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The reasons for employee benefits
Most modern organizations are recognizing the employees’ compensation as one of the significant organization practices. Studies indicate that not only the employees that benefit from such practices but also the organizations (Shields, 2009). Most organizations perceive employees’ compensations as being costly. However, the benefits surpass the costs involved.
In essence, proper compensation ensure continuous flow of qualifies staff with required skills and technical competence to keep the organization at the competitive edge. The organizations have to recognize the fact that the qualified staff with required skills and technical competence is the key driver for their growth and development.
With current competitive environment, organizations find it necessary to keep such qualified staff within their workforce. In addition, organizations must remain flexible when it comes to the management of employees’ compensations and benefits
On the part of employees, increased compensation and benefits ensure augmented productivity due to the satisfaction they receive from such benefits. Well-compensated employees feel protected from social ills that may affect the work processes that in turn may result in decreased performance. In other words, compensation and benefits that takes into consideration needs of workers are critical in the general output of the employees.
The application of agency theory in executive compensation
In the context of an organization, an agency is an entity that acts on behalf of the principle. The principle, in this context, is the shareholders (Shields, 2009). The principal have the responsibility of compensating the agent that can either be a CEO or any other entity hired by the principal to perform a particular duty. According to the agency theory, the agent must be loyal and obedient to the principle.
The agents are compensated based on their loyalty that determines the level of performance. In essence, the organizations must apply the principle-based executive compensation strategies to ensure cordial relations between the agents and the principle. The advantage with principle-based executive compensation is that it irons out the differences that may arise between the principal and the agent.
Main forms of performance-related pay option
The performance-related pay covers various forms of employees’ compensations that take into consideration the output of individual workers. In other words, workers are compensated according to the individual performance. The performance-based pay is applied in the circumstances where workers can easily show a discrepancy in their productivity depending on the individual endeavor.
In such situations, performance-based pay is believed to have greater chance of increasing workers performance. There are various forms of performance-based pay. However, the most commonly practiced include the piecework pay where the compensations are based on each unit of output. Piecework pay is majorly applied in public institutions.
The advantage of piecework compensation is that it prevents public wastage and less costly in terms of financial management. The greater disadvantage with this form of performance-based compensation is that it does not motivate workers particularly in the situations where output cannot be measured.
The other form of commonly used performance-based pay is the result oriented pay. In this form of performance-based payments, workers are compensated according to the quantity of output or measured value. The compensation increases with the increase in the results. The result oriented pay is closely related to merit pay where the compensation is pegged on the individual contribution in the general performance.
Profit related pay is another form of performance-based payment where the organizations reimburse their employees depending on the level of profits or gains made by the company. One of the major advantages with all these forms of payment is that the employees are motivated to attain the greater output. The forms of compensation also enhance the performance culture among the employees and within the organization.
However, these forms of compensation can hardly be determined without appropriate measurement procedure. In the circumstances where the output cannot easily be measure, performance based compensations have increased limiting factors.
Shields, J. (2009). Managing employee performance and reward: concepts, practices, strategies. Melbourne: Cambridge University Press.