Advanced Remuneration and Performance

Question: Discuss about theAdvanced Remuneration and Performance. Answer: Introduction This study analysis the best remuneration system that is best for the OMeara Company. Since its start-up, the OMeara Company has been using the Position-Based remuneration system. However, the management is proposing a person-based remuneration system. A conflict of interest has arisen between the management and the employees. The employees are opposing in the new system because they dont understand how it works. Therefore, this analysis will recommend the best option for the company by comparing between the two systems. In the analysis, the two systems, different elements such as their advantages and disadvantages will be considered. The basis of this study is the application of the remuneration system as a strategy of management the performance. Definition of Remuneration System Remuneration is defined as benefits, compensation or pay made for services offered or employment. Within a companys context, remuneration is offered by the management to the employees for the services offered. Different forms of remuneration are a base salary, bonuses, other benefits, incentives and commission among others (Cardinal Florin, 2012). Conversely, remuneration system refers to the basis of rewarding the employees. It is an element that directly influences the success of an organization. However, there is no single remuneration system is more efficient than others. However, some principles can be used to choose a better system considering the objectives and the strategic plan of a company (Berger Berger , 2008). The principles used to choose an efficient remuneration system are; First, the system should have a clear definition on how each employee would be affected. Second, the remuneration system should be linked to the companys objectives. Third, the system should clearly define outstanding and poor performance (Hu, 2012). Fourth, the remuneration system should comprise of other merit-based payment methods. Fifth, the remuneration system should acknowledge the personal contribution of each employee. In the case of OMeara Company, both the position and person-based remuneration systems are under consideration. Position Based Remuneration System Position-based remuneration system is the traditional payment method used by many companies to determine the amount paid to their employees. Under this payment structure, employees are paid by their work conditions, duties and job positions. The employers also use employees seniority and work experience as elements of evaluating the employees positions. The basis of using position-based pay system is to measure the employees contribution to the organizations performance. In short, position- based pay system evaluate the employees according to their position or responsibility instead of their personal skills (Ra Gerhart , 2010). For example, the OMeara department of marketing determines the amount of payable to their salespeople based on the number of products sold in a given period. The ability of the salespeople to attract more customers and increase the companys market share would automatically lead to paying raise. If an employee succeeds to improve their performance, then their earnings would increase hence contributing to their promotion to the next level of management (Cardinal Florin, 2012). The OMeara Company has been using the position-based remuneration system. However, the management is pushing the abandon it. Therefore, analysing the advantages and disadvantages of the system would help in making the decision. Advantages of Position-Based Remuneration There are some advantages associated with position based pay system. First, the employees are paid for their value. You get payment for the job that you perform for the company. The system provides a real quality of job evaluation compared to person- based remuneration. The employees are evaluated by pay schedules and grades to determine their salaries or wages (Hu, 2012). Second, it promotes equality and fairness hence eliminating gender discrimination. Position-based payment focuses on the job and not the person. Third, position-based pay system provides a clear structure of earning a higher pay. That is, an employee should be promoted first. One has to obtain the job description of the new position as well as the qualities and skills required. When the requirements have been met, the employee is eligible for promotion (Martocchio, 2009). Fourth, it allows pay comparisons. One employee can easily compare his/ her salary to that of another employee working in another company and per forming similar duties. It is a competition strategy used by employees to retain or attract top talent employees (Lsom, 2013). Disadvantages Position-based remuneration system has some disadvantages as well. First, in most cases, it does not suit companies structure especially when change is needed. Second, when the year of service and experience is used for remuneration, incompetent employees might earn a high income. Third, it increases operating cost when top employees are overpaid, and bottom employee is underpaid. Operating cost also increases when the consulting firm is employed to evaluate the current pay structure. Fourth, it compromises honesty in job valuations and description by the employer. Fifth, the system does not compensate employees individual abilities, strengths, and knowledge directly (Li, 2014). Person-Based Remuneration Pay System Compared to the position-based pay system, the person-based system compensates competencies, skills, and knowledge. The system is also known as knowledge-based, skill-based or competency-based. Several studies person-based system improves product quality, improve/ increase productivity while decreases the general labour cost for an organization (Lewis Podgursky, 2013). Employees with high training, skills, and knowledge are compensated higher compared to the less trained employees. Promotion to the highest level is based on the level of qualification, the level of expertise or training rather than on years of service (Cardinal Florin, 2012). The pay system have some advantages and disadvantages Advantages First, seniority factor does not exist under person-based pay system. Emphasize is placed on employees performance based on competencies, expertise and leadership skills. Second, it is a motivating factor for workers who want to achieve more. An employee will strive to perform well according to his/ her area of expertise. Competency is rewarded handsomely. Third, person-based pay system enhances self-improvement culture among the employees (Heneman Werner, 2010). Payment is based on how improved the employees competency is in performing the job. Therefore, employees emphasize on their self-development; better performance translates to better pay. Fourth, employees do not spend most of the time fighting for promotion opportunities as the only option to earn more money. Lastly, the pay system help employees in planning their career path (Heneman Werner, 2010). Disadvantages However, the knowledge-based pay system has some disadvantages as well. First, person-based pay system compensates by general criteria rather than specific criteria. Therefore, subjectivity is evident in the evaluation process. Using concepts like competency, leadership skills, listening to details, and multitasking skills can provide inaccurate rating which does not match to the organizational goals. Second, the system promotes favouritism. Take an example of a scenario where one employee thinks of him/ herself of being more valuable than others. Later s/he realizes that other employees are paid more than her/ him. The situation would give rise to feeling dejected and unwanted. Lastly, its hard to establish the competencies that are likely to improve job and organizational performance as well as productivity. A company might be paying highly for unwanted skills (Canavan, 2008). Fair and Appropriate Remuneration System Between the Two Options Person-based remuneration system is fair because the employees are compensated based on their knowledge, skills, and competencies. Employees are motivated when the employer trains them to improve their skills and specialization. It is unfair when the employer forces the employees to perform better in jobs that do not fall under their qualification as under the position-based system. The continued use of position-based remuneration system would lead to poor quality products, customers dissatisfaction, and declining market share. Some employees might not understand the job requirements leading to a high number of faulty products. Hence, the person-based remuneration system is fair to the Company (Cardinal Florin, 2012). The Company has been using the position-based remuneration system for a long time. Though it has some advantages to the company, its market share has declined for over time. Likewise, the company has lost its loyal customers to other company because of their dissatisfaction with the products. Moreover, OMearas operational costs have increased because of faulty products which are returned by the customers. The management is focussed on reducing the production cost in the long run as well as increasing its market share, winning back its customers and regain its competitive advantage. One advantage of the person-based remuneration is that it helps in general reduction of the labour cost if implemented effectively. The OMeara Company should change to the person-based pay system which is more favourable to its operations (Martocchio, 2009). Conclusion Based on the case of OMeara Company, the study focussed on choosing the better remuneration system between position-based and person based. Although there are no universal criteria to choose between the two, the comparative analysis was based on the advantages and disadvantages between the two. The Company has lost its glory in the market; its market share has reduced, its production cost has increased, customers are dissatisfied with its products and employees are opposing the introduction of the new remuneration system. The objective of the organization is to improve its product quality and reduce its production cost. Based on this analysis, the Company should go for person-based remuneration system to solve the issues facing it. Person-based remuneration would contribute to both the employees and organizations growth. References Berger, D. Berger , L., 2008. The Compensation Handbook. New York: McGraw-Hill. Berger, L. Berger, D., 2015. The Compensation Handbook, Sixth Edition: A State-of-the-Art Guide to Compensation Strategy and Design. New York: McGraw-Hill Education;. Bernd Ruchala, G., 2008. Relative rewards within team-based compensation. Journal, 15(3), pp. 123-127. Biswas, B. D., 2015. Compensation and Benefit Design: Applying Finance and Accounting Principles to Global Human Resource Management Systems. New Jersey: Pearson FT Press. Canavan, 2008. Overcoming the challenge of aligning skill?based pay levels to the external. World at Work Journal, 17(1), p. 19. Cardinal, K. Florin, B., 2012. Handbook for Conducting Compensation and Benefits Surveys. New York: WorldatWork Press. Ducharme Mark, 2007. Exploring performance appraisals and pay satisfaction. California, USA: SAGE Publication. Heneman, R. L. Werner, J. M., 2010. Merit pay: linking pay to performance in a changing world. s.l.:Greenwich, Conn. Hu, S. Z., 2012. Remuneration System Design. China: Posts and Telecom Press. Lewis Podgursky, 2013. The pros and cons of performance based compensation. New York: Milken Family Foundation. Li, Z., 2014. Study on the Consensus Salary System for Modern Enterprises. New York: Springer Science Business Media. Lsom, 2013. REMUNERATION SYSTEMS-rewards employees seek. New York: CreateSpace Independent Publishing Platform. Martocchio, J. J., 2009. Strategic compensation : a human resource management approach. Upper Saddle River, N.J.: Pearson Prentice Hall. Milkovich Newman, 2010. Compensation: Skill-based remuneration. New York: McGraw-Hills. Ra Gerhart , 2010. Human resources management: Gaining a competitive advantage. Journal of Econmics, 5(5), p. 332.