Remuneration refers to the reward or compensation for work or services offered to company or individual. Remuneration can be in form of salary, wages, or allowances paid for employee for work done (Bernd, 2008). In addition, remuneration systems are ways to assess the criteria used to reward employees or staffs based on their position, skills or their performance in work place. Reward management system is connected to formula or implantation of policies and strategies to reward employees fairly.
Remuneration can therefore be defined in terms of position-based or person-based pay system. Position-based pay system, according to Ledford (2008), refers to compensation system where staffs are paid based on their performance. On the other hand, person-based pay system is the remuneration system where employees are compensated or rewarded based on their skills or qualifications (Ra, 2010). The performance management refers to the process where employees and management work to evaluate employee’s work objectives and their contribution to the company. As a human resource consultant for O’Meara Electronics Company this serves to present the best alternative remuneration system that will help the company restore the declining position in the market. The scope of the paper includes remuneration systems such as person based and position based remuneration systems. On the other side some of the limitation of this recommendations include outcome of the implementations of the alternative remuneration system (Ledford, 2008). Therefore, the following paper explores remuneration systems as performance management strategy.
Position based pay system has been used by many companies over centuries. In position based remuneration system performance of individual is considered as key element for rewarding employees. According to Mausner (2010), position based pay system pay is determined by job duties and skills, knowledge or education just act as determinants of seniority. The drivers/elements for position-based pay systems are performance, behaviors and job done. Firstly, performance such as ability and the number of product sold by sales employee within the marketing department of the O’Meara Electronics Company will determine their pay. Secondly, Gazioglu (2014) indicates that talent can sometimes act as the driver for compensation. Ability to tract more customers using your talents is also an element performance that attract good earnings. On the other hand, Bernd (2008) indicate that self improvement is also a good deriver for promotion of an employee within an organization. Ability for employee to improve their own performance is clear indication of increase earning and subsequent promotion to the next position. It is therefore good to examine the advantages and disadvantages of the position based compensation that follow its implantation.
There are some cited advantages of position based remuneration system of employees. Firstly, position based pay system offers possibility of promotion of employees depending on their performance. Employees within the company are aware of their ability to be promoted when they perform well in their jobs and this motivates employees to perform better. Secondly, Gazioglu (2014) argues that position based pay system is simpler than other pay systems. When position based remuneration system is compared to other pay systems, the company is able to budget well in position based remuneration system since good performance attract good pay. Thirdly, employees can participate in performance evaluation since they are rewarded according to quality of their work (Ledford, 2008).
Position based pay is characterized with some disadvantages. Some of these disadvantages include downward salary evaluation, incompatibility with teams based employees, unhealthy competition between employees, increase operation cost of company and poor organizational structure (Ledford, 2008). Firstly, since the compensation is based on performance of an employee, poor performing employees have their salaries and wages reduced. This means that there is continuous job evaluation and demotion of employees. Secondly, production department of the O’Meara Electronics Company for instance, has ten teams. To evaluate the performance of individual employee with team is difficult since the overall performance is delivered by the team as a whole (Dan, 2012). Thirdly, high positioned staffs are compensated higher as compared to low positioned employees. This disparity in payment raises the overall operational cost of the company. Fourthly, the structure of the organization is weaker as the hierarchy is determined by the performance of individual staff. The determination of remuneration under position based pay system requires evaluation performance of employees (Shaw, 2012).
Person-based pay systems are currently most important remuneration system in many organizations. In person-based pay system, derivers/elements are personal knowledge, skills and experience are used in determining compensate or pay of individuals employees. Firstly, skill as key element or driver of person based pay system are categorized or evaluated based on horizontal, vertical and depth skills. Dan (2012), horizontal skills include broadening abilities to perform range of tasks. A critical look at vertical skills shows that employees can acquire higher level skills that attract compensation. Finally, depth skills are related to specialization within the same job. Knowledge according to Kelly (2011), involve remuneration based on the educational background of an employee and their training acquired. Highly trained employees attract high earning as compared to those lowly educated individuals. Promotion within person-based system therefore, follows the line of high educational qualification and the training that staff has. Person-based remuneration system therefore, has some pros and cons.
Person based remuneration system has some advantages to employees and the organization itself (Bernd, 2008). Firstly, broadening of skills through training eased the recruitment of employees to fill the vacant positions. Person based compensation reduces the need for promotion since the earning is based on skills and knowledge the employee has. Secondly, increases technological changes within the organization as technological skills that are acquire through training of employees. Thirdly, there is job enlargement due to training and skills broadening. Continuous training of the employees therefore, attracts a high level of payment (Milkovich, 2010b).
Some of the disadvantages of person based compensation include performance may be reduced, limited seniority of employees, self-development of employees. Firstly, there may be reduced performance since more emphasis is based on skills of an individual employee as oppose to their performance (Zingheim, 2009). Secondly, there is limited seniority as employees are paid according to skill not position or seniority. Thirdly, self-development of employees in terms of training and acquiring skills is the center of concentration and not the performance of the organization. Employees therefore, struggle to obtain high knowledge to attract high-earning and low performance (Mausner, 2010).
It is good to notice that the fair remuneration system is person-based pay since its main focus is the area an employee is trained at. According to Gazioglu (2014), employees are always motivated when doing work they are trained or skilled at putting more emphasis on continuous training and specialization. On contrary, the most unfair remuneration system is position based pay since employees will always aim to perform better on what they are not skilled at. Canavan (2008) argues that performance of the company is most likely to decline in the market due to dissatisfaction of customers when employees are not purely trained in what they deliver to market. In addition, the quality of products is most likely to fall as some employees may not be sure on what they perform.
The most effective remuneration system is the person-based system where skills and capabilities are used to compensate employees (Ducharme, 2007). It is clear that in the case study of the O’Meara Electronics Company, position-based pay system has been used though the performance of organization continues to decline. The introduction of person-based remuneration system though faces many challenges to the organization. In the person-based remuneration system, the salary of individual is determined based on skills, knowledge and capabilities (Muchinsky, 2012). Therefore, there is need to change from position based pay system to person-based pay system as it has proved to be effective remuneration system.
The remuneration system that I have been part of is the position-based pay system. As HR Consultant for O’Meara Electronics Company, I am familiar with position-based remuneration system since it has been used in the past at O’Meara Electronics Company. In the O’Meara Electronics Company, employees have been paid based how they perform. For instance, within marketing department, those who sell more products are rewarded as compared to employees with low sales. However, David O’Meara observed that the market position of the O’Meara Electronics Company continues to decline. This implies that employees were not self-motivated with work reward or compensation (Canavan, 2008). The limitations of position-based remuneration system such as low skills with good performance leave a big gap between the skills that one acquires and their ability to highly perform at work. Position-based remuneration system, therefore, did not work well within the organization. Therefore there is need to change the remuneration system to improve performance (Zingheim, 2009).
Sarah Jones, Director of HR Management suggests that there is the need to work towards person-based remuneration system. Person-based pay system seems to be good for the company though it is important to note that introduction and implementation of person based pay is most likely to affect the performance of the organization. Firstly, there is the need for serious training of employees to adopt this new pay system (Milkovich, 2010a). The person based compensation will require that skills of every employee be evaluated and classified. Secondly, performance management requires review of job classification as some position that are attached to good performance will be reevaluated based on skills, capabilities and knowledge. Thirdly, in order to avoid critics from employees during the transition period between the different remuneration systems, there is the need for good transition strategy (Ducharme, 2007). Finally, skills of individuals do not always correspond to their performance as some highly skilled or trained employees normally concentrate on their own interest than the organization.
It is therefore, important to notice that there is need to introduce person-based remuneration system with the main focus on the skills-based compensation system. On the transition from position-based system to person-based system, there is need to determine the midpoint of the interaction between position value in the market, the productivity of employee, experience, skill and the knowledge required for that position (Lewis, 2013). This ensures harmonization between skills and performance of employees to give reward according to the interaction of the two criteria. The introduction of skills as the compensation criteria into the remuneration system allow future transition from position based pay system to person-based pay system (Weilbel, 2009). Furthermore, skilled based pay ensures reward management system where employees are compensated based on their abilities and capabilities. This system is fair, equitable and consistence throughout organizational hierarchy.
The main limitation of this recommendation include outcome of the implementation of person-based pay system (Ducharme, 2007). The recommendation for implementation of person-based pay system does not focus on the final position of company in the market after implementation of the best pay system in O’Meara Electronics Company. This is dependence of the prevailing market conditions at the time of implementation. The level of adoption and the adaptability of the O’Meara Electronics Company towards the skilled-based pay system (Losey, 2010).
In conclusion, I recommend that skilled based remuneration system as person-based remuneration system is introduced into the remuneration system of O’Meara Electronics Company. Fully implemented person based remuneration system requires numerous changes within the organization. Similarly, the position based remuneration system has shown minimal improvement of performance and position of O’Meara Electronics Company in the market. Therefore, the introduction of skilled based remuneration system will lead to hybrid remuneration system that combines skills and performance as drivers or elements of compensation. With time, the remuneration system will change to total person-based remuneration system. Person-based remuneration system is the most appropriate compensation system that is fair, consistence and equitable.
References
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