Compensating The Workforce

Today, although studies have shown that there are other factors apart from money that are important in motivating the workforce, one cannot underscore or overemphasize the role of money in motivating workers.

In fact, the classical theory of motivation suggests that money is the sole motivator for workers.

People do not work for free, and how much they are paid for their work is never an easy issue. Notwithstanding, an effective employee compensation system must:

1) Ensure that employees can meet certain basic living standards

2) Have parity with other firms competing in the similar industry

3) Be just, fair, and honest

4) Account for individual differences

For any company, wages and salaries represent part of its largest expenses. Therefore, designing a compensation plan must be structured carefully to ensure that both company and employees stand to benefit.

Wages and salaries that are set too low may not only damage employee morale but also result in high level of absenteeism, low productivity, and high turnover.

At the same time, if wages and salaries are too high, it forces increases in the price of goods and services and ultimately, may render the company uncompetitive.

In designing a proper compensation system for employees, management must consider the following:

The wage level

The wage structure

Individual wages

First, in terms of wage levels, there are some firms that may be able to pay above industry average while others may not. It should be borne in mind that pay levels to a large extent depend on the profitability of a firm. That said, management must seek to have the wages and salaries of workers bench marked against pay levels near the industry average in which the company is competing. A wage survey may be used to provide useful insights and information on the prevailing rates of wages and salaries in this regard.

Second, the wage structure must be addressed by examining the levels or hierarchy of the pay ranges. This entails conducting a job analysis as well as a job evaluation. This ultimately means obtaining information related to the duties, tasks, or activities involved in the job and determining the relative worth of each job, respectively.

Third, in order to avoid low morale and hard feelings between employees, clear guidelines and polices must be established regarding individual wages. Consistent with this will be a variable payment system that incorporates an initial payment rate based on experience, qualifications, and expected performance as well as an incentive system based on seniority and performance.

The compensation of workers may take various forms. In general, these include:

Hourly wage – a specific amount of money paid for each hour worked

Salary – reward calculated on a set calendar period regardless of hours worked.

Commission – an incentive system that pays a fixed amount or a percentage of the
employee’s sales

Incentive Payment – payment in addition to wages, salary or commission

Profit sharing – the distribution of a percentage of a firm’s profit among its employees

Integral to the process of compensating the workforce are the benefits provided by the company. These are nonfinancial forms of compensation provided to employees and includes pension plans for retirement; health, disability, and life insurance; holidays and paid days off for vacation or illness; and others.

Benefits offered to workers by the company serve to increase employee security and boost morale and motivation and ultimately, productivity within the company.

By Davy Desmond, Senior Staff Reporter