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Implementing Quality Compensation Packages Will Keep Your Workforce Happy

Updated on December 25, 2010

Implementing Quality Compensation Packages Will Keep Your Workforce Happy

In order for a business to remain competitive, employee incentive programs are very important in the attraction and retention of quality employees. With a balanced compensation package, employees should be offered compensation in the form base pay but should also be entitled to increases in pay based on the achievement of performance measures as well as compensation in the form of non-monetary pay. Where employee incentive programs are concerned, employees should enjoy a compensation package based on a special combination of cost-of-living, performance based and merit increases.

Cost of Living Increases

Any organization that cares about its employees should make cost-of-living adjustments based on the location of the employee. Geographic differences in cost-of-living should be measured in terms of purchasing power parity rates. The organization should aim at adjusting the cost-of-living rate for each employee in each department at the beginning of each fiscal year.

Performance Based and Merit Increases

The performance of the employees at any business entity is paramount to the success of the organization. The better an employee’s performance, the more successful the business will be. Therefore, merit pay should be utilized based on performance. All employees should be entitled to yearly merit increases based on factors such as yearly evaluations by direct managers. The quality of the evaluation will be the determining factor in the amount of the merit increase.

The following is an example of a possible breakdown of merit increase amount:

Highly Effective – 5% increase

Effective – 4% increase

Average – 3% increase

Below Average – 2% increase

Not Effective – 0% increase

In addition to merit pay, a business should utilize comprehensive performance management systems to reward the top performing employees in each department. For example, members of the scientific department should be considered for bonuses based on the quality and quantity of the scientific work that is completed. The administration department should be considered based on the quality of and accuracy of customer service related issues as well as HR, finance and operations. There should be a sales incentive program for the sales division resulting in the top selling salespeople being rewarded with bonuses. Management should be offered bonuses based on the performance of their respective departments. Finally, technicians should be offered bonuses based on the quality and quantity of their work.

Implementation of the Employee Compensation Package

Cost of living and merit increases should be the same across the board for all departments. The bonus program should be more specific to the department and in some cases the individual.

Five recommendations for providing increases to individual base pay are:

1. Provide yearly cost-of-living increases.

2. Provide yearly merit increases based on evaluations from direct supervisor.

3. Provide yearly bonuses to the top performers.

4. Ensure that pay increase system is fair and attainable for all employees.

5. Outline the specifications of the pay systems so that all employees understand it.

The performance levels that the organization seeks to impact should be above average to highly effective performance from each employee in each department. By offering incentives based on individual performance, it will ensure the best possible performance for each individual employee. Incentives based on team and organization wide performances would allow less productive employees to benefit from the work of the other employees that he or she is working with and could result in an undeserving employee getting a merit or performance based pay increase.

A combination of base pay, incentives and non-monetary compensation will motivate employees to best align themselves with the company’s goals. The alignment of any company’s pay strategy should include three aspects:

1. Align with the business strategy

2. Align externally with the economic and socio-political conditions

3. Align internally within the overall HR system.

The generous pay strategy will motivate employees to perform at a high level in order to receive the salary and incentives related to being an employee of the company. The pay strategy should be aligned with economic and socio-political conditions to ensure that all of the organization’ employees will earn an above average wage based on their position at the company as it relates to similar positions in the market.

Non-Monetary Incentives

Where non-monetary incentives are concerned, a reward and recognition program will be implemented. Employees will be recognized based on exemplary job performance and attendance. The rewards for the exemplary job performance and attendance will be:

1. Time off with pay

2. A relaxed work environment

3. The use of top of the line equipment at work

4. Extended lunch periods

5. Rewards (certificates, trophies, gift certificates)

6. Reserved parking

The overall compensation strategy should motivate employees to remain aligned with the goals of the company as well as allow the company to remain competitive with other organizations. An incentives program is the key to employee motivation, satisfaction.


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