Compensation

HRM 409
Spring 2016
Project

Submitted to
Dr.Nizar Mansour
Submitted by
Amna Rashed Mohamed Al Zaabi
[DAF1302070]
 Table of Contents

The benefits and the risks of a performance-based compensation system for the organization ...........3

Components of a performance-based compensation system for the organization ......................................4

Plan of a performance-based compensation system for the organization .......................................................5

Note to the Board of Management.....................................................................................................................................6

References ...................................................................................................................................................................................7
The benefits and the risks of a performance-based compensation system
for the organization
Benefits

A performance-based compensation system helps a leader differentiate between the performances

of high and low playacting staff and reward the performance of the higher performers.

A performance-based compensation system promotes healthy competition among employees,

encouraging each to work exhausting to realize their absolute best whereas additionally delivering
nice results for the corporate. Employees fancy being recognized among their co-workers and
higher management for a job well done.

The brightest and most skilled staff will simply become reasonless. With a performance-based
compensation system, however, motivation is achieved. High performers square measure well
aware of their skills and luxuriate in exploitation them in challenges to realize goals that are
coupled to financial incentives. A performance-based compensation system pay gives these staff the
recognition and reward they be and additionally helps firms to retain their best staff.

Risks

There is no way, with 100% accuracy, to differentiate the performance of various staff to work out
deservers of a performance-based compensation system. The most desirable accomplishments and
contributions square measure virtually ne'er measurable therefore the manager's or supervisor's
opinion remains a continuing in determinative a performance-based compensation system.

The amount of your time and energy that organizations invest in a shot to create performance
measurable for pay, including developing competencies, measurements, base lines for performance,
and so forth, is better spent on delivering service for patrons.

A performance-based compensation system can cause conflict among staff. Some may feel that the
system is unfair as a result of no matter however exhausting they work; they may not be ready to
earn any incentives. This leads employees to feel reasonless and unimportant.

A performance-based compensation system can garner healthy competition, but they additionally
could lead to the disintegration of team unity. If everyone is in it for themselves, problems might
arise. Personal goals may become a lot of necessary than team goals, which is not useful for the
corporate as an entire. Top performers could additionally be seen as a lot of valuable and necessary
than others, leading to feelings of jealousy.
Components of a performance-based compensation system for the
organization

Equity: Part possession interest at intervals the new company entrepreneurial venture or parent
company in the quite stock or preferred stock

Bonuses: Money connected to individual or cluster performance achievements such as sales, profits,
and return on investments. These amounts can be mounted, variable, or discretionary.

Salary increases: Applied in the same due to an innovative company entrepreneurial venture as a
result of the prevailing corporation.
Plan of a performance-based compensation system for the organization

Defining Performance
It is critical to link compensation to your overall business strategy. To do that effectively,
you must be ready to establish the direction the organization must move and communicate
the required actions to induce there. Compensation provides a very effective tool for
obtaining staff to maneuver within the same direction and follow constant path.
Results vs. Effort
Successful compensation plans pay for results. At the same time, they also want to
acknowledge effort as a result of in spite of however exhausting staff work; sometimes they
do not attain desired results. People will work exhausting and not reach their goals, and
you can't ignore that, especially once factors on the far side their management impact their
performance. Pay for results, but build into the arrange alternative ways in which to
reward and acknowledge exhausting work.
Design problems
How do you live the goal? The approach you live results can have a large impact on arrange
style. Do you shall measure profit? Quality improvement? client service? Sales growth? a
mixture of various measures? regardless of the criteria, be very specific regarding what you
intend to live| and the way you may measure it.
Checking before installing a new compensation system
Is the company paying for time or productivity?
Does the compensation program scale back the want for worker direction or maintain it?
Will the compensation program encourage initiative and power or merely reinforce the
standing quo?
Does the compensation program mechanically increase fastened expenses?
Does the compensation program reinforce company profits or merely acquire individual
effort, regardless of company profitability?
Implementing the Plan
Consider a bridge program. Never decrease base pay in order to place in Associate in
Nursing incentive arrange. Nothing will erode the trust level faster. (The only exception is a
turnaround state of affairs wherever the corporate should cut pays so as to survive.)
Instead, consider exploitation a bridge program that maintains trust levels whereas
permitting staff to induce wont to the thought of acquire performance.
Note to the Board of Management

Performance-based compensation system is a good way to encourage motivation among

employees. Employers that want to succeed in this more and more competitive atmosphere should
have a well-designed compensation system that motivates staff, controls compensation costs, and
ensures equity. The best compensation system mirrors the culture of the employer. Therefore,
employers should establish a compensation philosophy.

A performance-based compensation system promotes healthy competition among employees,

encouraging each to work exhausting to realize their absolute best whereas additionally delivering
nice results for the corporate. Employees fancy being recognized among their co-workers and
higher management for a job well done.
References

Schuler, R. S. and Rogovsky N. (1998) 'Understanding compensation practice

variation across firms: the impact of national culture', Journal of International
Business Studies, 29(1):159-77.
E. G. Gani (1995). Appraising the Performance Appraisal System. Journal of the
Institute of Management Studies, Vol. 7, No. 1, Bombay.
Schuler, Randall, S. (1981). Personnel and Human Resource Management. West
Publishing Co. N.Y. http://performanceappraisalebooks.info