Management - Compensation Methods - Essay Example

In this paper, we will discuss some major compensation methods/employee benefit programs, which a company can use to improve employee performance. Types of Compensation According to Menguc and Barker (2003), use of compensation plans influences all dimensions of organizational performance. Companies use different types of compensations to increase employee motivation. Some major types of compensation include bonuses, free meals, housing allowance, health insurance, company car, travel allowance, free patrol, promotion based on performance base pay, overtime pay, and commissions.

In some companies, the compensations like bonuses and commissions are associated with the job responsibilities of the employees. Some jobs are of very difficult nature, so the companies put some rewards for the people associated with those jobs in form of bonuses in order to encourage them and make them dedicated to their jobs. Companies categorize different types of compensations into short-term and long-term programs. Mazin and Smith (2004) asserts, “Short-term programs are usually based on cash payments, while long-term incentives typically involve stock” (p.113). Short-term rewards include cash and stock bonuses, which a company gives to the employees when they achieve short-term goals, such as, increase in the company’s revenue. . The basic purpose of short-term compensation programs is to increase employees’ performance and productivity over a specific time.

Long-term rewards, on the other hand, are such rewards that a company gives to its employees when they increase the company stock’s value in the market. The stock value increases when a company maintains its product standard and quality for a long time. Good quality of products generates higher levels of productivity and revenues, which result in increasing the stock value of the company. Companies reserve long-term rewards usually for the employees who are at managerial posts. Calvin (2001, p.119) asserts, “In established firms, long-term incentives, such as stock options, are reserved for senior salespeople, national account managers, and sales managers”.

Commissions and bonuses are two of the most useful types of compensations because they attract a large number of employees towards the companies, which offers such compensations to the employees. Commission is a form of compensation that a company gives to its employees on achieving some targets. Commissions and bonuses play a key role in retaining talented and skilled employees for a company. Increase in salaries is also one of the most effective ways to retain key employees of a company. Employees do not want to leave the job when their companies reward them in terms of increase in their salaries.

Compensation programs not only make employees work hard to achieve the incentives but also make the company achieve higher levels of profitability and productivity. Apart from increase in salaries, some other types of rewards also play a good role in increasing employee motivation. These rewards include foreign trip of