In our current business environment, there are several types of compensation programs for employers to choose from, and numerous combinations of these programs. Each plan is valid and valuable, but different companies, departments, and positions require different compensation plans. No matter what compensation program a company chooses, the program should balance internal equity and marketplace competitiveness. Before choosing a compensation program, a company should evaluate its culture and needs and perform a SWOT analysis before designing a roll out program. After implementing a program, a company should ensure that it remains competitive and consistent.
Types of Compensation Programs
Compensation programs can either be job-based or person-focused. Person-focused pay is driven by potential, while job-based pay is driven by results. Within these two categories, many different types of compensation plans exist, each of which has both positive and negative aspects.
Job-based pay systems award raises and bonuses based on how well employees perform their jobs. This includes merit, or pay-for-performance raises, and incentive pay.
The most common compensation method used in the United States is merit pay (Martocchio, 2013). It rewards individual employees for their proficiencies and accomplishments by providing monetary incentive for excelling at their job. Base pay and raises are based on the value of the job and how well employees perform it, and can be successful when performance standards are clearly communicated and employees are given a fair chance to succeed (Greene, 2010).
One of its main disadvantages of merit pay is the fact that raise decisions are based upon performance ap...
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...s only need to reward employees for obtaining credentials relevant to the job or company; companies do not need to pay premium wages for unrelated certifications.
Person-focused pay is based on what a person is capable of doing, but paying higher salaries does not guarantee success. Employees may have knowledge or skills, but lack the wisdom that comes with experience. Companies that use person-focused pay must create compensation programs that reward knowledge, skills, abilities, and experience that align with the company's competitive advantage.
Greene, R. J. (2010, January 21). Effectively Managing Base Pay: Strategies for Success . SHRM. Retrieved from http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/CMS_005592.aspx
Martocchio, J. J. (2013). Strategic compensation: a human resource management approach (7th ed.). Boston: Pearson.
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