Summary

In terms of variable pay a careful balance is necessary to be achieved between the way in which employees would like to be compensated and the business performance for which they are compensated. Employees are not necessarily motivated to be more productive or in fact happier in their role by the level of monetary compensation alone. 

Organisations need to regularly re-assess compensation plans to ensure that they are continuing to meet the intended objectives, and importantly, that they are effectively motivating employees. An effective compensation programme requires goals to be set that enable employees to focus upon the issues and activities that are most important for achieving organisational success. For this reason goal setting and measurement are central elements of an effective incentive plan, 

The design and effectiveness of compensation plans has a direct bearing on the retention of an organisation's best and most productive staff. In addition it is desirable to minimise turnover expenses as these can equate to a significant proportion of annual compensation costs. The loss of good employees is also associated with customer service disruption, loss of morale, and a loss of valuable knowledge from the organisation. 

Pay for Performance systems are typically compensation plans in which the pay opportunities of employees are indexed both to the organisation's and the individual's performance. Pay for Performance systems tend to be self-funding and have the following objectives; to increase the profitability of the organisation, to fairly share profits with owners, customers, and employees, and to create a highly responsive open reward system. Another type of pay-for-performance programme is called gainsharing which is used to motivate employees to use their skills towards boosting company performance. Gainsharing is used to award a proportion of the savings, or profits, made by an organisation back to its employees. 

The sum of all the rewards given to employees comprising both monetary and non-monetary compensation are commonly  called  "Total Rewards" packages, which in addition to pay, bonuses, and incentives include; core benefits such as health, dental and vision, motor vehicles for private use; recognition; pensions; training and development and; improvements to the workplace environment itself.

Note

Readers of this Brief will be better informed if they also read Vol1 Iss7 on Motivating staff.

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