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Managing Pay and Performance

Compensation in business means payment for the work done or damages incurred during the process of doing business. In the current contemporary world of commerce, a compensation plan is very vital for business owners. This is because it guides on when and how to compensate for a given piece of work. It is a systematic manner of providing monetary value to personnel for work done (Kerr, 2000).

A reward scheme, on the other hand, is a plan undertaken by an organization to oversee the process of giving its employees incentives based on results of performance evaluation. This may not necessarily be in monetary terms. In commerce, incentives are meant to motivate a particular group of people pursuing a common course of work or acts as a reason for preference of a given choice for other alternatives and helps build the spirit of competition in business. This has an overall effect of improving the output and quality of an organization's services (Jerome, 2001).

Indeed, you can take a horse to the water but you cannot force it to drink; it will drink only if it's thirsty – so with people. They will only do what they want to do or otherwise what they are motivated to do.

Performance is a function of ability and motivation, thus good motivation results in better performance among employees; motivation can be improved in a short while unlike ability which depends on skills acquired through education, experience and training thus its improvement is a slow and long process.

Following, are some strategies commonly used for motivation:

  • Positive reinforcement / high expectations
  • Effective discipline and punishment
  • Fair treatment
  • Meeting employees needs
  • Work related goal setting
  • Job restructuring
  • Rewards based on job performance

There is, however, a gap between an individual's current state and the desired state. This gap is reduced by factors such as motivation through compensation and other reward strategies.

In this essay, I choose address compensation based on a reward system in a manufacturing company. Employees are a vital part of an organization and their morale plays a big role in their productivity. By introducing and implementing these reward schemes, an organization benefits from attracting new talent and optimizing on it (Mercer, 2009).

My approach assumes that the criteria I develop will be based on the content of the job, requirements, functions and responsibilities of the employees. Individual employee performance a typical indication on the worker should be compensated in relation to the value of the job.

Measures taken to ensure the development of an equitable and effective compensation may include among others:

  • External factors such as current industry trends, and labor market research. In this, the company should come up with a cost friendly compensation plan that favors the financial abilities. This is very useful to the employees' motivation.
  • Internal factors such as the measure of jobs within an organization. Job ranking and employee status should be considered when giving incentives. Risks involved while undertaking the job could also be used as a measure of compensation allocation. This is very important since the employees will be able to get more courage and involvement in the activities being executed in the company. Equitability is hence achieved ensuring only the deserving employees are rewarded. All other employees will be striving to be rewarded hence there in increase productivity as they achieve their personal goals.
  • Objective measures of the performance results. Greater incentives should be given if at all greater output is expected from a person. The concern here is the productivity of the employees so as to attain the best or high output.

Job analysis and methods of data collection

In the considered plan, the data collection method primarily used entails observation, filling of employee assessment forms and through conducting client based interviews on individual employees. Records of departmental results will also play a role in determining the best performing arm of an organization. This is the preferred due to its accuracy and reliability. The saying that a customer is always right comes into play and an organization has to fulfill a customer's desires to win customer trust. In the services sector of a manufacturing system, for example, a customer's views on how she/he was handled by receptionist is a true depiction of the employee's conduct which is vital in incentive allocation. This is very useful in coming up with the appropriate employees to be rewarded and also in determining the amount to be given. This can be done per department in identifying the employees.

Job analysis involves describing and taking records pertaining different aspects of the job. It involves considering specific qualifications on how a particular job should be carried out. Thus the company is able to hire the most appropriate workforce for their labor. It also gives the company a basis for setting performance standards for their employees. The various methods that can be used for job analysis also include observation, gathering of previous or past information about the field thus comparing that with the current performance. This may also aid to identify various points of weakness which can be used to improve the workers skills. The employees are very important assets in a company hence providing for them are very important for their adequate service delivery.

Alternative methods of data collection that were available included filling in of cross-examination questionnaires in which one employee gives his/ her opinion on another employees performance. The accuracy of the information would be limited to the relationship between the employees. This is why I chose on the above methods of data collection, job analysis and evaluation. This is very important method especially in identify those employees who are not keen on the company mission and vision besides the policy adherence.

In this era of computerization, it is essential that a business comes up with a reliable database to store all the records of past employee performance which can easily be accessed for monitoring the progress of individual personnel over time. During award of promotions, fast and accurate method can be used to justify the promotion.

Steps in formulating a Total Compensation Strategy

This compensation strategy plan should take into considerations some steps to make it work without hitches. First, a compensation must be scheme devised that should only get a certain percentage of the profit. Secondly, the management should advise the employee to work hard and achieve a certain amount of profits in order to increase the percentage going to their compensation scheme. Third, a method to analyze and formulate the criteria of compensation should be created. The method of payment should also be considered such as in goods cash or in services such as free education to children (Condrey & Perry, 2005).

Organization of business strategy

A business strategy is course of action designed to attain a given aim or goal. These strategies may be more than one or may involve one strategy with several aspects thus there is need to arrange and harmonize the various components of this plan in order to achieve the set goal. The strategies should be organized in a simple and executable way to enhance implementation by all the staff members. The strategies should also be very simple in such a way that they are understood by all personnel (Erasmus, et al., 2003).

Theories of motivation

Jeremy Bentham's "The Carrot and the Stick Approach"

In this theory, reward and penalties are used to induce a desired behavior. Practically, this is applicable to instill a sense of responsibility among the employees by penalizing irresponsible and careless employees and rewarding excellent individuals. It should however be noted that some employees might be discouraged by the penalties accorded. Moreover, it is not a very fair scheme as it does not consider the differences in employees' abilities.

Abraham Maslow's "Need Hierarchy Theory"

This suggests that the human needs can be classified from the most basic to the least basic and once a need is achieved then it ceases being a motivational factor. Based on this, an employer should focus on setting high standards that challenge the employees at that level. The needs of the employees are used as the motivators hence there is needed for the company management to recognize them and use it to the benefit of the organization. This theory is considered more applicable as both the employee and his employer benefit; it's not a one-sided system.

J. Stacey Adams's "Equity Theory"

This suggests that an employee's willingness to work is influenced by his judgment of the reward system involved. If employees feel that they are not equally rewarded they opt to either reduce the quality or quantity of work or transfer to other organizations. However, if people feel that they are rewarded higher, they are being motivated to work harder. In this theory, we run the risk of overwhelming the employer as he has to keep up with the employee's expectations. The employer has to keep improving his reward scheme.

In my opinion, I consider Abraham Maslow's "Need Hierarchy Theory" as the best of the reward schemes as it strains neither employee nor employer while still benefiting both parties.

Performance based pay system

Performance based pay system is whereby employee compensation should be made according to the quality and quantity of the job done at the company. A good example is by paying the sales people according to the sales they make per day or in other words commissions. This will create a spirit of competition and will discourage reluctance among workers. This will also benefit the company since it will increase the output and therefore the profits also will be increased (Armstrong, & Brown, 2006).

Internal Pay Alignment

In a compensation plan, harmonization of internal pay should be vital for the human resource department. The internal pay alignment of the human resource strategy entails respecting the overall business strategy and aiming for the main drivers of the profits. When the strategy is set for the manufacturing company with a low profit margin, the driver of the strategy will be about maintaining the costs low and addressing potential cost cuts in the future.

Best practices versus best fit

Best Practice Model

The firm will undertake performance improvement if its best practices are implemented. In this, the plan identifies best practice; get top level of commitment from employees, reward winners. The main advantage is recognition of bad practice. It has established rules of selection therefore implementers of this system do not have to come up with their rules.%uF021%uF020However, there is great diversity of the best practice which tends to moves away from uniformity. Empirical evidence exists that human resource management is associated with performance in that high commitment and management practices are usually associated with better economic performance and a better working environment.

The pay level policy

The pay level policy is an organization strategy to pay its workers comfortably with the current fluctuations of market and competition. The plan should adopt the lead pay level policy which will entail paying employees above market and being in level with the market by the end of the year. This is because the plan involves motivating the workers in such a way that by the end of the year the market level of the company will have risen and the prior expensive employees will now be affordably maintained (Jerome, 2001).

Performance appraisal

In the plan, the company should be able to recognize the efforts of its employees and reward them proportionally according to their excellence. Thus the organization will appreciate the talent of each employee while encouraging the reluctant ones to work harder for the betterment of themselves and the company. Certainly, performance appraisal will be a key tool for the success of this strategic plan (Mercer, 2009).


In conclusion, the overall wellbeing of an organization solely lies in the hands of the employees. It is, therefore  crucial to maintain a stable employer-employee relationship in which the employee is able to appreciate value for his effort as the employer appreciates value for money invested in employing them. Maslow's theory seeking to set higher standards of living to maintain the motivational aspect of the plan also has non-monetary advantages for the employees. These include: instilling self-esteem in employees, improving the business image and raising the living standards. This is part of the corporate social responsibility of the business.

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