Human resource managers devise payment schemes for compensating employees based on the organization`s strategies and policies, job evaluation process, & include legislative provisions schemes for payment, such as the Equal Pay Act 1970, The Equal Pay (Amendment) Regulations 1983, The Employment Rights Act 1996, The National Wage Act 1998.
Different pay strategies identify two main types of pay system; output & input put based pay system. Fredrick Taylor proposed scientific management system, that emphasis of easily measurable quantity over quality production output. Low value added service jobs lend themselves to this method. More sophisticated alternatives include measured day work, term-based pay, & in the use of profit -sharing schemes for employees. Input based system measures the competencies or skills relevant to the employee that adds specialized knowledge, transferring actual technical or professional prowess to the organization. Knowledge makes retention of these core workers essential, with attractive payment packages acting as inducement. For example, retention payments & severance packages are included in the compensation data for healthcare executives, including CFO`s. Retention payments are designated cash offers of a predetermined amount or a percentage of salary payable to executives who remain with the organization for a specific period of time. Severance packages provide a continuation of salary & benefits to a healthcare executive for a predetermined period following the executive's termination from the organization.
The transactional relationship between the employees and organization mandate exchange of labor with wages have diverge to conceit other additional factors, such as job security, job promotions, & pay dispersion. Job security assures commitment between organization & employee, wheree the employee continue to work within the organization for specified longer tenure without otherwise been condemned for prohibiting the rules & regulations of the organization, standard protocols, & patient safety care. Job promotion facilitates career uplifts, increase incentives, & other benefits, determined on the basis of performance criteria of individual candidate. However, organization that makes it harder to provide internal careers results in higher labor turnover. Divergence of pay rates between those in senior positions & rank, & file enumerates difference of competency / skills among employees. In absence of evidence of its results, it evokes gross imbalance of statutory profiles, & further erode morale & organizational commitment for the employees.
The concept of reward system revolutionary changed with the understanding of the range of human needs & hence of desired rewards. Motivational theories & behavioral scientific study emerge with the key issues that include the amount to which people are likely to be motivated by money alone, or by other issues of intrinsic rewards of the job itself. Maslow (1954) suggests a hierarchy of needs which the individual will aim to satisfy in ascending order from basic physiological needs, through safety & security needs, social or love needs, needs for esteem, both from others & from self, & finally self- fulfillment or the realization of one`s own true potentials. In this context, basic pay, sick pay, & pension entitlement could satisfy security needs, & a work environment where occupational hazards are well controlled could satisfy safety needs. The provision of recreational activities, sports & social clubs, which facilitates interaction at work, could satisfy social needs. Position in the organization & symbols of success has relevance in contributing status & recognition needs. An experience whereby the individual acquires key knowledge & skills, & successfully completes an exacting & challenging assignment could achieve the satisfaction of self-actualization needs.
Herzberg (1966) elaborates specific theory of motivation, that distinguishes extrinsic (hygiene factors) & intrinsic (motivators) rewards. It suggests the tradition approach of rewarding labor with incentives does not probably result in job satisfaction. Extrinsic factors such as job security & relationships with superiors, peers & subordinates perpetuate discontent feeling, rather not improved or maintained well. The motivators or intrinsic factors leading to job satisfaction are identified by Herzberg as achievement, recognition, and interest in the work itself, responsibility, advancement & growth.
Vroom`s (1964) expectation theory is helpful in emphasizing the complexity of individual thought process, which may or may not lead in action. In practice it is difficult to implement expectation theory because it results in hypothetical assumption, that assessment wherever effort is likely to result in achievement of a specific task, & most importantly wherever success in the task will lead to individual`s desired personal reward preceded any possible action. However, it may perceive to satisfy social needs of the employee through this process in, which the organization is trying to link the interests of employees with those of the organization. Social needs could also be considered relevant in the context of group or team based works.
Adam`s (1965) equity theory, which centers on the importance of feelings of fair treatments & the possible behavioral manifestations may result from perceived inequality. In an employment situation, one considers two important variables; input & output. Education, skill, experience, & efforts are considered as inputs, & salary, fringe benefits, & career promotion viewed as outputs. People compare each other`s inputs & outputs components, & if they perceive unfairness, feeling of inequality can result in withholding effort, restricting outputs, reducing cooperation & even withdrawal.
The organization`s culture & values influence who it hires & how it structures a compensation strategy. Business strategic plan clearly spell out its purpose; eligibility requirements, performance targets for individuals, departments, & the organization; awards & how they will be paid. There are varieties of payment schemes, such as time rates, payment by results, individual / group performance related payment, skill / competency based payment, & flexible benefit scheme.
Time rates: When a reward system is related to the number of hours worked, it is referred to as a payment based system on time rates (an hourly rate, a weekly wage, or a monthly salary).
Payment by results: Payment by results links Pay to the quantity of the individual`s outputs or productivity charts, which is commonly observed in manufacturing industries.
Performance related pay: The individual`s performance is measured against previously set objectives, or compared with the various tasks listed in the job description, using performance evaluation techniques.
Profit related pay: Companies offer profit related pay in the form of a bonus paid in addition to existing salary.
Skill based pay: Skill base pay places the emphasis on inputs that consist of knowledge, skill, & competencies injected into the job by employees (Donkin, 1998).
Flexible benefit system: These are substitutes for pay, & calculated with in an overall remuneration or compensation packages. It combines private health insurance, membership of social clubs, modification of working hours, special pension arrangements, & other benefits. These schemes are more likely adopted in countries like UK, Unites States, & Australia, that benefits to change your selection each year as per to suit your life style (Harrison, 2001).
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