The Basics of Remuneration Systems

Discuss about the Job Satisfaction and Employee Retention.

Remuneration is a term which means pay or compensation, however, it is a broader term and it includes not just the pay but also the basic salary, bonuses and commissions. This remuneration also includes the other types of the pay benefits and the terms of the employment contract as well. remuneration is of the several elements that affect the employees and the success of the company as well (Gigliotti, 2013). It is important to note that there lacks a universal efficient system which is applicable to the wide type of individuals and businesses. Setting up the best remuneration system involves the best output from the employees and thus is found to be tricky. When the remuneration includes both the employees and the top managers, then it seems difficult to get things right (Pencavel, 2012). This study focuses on a case study company named O’Meara Electronics Company and the company recently recruited a Human Resource consultant for the purpose of revamping the person based remuneration system and performance management system.

The position based remuneration system contrast with the person based remuneration system and in this pay system includes the position and responsibilities of a person rather than the personal skills. While some of the employees might think that there is a wide opportunity for optimizing the earning and matching the abilities. The position based remuneration system offer some amount of benefits to the women employees (Madhani, 2014).

Pay for value- The position based remuneration system is based on the job-based pay system. A person gets paid for the work he or she does in a company. This provides a scope of compensation in the form of a tangible quality in comparison to a skill based system, where a supervisor has to assess an employee based on his or her qualities and skills. Employers specifically designate the schedules and the grades that indicates the quality or the wage for a particular job and this enables an employee to see the duties assigned and the assigned pay (Gupta, Conroy & Delery, 2012).

Fairness and equality- If not 100 percent, but position based remuneration system is potential enough to reduce the likeliness of gender discrimination in pay. Since the focus alone is on the job, the pay system does not get affected by the qualities of the person holding the job. It is also a fact that some of the employers use the position based systems to gain protection against the discrimination claims. Although there exists a wide gap between the pay system of men and women, the position based remuneration system thrives to bring the ambiguity into a particular position (Lips, 2013).

Position-Based Remuneration System: Benefits

Clear steps for higher pay- the process through which more money is earned is through a clear position based pay system. In order to gain more money, a person needs to gain in position to experience a significant boost in pay. It is rather easy for a person to get a promotion to a feasible job and it is possible through analysing the qualities and the skills possessed by the concerned person. In a position based remuneration system, the path through which a person earns a promotion is informal and is also grounded and depends on the development of new abilities and skills (Perry et al., 2012).

Pay comparisons- Although it is not necessary then it depends on the intent of an employee, the position based remuneration system allows an employee to easily make a comparison of the salary offered by the other companies or the employers. This can be considered to be true when most of the companies use the position based remuneration system. Another side benefit that the employers take by following position based remuneration system is to make a comparison of the salaries offered by the other market competitors. This provides an employee to increase their earning potential with respect to the earning potential of the employee and the value of work (Ridge, Hill & Aime, 2017).

Easy to administer- in a position based remuneration system, the job itself is called a unit in determining the basic pay. The human resource managers decide the maximum and the minimum pay associated with each job types and the compensation of the employee are based on the performance. Evaluation of the job of an employee can be determined through the employee performance. The system is although easy to administer and emphasizes on the allocating the pay in a systematic way and ensures that the jobs that are most important receive more payment (Daley, 2012). 

Person-based remuneration system is one of the kinds of remuneration or pay system which is directly linked to the depth of the skills. It is also related to the number of the skills that an employee applies or acquires for the purpose of developing a deeper and a broader workforce. Such a remuneration is in addition to the general pay and increases with the what the employees receive (Shields et al., 2015). The remuneration is usually tied to the three types of skills which are as follows:

• Horizontal skills and it includes the broadening of the skills and with respect to the range of the tasks.
• Vertical tasks include acquiring skills of a higher level.
• Depth skills are the skills that are a high level of skills and it includes the specialised areas with respect to the same job (Nalini et al., 2016).

Person-Based Remuneration System: Benefits

The person based remuneration system differs a lot from the traditional pay systems and it reflects the differences in skills consisting of the skilled, semi-skilled and the unskilled workers. The difference is as follows:

• Person-based remuneration system is a skill-based pay system and is not a job, not a job based or position based remuneration system. This remuneration system rewards an employee for his or her skills rather than the job he or she does. The job worth clearly gets reflected in the basic rate of pay for the minimum amount of skills. However, it is important to note that the pay progress is directly linked to the acquisition of skills (Shields et al., 2015).
• The person based remuneration system emphasizes the wide range of skills and it makes an employee multi-skilled and also flexible
• This type of remuneration system encourages the development of skills.
• A skill-based pay system does not clearly depict how well the skills are used and this falls within the performance component of the pay. However, it is important to note that that the remuneration system might include the performance-oriented pay system and it recognizes the different pay systems for the skills an employee possess (Hon, 2012).
• The person based remuneration system needs to be underpinned by the opportunities and training which is also critical to the success of the system. It is also important to note that the traditional system is not dependent on the opportunities (Nalini et al., 2016).

In the history of the industrial relations, a commonality of the skills of the employees developed between the employees and the employers. Skills provide the employees with a protection against the unemployment and also provides employees with the opportunities of higher earnings. However, it is also important to note that the skills provide the employee as a means to achieve competitiveness (Chinomona, 2013).

Competency-based pay is a type of pay structure which emphasizes on how the employees perform in the workplace and are irrespective of the position and hierarchy as well as the years of experience. There are different benefits or arguments based on which the competency-based pay structure is the best (Hon, 2012).

Serves as a motivational tool- in different types of the business verticals, the determination of the pay structure is based on the years of service that an employee has rendered to the company. However, due to the competency-based pay structure, the only thing that stands between the greater wage and the employees is how well the employees perform and how much they are contributing. Through this type of pay structure, the employees are able to take greater initiative and contribute to the competitive advantage of the organization (Sule et al., 2015).

It reintroduces a culture of self- improvement- once the culture of an employee is established, it is difficult to change the same into a different direction and setting the temperament into another way. This type of the pay structure allows and offers the employees to have a tangible reward and helps the employees to have their skills grow and at the same time help them in improving themselves (Urbancová & Šnýdrová, 2017).

Improves the staff retention- employee retention is one of the critical issues and the enterprises today are facing a lot is issued as the human resource managers find it difficult in reducing the employee retention. It is known that the pay structure itself cannot retain the employees, however, it cannot be ignored. The competency-based remuneration model keeps the employees motivated and it also provides the employees with the chances of skill development and self-improvement (Terera & Ngirande, 2014).

Encourages the corporate transparency- the competency-based pay structure creates a trust between the higher level managers and the employees. It is capable enough to improve the employee engagement.

Case Study Example: O’Meara Electronics Company

Conclusion

Thus from the above study, it can be concluded that remuneration system plays a major role in retaining the employees in an organization. The remuneration is specially divided into two types: person based remuneration system and position based remuneration system. After analysing both the types of remuneration system it has been found that the person based remuneration system is much more superior in comparison to the position based remuneration system. The person based remuneration system is also called competency-based remuneration and it has several benefits like it serves as a motivational tool, Improves the staff retention, it reintroduces a culture of self- improvement.

Considering the O’Meara Electronics company is important to note that the organizational performance is entirely based on the individual performance. Thus, it is practical to first set goals which will be achievable and the workers at the lower level will be provided with these set of goals. After the successful completion of the first or the preliminary stage, a second stage will be framed which will have the goals set by having a consensus among the managers, supervisors and the workers. This will help in the realization of the organizational goal and it successful attainment. The O’Meara Electronics company requires a person or competency-based remuneration system and it should be based developed and implemented within a six months’ period. The procedure of development of the remuneration system will be based on the evaluation of the workers. This evaluation process will be done on a monthly basis and it will require the setting achievable targets for the fundamental evaluation of the workers. The second stage will include the setting of personal targets after meetings with the managers and the supervisors. The valuation process after this stage will reveal the competency level of the employees and the final remuneration will be based on this stage.

Reference

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