — whether it be by time span, designation, individual positions, or some other way — make sure you have one for your organization growth. Copyright PayReview Importance of Compensation Strategy in a Workplace. What is the meaning of compensation management? Compensation strategies can be used to: hire and retain top performer employees.
Why it is must to have compensation strategy in your organization? Helps to increase the motivation of employees Appropriately compensated employees feels that they add value to the company.
Keep a competitive edge for recruitment Candidates always look to put themselves in the best promising position financially. Legal Compliance State and government employment laws govern many facets of the worker's pay and hours, comprising what the minimum rate is and how many hours they may work on weekly basis before they're allowed for overtime pay.
Employee Loyalty When workforces are being paid well and feel contended, they're likely to stay with the establishment. Increased Productivity Contended employees are the most productive employees. The subsequent should be comprised when planning a compensation strategy: Numerous fundamentals that will exemplify the total compensation offered to the workforces.
Compensation needs to be impartial.
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