Compensation and Benefits - Financial Reward System - Term Paper Example

Compensation and Benefits- Financial Reward System Introduction Compensation and Benefits in financial reward system is very important for organizations because it helps in systematic organization of tasks and human resources with the purpose of attaining sustainable growth of the organization. Employees’ performance and motivation is depended on the financial as well as non-financial rewards provided by the organization and thus it can be stated as one of the important factors to boost the performance of the employees. An effective financial reward system should consider the organizational structure, its culture along with the need of affiliation by the employees, rewarding employees financially. It should also consider that each person working in the organization receives appropriate financial recognition for their i­­ndividual as well as group contributions in the organizational performance (Derek Stockley, 2012). This paper is aimed at developing a financial reward system of a marketing firm with a total strength of 75 to 100 people. The paper will include all the theoretical and legal perspectives regarding job evaluation, wage surveys, incentives, pay equity, benefits and compensation strategy. Hereby, the prime objective of this paper is to present the financial reward system to the chief financial officer of the company. Theoretical and Legal Perspectives regarding Job Evaluation Job evaluation is a system or process in which the contribution of an employee is determined with due significance to his/ her position in an organization. A good financial reward system enables the organization’s employees to receive financial recognition for their contribution and job role in the organization and thus can create a positive impact on the workforce. It is worth mentioning that the reward system should be dealt with effective to have a positive impact on the employees. Notably, at times, reward system can also give rise to various issues such as complexities in terms of coordination and shared values along with miscommunication. Hence, in order to impose effective reward systems with minimum or no negative impacts, organizations often tend to consider job evaluation process. The main purpose of job evaluation is to initiate fairness, gender equality and transparency in the pay structure of all the employees in the organization. The output of job evaluation is used in various fields of an organization such as for making remuneration system, human resource management, and for decision making in the payments of different job profiles (Derek Stockley, 2012). The flow chart in figure 1 represents a theoretical perspective regarding job evaluation. Initially, documentation of position should be performed to view the complete picture of each position in the organization. Determination of remuneration range considering the market competitiveness is another important step in job evaluation process. The performance appraisal system should be well- designed to avoid inequality among the employees. Then a review should be conducted to check the above steps and identify if the goals are achieved within time limits followed by the final determination of the reward system (Derek Stockley, 2012). The job evaluation should be done fairly and there should be no discrimination on the ground of sex or other attributes. There should be equal pay for both male and female. Equal pay for the work of equal value also should be considered in order to maintain sustainability in the organization (Beamans Ltd, n.d.). Figure 1: The Job Evaluation Process Source: (Derek Stockley, 2012) Theoretical and Legal Perspective regarding wage survey Wage survey is a method of collecting information about workers’ remuneration for analysis of existing compensation system which is used to determine the remuneration of employees. Wages are basically paid on daily basis to the workers in any manufacturing or production unit. According to the ‘Fair Labor Standards Act’ of 1939, wages are paid on the basis of hours worked. This act created the base of minimum wage, gender equality for wage payment, overtime pay, and record keeping requirements as well as child labor issues. The social security act was initiated to protect the employees from losses due to retirement, disability or related causes, and other accidental issues. Initially the ‘National Minimum Wage Act’ was enacted in the year 1998 and was again amended in 1999 focusing on the legal rights of the workers regarding pay. It was determined in the act that the hourly rate for workers of age group 21 and over will be given £5.93. Notably, the hourly rate is calculated as worker’s total pay over the relevant pay reference period divided by number of hours worked. Where, the pay reference period indicates month for a monthly paid staff, weekly for a weekly paid staff, and accordingly. Furthermore, the calculation is done on the basis of Gross pay i.e., before deduction of tax and insurance and after the deduction of payments made for overtime, expenses, shifts, maternity pay and statutory pay. The piece workers must be paid by a fair piece rate. Output work here means work which is paid on the basis of the number of pieces made by the worker, or the number of task performed by the worker (Cushway, 2011). Incentives through financial reward system Incentives can be rewarded to the employees in various terms. It can be in terms of financial incentives or it may also be in terms of recognitions and promotions with the purpose to motivate them in their work. However, the widely applied reward system includes financial incentives. It is in this context that to enhance the employee performance, financial reward system should take various incentives in consideration. The various incentives given to the employees can be bonuses, loyalty incentives, and material incentives (tangible rewards often monetary) among others. Bonuses are used frequently in the marketing organization to motivate sales person. Incentives can be stock options, special parking spaces, retirement plans, and dental insurance as well. Notably, there are both advantages as well as disadvantages of incentives in an organization. One of the major advantages of this method is that employees get motivated to work for longer period of time in the organization. Incentives also accelerate competition among the employees to perform better. Attrition rate can also be controlled with the virtues of incentives in financial reward system deriving better employee satisfaction. On the contrary, employees may have to face a percentage of decrease in their salary due to increased expenditure incurred by the organization in terms of incentives (Cushway, 2011). Pay equity through financial reward system There should be an equal pay for equal job profiles in the organization in order to increase the positive effect of effective financial reward system in the organization. One of the importances of equity in compensation and reward system is that it largely contributes to the upliftment of the morale possessed by employees. According to the equity theory of motivation, people working in the organization must believe that there pay structure is equitable to others. When the employees do comparison of their pay scale with their colleagues, they must have a belief that they are considered fairly by the management in terms of compensation. If there is a belief among employees that their compensation is not equal they will be de-motivated and result in poor performance. Notably, financial reward system ensures pay equity for all the employees working in the organization according to their job responsibilities. It is one of the most important factors used presently by organizations for motivating employees (Derek Stockley, 2012). Benefits through financial reward system There are generally two types of benefits which can be stated as the statutory and non- statutory benefits. Statutory benefits are the legal benefits such as tax concession and non- statutory benefits include LTA (Leave Travelling Allowance), subsidized lunch, subsidized transport, and various other allowances. Benefits through financial reward systems are generally provided to the permanent employees of the organization on the basis of their performances as individuals and also as a team (O’Byrne, 1995). Compensation Strategy Compensation strategy is one of the significant strategies in the Human Resource Management function as it is highly associated with the cost of the company. The company should adopt a compensation strategy which rewards the productive employee with unbiased and just estimation through job evaluation. Similarly, systemized compensation strategy can assist in increasing the performance and satisfaction in employees. Compensation strategy should also link with the business strategy of any company. Compensation strategy when linked with business strategy can align with the HR strategies. The compensation strategy also helps in developing the principles to be used for the business planning. By adopting compensation strategies, the organization depicts its expectations from the workforce. This strategy can drive the company’s culture in the way management desires. It is worth mentioning that the strategy should clearly mention the main objectives of the organization that can be achieved with the purpose of maintaining a systematic flow of information along with ethical soundness within the organizational environment. Notably, the compensation strategy should be designed in such a way which will be cost effective to the company verifying the legal compliances. The strategy should also adopt for pay equity in the company with due consideration to the performance based pay in the strategy (O’Byrne, 1995). Designing a Financial Reward program It is quite essential in the initial stage of developing a financial reward planning, to identify the company goals and have an in-depth knowledge regarding the organizational process, so that the reward program can prove to be effective. The capable employees ranging from 75 to 100 employees of the company should be identified and their performance and behaviors should be taken into consideration when rewarding them financially to motivate them and also to maintain their productivity level. Later, the key measurements of the performance or behavior should be determined on the basis of the 75 – 100 employees’ previous achievements both individually and in groups. Appropriate rewards should be included in the program and it should be examined if it favors organization as well as employees of the organization. Finally, the program should include a proper communication process including the 75 – 100 employees of the organization. The program designed should further emphasize in rewarding the performing employees among the 75- 100 employees. The program designed should be reviewed from time to time to analyze whether the performance of employees has improved or not by implementing the reward program in the organization. It is worth mentioning that the compensation strategy designed should achieve the determined organizational objectives (Cushway, 2011). Conclusion A good financial reward system is very important for the organization as it helps to improve the performance of the employees. The employees’ motivational aspects and the organizations objectives as well as goals can be observed as notably associated with a reward system. It is in this context that while designing the reward system the organizations objectives and goals should be aligned with the managing work force. The employees should be rewarded for the work done. The issues like pay equity, job analysis, incentives, benefits, and wages should further be considered while preparing a reward program. Notably, the reward system should be a benefit for both the organization as well as employees without any negative impact over the interests of the company or the workforce. In this regards, to ensure employee loyalty, organizations also should care about employees and design a financial reward system which gives reward to the best performers in the organization. Hence, positive effects can be attained from an effective financial reward system in the organization attaining employee satisfaction and sustainable growth thereof. References Beamans Ltd. (No Date). Modern Job Evaluation -A Beamans Perspective. Retrieved from http://www.beamans.co.uk/file_library/A-Beamans-Perspective.pdf Cushway, B. (2011). The employer's handbook 2011-12: an essential guide to employment law, personnel policies and procedures. Great Britian: Kogan Page Publishers. Derek Stockley. ( 2012). Achieving fair financial and non-financial rewards. Retrieved from http://derekstockley.com.au/a-financial-rewards.html Derek Stockley. ( 2012). Motivation and financial and non-financial rewards. Retrieved from http://derekstockley.com.au/newsletters-05/025-motivation-reward.html O’Byrne, S. F. (1995) Total compensation strategy. Journal of Applied Corporate Finance 8(2), pp. 77- 86. Read More