Remuneration of Employees - Incentive and Base Pay - Essay Example

Incentive and Base Pay Comparison. Instruction: Incentive and Base Pay Comparison. An employee is widely regarded as the best asset thata company can have. Generally, employees determine the overall success of a company. While the management and top executives may be able and willing to push a company or organization forward, it is up to the employees to see to it that the organization actually gets to the projected level. Additionally, the organizational strategies are effectively implemented by employees. The management and top executives only guide and see to it that the objectives are as intended, but the actual implementation and execution of these objectives lies with the employees (Armstrong 2002, p. 99). Additionally, elements such as organizational change and environment can only be manipulated when the employees are effectively incorporated. Moreover, product quality and any other important attributes can directly be linked to the employees that are involved, poor products and reflect poorly motivated employees, on the other hand great products and services point to highly motivated and inspired employees. Therefore, this highlights the importance of employees to a company, and the subsequent need to constantly monitor their welfare. To this end, there are different forms of pay systems and schemes that are typically aimed at improving employee performance and thereby increasing their productivity. Though there are numerous way of improving employee performance, the most common are generally base pay and incentive pay. These forms of pay have certain differences that set them apart. In light of this, an evaluation of the differences that exist between base pay and incentive pay can sufficiently aid in reflecting on the advantages that they have on the employees and organization at large. Base Pay. Base pay is generally the amount that is paid to an employee for a standard work or responsibility expected of them. It could be based on a defined time or period such as hourly, daily, weekly, or monthly. The rate for base pay is typically fixed and cannot be altered easily by short term factors such as working extra hours, or working beyond the job description for which the base pay is rewarded. Additionally, base pay does not take into account the bonuses, allowances, or any other forms of benefits that may come with a given position. Moreover, the base pay is widely regarded as the least amount of money that an employee is guaranteed at the end of the payment period (Shields 2007, p. 343). This is the reasoning behind the name ‘base’, as it denotes a basis from which other forms of payment arise. In the course of working in an organization, employees often find conditions that could make them work overtime, or take up responsibilities that may not be in their job descriptions. All these extra factors are not considered when talking about base pay. Incentive Pay. On the other hand, incentive pay is generally viewed as a lump sum bonus paid annually and based on individual performance and performance goals. This means that incentive pay is given in consideration of other factors that determine employee output rather than just their basic responsibilities. Generally, incentive pay is based on the performance of the employees, and the most performing employee is expected to earn more incentive pay than the not so performing employees. The performance of the employees is determined by an array of different mechanisms such as the overall time worked against the preset time expectations, accomplishment of a task outside of job description in the event that the need arises, and any other criteria that may be deemed feasible by an organization. Additionally, incentive pay takes many forms such as commissions, bonuses, or gratuities give n for specific tasks. Generally, incentives are aimed at improving the performance of the employees and enticing them so that they may deliver even more. Advantages of Base Pay to employees. Base pay is the least amount of remuneration that an employee expects to have at the end of a specified period in many organizations. This means that it gives employees peace of mind given that at least they have something to fall back to irrespective of their extra activities. Therefore, base pay gives employees some peace of mind which means that they are able to work much more effectively. Additionally, base pay generally stays constant, meaning that it is a more stable form of payment. This stability is essential in determining the prospects of the employees staying in an organization. Moreover, changes in base pay typically go upwards, and the fact that base pay does not fluctuate means that once it increases it is bound to stay at the higher level for a much longer time, during which the employee is bound to gain and feel attached to the organization (Henderson 2006, p. 167). Advantages of Base pay to the organization. The organization also enjoys certain merits that come with a well-designed base pay system. As such, the first advantage is that base pay reduces the general managerial and remuneration logistics as it stays fixed for a long period. This means that the complexity of administering the base pay system is greatly reduced. Therefore, the permanent nature of base pay makes it easier for the organization to focus on other aspects of the business as opposed to having to re-evaluate the payment system after every work period. Additionally, the organization is able to delineate the employees based on their levels of base pay, and this makes it easier to structure and maintain a hierarchical management system. Moreover, an organization is able to plan effectively through base pay as there are no chances of the base pay fluctuating as is the case with incentive pay. Therefore, the budgeting allocations and any other financial plans can easily be modified and altered restructured whenever the need arises without necessarily feeling that it will strain the payment system (). This is because the other payment systems like incentives generally fluctuate making it much more difficult to plan. Advantages of Incentive Pay to employees. Incentive pay has number of advantages to the employees’ particular due to its dynamic nature. One of the most important advantages is that it enables employees to work harder so that they may earn more. Commissions, bonuses and other benefits of a similar nature are generally based on the principle that the more an employee works, the higher their benefits. This performance based approach ensures that employees have to constantly seek ways of improving their overall work rate. Therefore, this makes the employees able to achieve their goals and at the same time earn while better for their hard work. Incentive pay also gives employees an opportunity to showcase their abilities to the employer for even better rewards such as a promotion (Henderson 2006, p. 218). Incentive pay is based on performance evaluations, and the employees that deliver the highest performance are generally rewarded better. This explains the way that incentive pay assists employees in their quest to gain more power and better pay at the organization. Advantages of Incentive Pay to the organization. The organization stands to gain more from the incentive pay approach than the gains made by the employee. The first advantage is that the organization is able to maximize on the productivity of all the employees. Through the incentive pay system, the organization can easily ensure that they employees deliver their best at any task that they undertake within the organization. This ensures that employees are constantly engaged in activities that are as beneficial to the organization as possible. Therefore, the organization continually maximizes on its capabilities which translates to better revenues. In fact, it is through the increased revenues that result from employee optimization that organizations are capable of maintaining the incentive pay system, since it is much more tasking than the standard base pay (Henderson 2006, p. 289). The incentive pay system is also effective for reducing employee turnover. In most instances, lack of motivation coupled with poor payment are the major source of employee turnover. Employees are constantly looking for ways of improving their work conditions and subsequently translating the extra work to better pay. Therefore, the fact that the incentive pay system enables employees have a field that they can manipulate to their liking means that their retention rate will be significantly higher (Henderson 2006, p. 178). As such, the organization will be able to retain their workforce for a much longer time, meaning that they will have a large pool of inbred talent. This will translate to better management and overall work ethics as the employees will easily be able to identify themselves and relate better with the organization, which creates a healthy environment for better performance (Shields 2007, p. 399). Employees are indeed the most important assets that a company has, and their welfare is most important element that the organization needs to prioritize. The most basic way of rewarding employees is by ensuring that the payment system being used is as effective as possible. As highlighted, both incentive and base pay have their own advantages to both the employee and the organization. As such, it is important to ensure that they are both used interchangeably to ensure the most dynamic payment system which facilitates the realization of all the benefits from both the incentive pay and base pay mechanisms (Armstrong 2002, p. 256). To this end, and organization is bound to realize employee satisfaction, improved relations, and subsequent improvement in line with the achievement of overall organizational objectives. References. Shields, J. (2007). Managing Employee Performance and Reward: Concepts, Practices, Strategies. New York, NY: Cambridge University Press. Henderson, R. (2006). Compensation Management in a Knowledge-Based World. New York, NY: Pearson/Prentice Hall. Armstrong, M. (2002). Employee Reward. Texas, TX: CIPD Publishing. 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