Table of Contents
Variable Pay
Variable pay refers to the compensation of the employees that varies as compared to the salary that is paid in equal proportion during the course of the year. For many organizations, the performance of employees is measured at the end of the 12 months. Variable pay offers compensation based on employees performance to all or some of the employees. This type of payment at advocates that rewarding excellence performance with tangible items encourages hard work and effectiveness and also help in limiting mediocrity during work performance. Variable pay consists of various compensation methods which include bonus payments or annual incentives such as technical achievements awards; individual incentive sums; cash profits sharing sums and small group incentives. Other forms of bonus payments include lump-sum payments and gain sharing and payments for acquired knowledge and skills. While developing a successful variable pay system, the following strategies must be put in place for its proper implementation this involves the presence of clearly defined goals and effective dissemination to the employees with necessary assistance. The employees should also own control over their performance where the level of performance should be dependable and measured regularly. The businesses should also ensure that their variable pay plans reward the employees based on their skills and actions that promote the advancement of the company’s objectives. The company should as well as being in the position to note the difference in performance to ensure employees are rewarded based on their level of performance (Brewster & Hegewisch, 2017).
Pros and Cons of Variable Pay
The properly designed variable pay programs which correctly rewards performance of individuals are of great importance as they help in strengthening the company, enabling the company to respond quickly to changes and making the company more competitive thus promoting its growth. A good bonus program also attracts various individuals into that process as it acts as a motivation to employees thus encouraging them to uphold a high level of performance. Variable pay promotes the worth of the company through educating the employees and training them on everyday activities during work sessions (Brewster et al. 2017).The employees are provided with tools and necessary support they require in making wise decisions. They are also provided with business knowledge and skills necessary to promote the prospect of the company. The variable payment plan is also of great benefit to the employer who wants to maintain salary levels as it is not factored in employees’ annual compensation. On the other hand, many companies are not able to make variable pay programs significant to the individual an employee which deprives the programs power to promote increased companies productivity. Another disadvantage is that entitled companies fail to get full value from the variable pay programs whereby their cost of variable pay programs outweighed the benefits. Possible errors may arise where the supervisor base the rating of the performance of most recent employees job performance instead of rating job performance as per the whole evaluation period. There is a possibility of employees maintaining excellent job performance closer to the performance assessment and mediocre job performance way from performance evaluation period. Variable pay plans also promote unhealthy competition making it difficult to promote teamwork. Upon the company disbursement of the performance pay there emerges various challenges of maintaining the employees’ job performance levels in that whole season (Barry, George &Jerry, 2016).
Group Incentive Programs
Incentive programs are meant to reward those employees who move an extra mile and beyond their usual duties and shines in ways that assist the company to achieve a higher profit margin and make more sales. Group plans involve individuals work groups making employees work harmoniously. The aim of team incentives is to boost group goal setting, teamwork, and collaboration. Group incentives are advantageous as it draws positive peer pressure, where the employees are frequently motivated by the fear of letting down their fellow team members. Each team member is therefore challenged to come up with a unique skill and experience which helps to stabilize the team motivating all the colleges to give their best in their assigned roles .some of those incentives which companies can use includes; profit sharing which is a team-based incentive where a company considers paying its employees a percentage of its overall profits upon making returns. The profit sharing initiative helps to motivate team greater performance levels as the employees are aware that their excellence performance promotes the business financial picture thus increasing their potential monetary rewards. The merit-based incentive is another form of team-based incentive where employees groups are rewarded for their efforts irrespective of the outcome for instance where employees work for more extra hours to accomplish the companies goals (Taylor, Francis, Gupta, & Shaw, 2014). The company, therefore, recognizes the employee’s efforts and their total dedication to their work for the good of the company. In other instances goal based group incentives are used by organizations to reward employees for attaining specific goals. The incentive encourages teamwork and collective efforts as the employees are given the specific target to work for. The goal-based incentive is of benefit to the organization as you only give the reward upon meeting the specific goal set. Another form of group-based incentives meant to motivate the employees is gain sharing. The organization rewards employees groups for quantifiable non-financial achievements in the pre-established capacities, for instance where the customer’s levels of satisfaction increase to a certain percentage as compared from the previous year. Financial and non-financial incentives may be offered to the team employees where the organization should consider if it fits in their budget and what the employees view to be more viable and worthwhile (Taylor et al. 2014).
Strategic Human Resource Management
The strategic human resource management helps to promote human capital and high-performance workplaces. It helps to link human resource with the organization’s strategic objectives and goals in order to improve the business performance and establish organization culture that foster innovation, elasticity and competitive advantage. Strategic human resource management involves the human resource function in the formulation and execution of company’s tactics through human resource actions like enrolling, selecting, training and rewarding employees. The main goal of the strategic human resource is to pinpoint significant human resource areas where tactics can be executed in the long run in efforts to improve the overall employee motivation along with productivity together with increasing the employees’ productivity. All organization should ensure proper alignment of each human resource management function with the business strategy. Human resource planning is necessary where analysis and identification of the need for, and availability of the human resource for the organization to meet its objectives. The achievement of human resource program is dependent on how accurately the human resource department utilizes the organization business planning process to integrate human resource program effectively. A Proper close working relationship between the line managers and human resource department helps to promote strategic human resource planning (Barry et al. 2016).
Strategic recruitment and selection refer to the strategic integration of recruitment and assortment with long-term business objectives in order to translate the strategic requirements of the company into appropriate recruitment and selection specification.it is therefore significant to align the business objective and the employee objectives. The strategic recruitment, therefore, focuses on hiring of job positions required for the enhanced growth of the business. In strategic training and development, high performing organizations consider the use of best training and growth practices to promote their competitive advantage. The strategic development and training involve pinpointing, designing and delivering training programs to workers to enhance their capability of delivering in harmony with the business strategy. Through appropriate strategic positioning of training and growth, the organization goals and objectives are promoted. Strategic performance management alignment is also of great importance to the success of the organization where there is harmony in business goals and strategy together with employee’s motivation and culture. The top management should make clear on how they want to manage the performance; a set target which must be met and the path they want both the employees and the managers to take in order to achieve them. Human resource competence should be identified together with the implementation of a performance evaluation plan to link the employees’ performance with the strategic goals. A strategically linked compensation system is significant in retaining the workers with required competencies and improving the organization performance. Strategic planning management helps to link the performance management with the individuals’ objectives thus motivating the skills and the capability requirements and enhancing its alignment to the essential values of the organization.it also helps to deliver value providing outcomes based on the business strategy.
Strategic compensation and reward management is also an important form of incentive alignment which offers right rewards for employees, their knowledge, skills, and competence together with experiences in order to keep them.it also acts as a motivator by rewarding the employees for their market worth and their assistance in achieving the desired organization outcome. The strategic compensation and reward management promotes the orientation of compensation and reward policy with business which is attained by taking a data-driven approach in order to ensure the benefits are owed to only those employees that produce greatest returns. Variable pay reward system based on team and individual-based performance in their impact on the achievement of the organization’s objectives should be implemented as a healthier way to motivate workers and reward their performance (Bamberger, Biron, & Meshoulam 2014). S.M.AR.T goals alignment is an effective method of motivating staff to perform at peak levels. S.M.A.R.T goal should be specific where the employees know exactly what is expected of them .it should answer the question of who is responsible, what should be accomplished, when, where and why it is of benefit. The set goal should be measurable where specific criteria for measuring progress against the goals are applied. This gives the workers a way of remaining on track, aims for a target date and move extra miles that act as their motivation. The goals should be attainable in order to serve as a motivation to the workers. Realistic goals help in inspiring the workers to fully explore their talents and take all chances available to achieve the set goals. The relevance of the goal to the employees on the work they perform every day is also necessary as it helps them understand their connection to the company’s objectives and the strategic significance of their individual’s goal. S.M.A.R.T goal must also be time-bound providing a sense of urgency motivating various individuals to begin working on their goals.
Legal Implications
In designing and managing incentive compensation programs the organization must consider several legal issues. The legal issues are dependent on the type of incentives, the employee status as exempt or nonexempt which is under the Fair Labor Standard Act as well as making changes to plans prior to their anticipated expiration. It also relies on whether the incentives plan falls under the Employee Retirement Income Security Act, as a welfare benefit strategy. The employers should be in apposition to know what kinds of communications are mandated to Internal Revenue Service and the public shareholder regarding the incentive plan (Scott & Davis 2015).
HR’s Roles
HR system plays a major role in designing a compensation incentive programs, it also provides an explanation to the managers at every level of drawbacks, benefits and cost associated launching, improving or in scrapping an incentive compensation plan.HR profession also advised the management on the best-suited jobs to an incentive pay program together with the measures for making payouts. The HR should communicate the plan in a manner that gathers the employee’s trust and include inputs from the employees on the design of the incentives being provided. They should also be concerned on the eligibility of the rules that violate the laws of employment such as occupation safety rules and the civil rights (Scott et al. 2015)
- Bamberger, P. A., Biron, M., & Meshoulam, I. (2014). Human resource strategy: Formulation, implementation, and impact. Routledge.
- Barry, G, George ,M., & Jerry, N, (2016). Loose-leaf for compensation. McGraw-Hill Education
- Brewster, C., & Hegewisch, A. (Eds.). (2017). Policy and Practice in European Human Resource Management: The Price Waterhouse Cranfield Survey.
- Scott, W. R., & Davis, G. F. (2015). Organizations and organizing: Rational, natural and open systems perspectives. Routledge.
- Taylor & Francis. Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), 1-4.
- Bamberger, P. A., Biron, M., & Meshoulam, I. (2014). Human resource strategy: Formulation, implementation, and impact. Routledge.
- Barry, G, George ,M., & Jerry, N, (2016). Loose-leaf for compensation. McGraw-Hill Education
- Brewster, C., & Hegewisch, A. (Eds.). (2017). Policy and Practice in European Human Resource Management: The Price Waterhouse Cranfield Survey.
- Scott, W. R., & Davis, G. F. (2015). Organizations and organizing: Rational, natural and open systems perspectives. Routledge.
- Taylor & Francis. Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), 1-4.