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For any given Company, Business, Firm or Organization, it is the paramount duty of that Institution’s Human Resources or Compensation Committee to recognize the crucial role people play in the achievement of both the Institution’s short-term and long-term objectives as a key source of gaining advantage over its competitors1.
Therefore, for the Institution to grow and become successful it must not only be able to attract talented and capable employees, but also to retain and motivate such employees.
Employee remuneration thus becomes one of strategies that are employed by successful institutions to not only attract and retain top talents, but also as a strategy to remove ineffective and under-performing employees.2 To enforce this, such Institutions employ short term and long-term remuneration and reward plans.
The United State of Florida defines short-term rewards and benefits as benefits payable to individuals in an affected unit under an approved short-time compensation plan.3
In the general sense, short-term compensation refers to a pay strategy where evaluations of an individual or organizational performance have significant sway on the amount of pay increases or bonuses given to each employee.4 It may also refer to a system of compensation where employees are paid according the amount of hours, extra sales or targets achieved by an employee.5
In this remuneration scheme, employers are spared the expense of recruiting, hiring, and training new personnel. In turn, the employees are spared the hardships of full-time unemployment thus a more flexible means of working.
Long-term rewards and compensation scheme is aimed towards the attraction and retention of capable employees to enable an institution achieve its long-term goals and objectives. This means that a company can afford to spend more money on training, recruiting and hiring new employees.6
It therefore includes the payment of salaries, house allowances, insurance and other benefits payable to an employee as stipulated by the law.7 This makes this reward scheme to be deemed by employees more financially secure and sustainable.
New University graduate students often require financial security with a vision of becoming top professionals within their respective careers. They therefore prefer a long-term rewards and benefits plan that offers security in employment and an incentive to excel in their careers.
Whereas in the past most employers remuneration strategies were rigid and did not allow for creativity,8 present remuneration strategies require creativity on the part of the employer with employee motivation and welfare placed at the centre of these strategies.9
This now entails the payment of perquisites, commissions, bonuses, special awards, profit sharing, stock options and cost reduction incentives.10
This report will therefore examine how these long-term and short-term remuneration and reward plans are implemented and measured to remove ineffective and under-performing employees at the modern day work place.
The Justification of Long-Term and Short-Term Rewards Plan
The introduction of a pay for performance remuneration system provides the best platform to employ both long-term and short-term remuneration and reward plan to remove ineffective and under-performing employees at the modern day work place.
This is because the system links a worker’s pay to some measure of personal or organizational pay performance, usually through an official performance assessment.
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Therefore, ineffective employees under this system of remuneration can be easily identified due to their incapacity to meet the company’s goals and targets hence excluded from payment of incentives. This will eventually create room for dismissal such employees.
Pay for performance system can include a variety of rewards for exceeding average performance. One such reward is the payment of bonuses. Bonuses represent an amount of pay that is “at risk” every year. This is in contrast to basic pay, which is fixed, and primarily reflects an employee’s market value, and thus bonuses ought to depend solely on performance.
When the employee excels, he may receive a sizable bonus, but if the employee’s performance is lower, he may not receive a bonus and his salary drops to the base rate.11 As a result, above average employees are assured a certain salary, with the prospective for earning more.
On the other hand, ineffective and under performing employees do not earn any extra rewards and are thus encouraged to either raise their performances or face lay offs. Payment of bonuses is a justifiable motivation tool for employees because they give employees the much needed extra incentive to work harder to augment the base rate wage thereby increasing the company’s wages.
In fact, market trends indicate that bonuses increased employee motivation levels by up to 10%.12It should however be noted that bonuses should be payable to excellent employees only on a yearly basis.
Performance-based compensation increases are another form of short-term rewards that can be incorporated into long-term remuneration to offer incentives to high-performing employees in a company. In contrast to bonuses, performance-based pay increases are integrated into the employee’s base pay and are generally only adjusted upward.
Organizations may differ in how they move staff through the performance-based wage scales. Some pay systems include predetermined levels, which employees step through in an orderly manner, while others allow the supervisors to determine salary amounts anywhere within a broad range.
When the employee’s performance warrants a raise, the employee receives an increase. The main difference of performance-based compensation increase with bonuses is that whereas bonus is paid annually, performance based-compensation increases are permanent. Hence, an ineffective employee cannot be entitled to a raise where his/her performance does not warrant a raise.
The offering of the company’s stake through stock options is a long-term remuneration strategy that is employed to attract and retain highly qualified individuals, especially at the management levels.
Company’s and top institutions have realized that in order to retain top talents within their institutions, they need to offer a sought of entitlement to their top performers to tie them to the company. This is a paradigm shift from past practices where employers thought that the mere payment of hefty of hefty wages was enough to tie top talents to their companies.
Commission is generally based on the performance of an individual or team and is commonly applied to sales people. It is usually paid sales people either individually or as a group depending on the number of sales made or the targets achieved by the employees either individually or as a group.
Commissions may offer an attractive pay to employees who are highly active in their jobs and are an extra source of income for employees who reach and exceed their targets. In recent times, employers have been creative with the use of commissions to motivate highly productive employees.
As opposed to the past practice of basing employees’ base pay on commission, employers may pay a sizeable amount of pay and leave the bulk of pay to be on commission per sale made by the employees. In this way, highly productive employees take home the base pay in addition to the percentage of the commission of the sales they make.
This gives the employee a chance to earn a lot more money through commissions. On the side of the employer, it is a plus sign as the employer stands a chance of making more sales from increased merchandise sales. It also creates a healthy competition among the workers who may try overriding their colleagues in the sale of the company’s product.
Many employers take advantage of this by introducing individual awards such as ‘best individual performer’ whereby the winner may also be awarded with the further payment of a bonus award.
In such a scenario, ineffective employees who are unable to meet the targets or are unable to compete with the rest may voluntarily resign from the work. This remuneration strategy thus be utilized to remove ineffective and under-performing employees and to retain valued and talented employees.
Employee remuneration and rewards strategies should be flexible to meet the changing dynamics of the modern day employment needs. They should therefore not only incorporate strategies to retain effective talent, but also to get rid of ineffective and unproductive employees.
By thus adopting and implementing the aforementioned remuneration strategies that incorporate both the long-term and shot-term remuneration strategies, a modern day employer is able to remove ineffective and under-performing employees while on the other hand retaining valued and talented employees.
A Report to the President and the Congress of the United States by the U.S. Merit Systems Australian and International Experience. Web.
Coulson J. Scot, ‘Module 6: Remuneration Strategies’. Web.
Day, John and Fitton, Gary. Best practice long-term incentive based remuneration: The Australian and International Experience. Web.
Labor Section 443.011, Title XXXI of the Florida Statutes. Web.
Michael C. Jensen, ‘Remuneration: Where we’ve been, how we got to here, what are the Problems, and how to fix them’ p.20
Protection Board, Designing an Effective Pay for Performance Compensation System. Web.
Randall S. Hansen, ‘Responding to Requests for Salary Requirements or Salary Histories: Resource-Management. As at October 2, 2011.
Specke, John. Human Resource Management Strategies and Suggestions. Web.
Stone, R. J. Human Resource Management. Queensland: John Wiley & Sons.
1 John C. Specke, Human Resource Management p.3.
2 A Report to the President and the Congress of the United States by the U.S. Merit Systems Protection Board, Designing an Effective Pay for Performance Compensation System.
3 Labor Section 443.011, Title XXXI of the Florida Statutes.
4 Supra note 2, p.1
5 Michael C. Jensen, ‘Remuneration: Where we’ve been, how we got to here, what are the problems, and how to fix them’ p.20
6 John K Day and Gary D Fitton, ‘Best practice long term incentive based Remuneration: The Australian and International Experience’ p.5.
8 Randall S. Hansen, ‘Responding to Requests for Salary Requirements or Salary Histories: Strategies and Suggestions’.
9 Coulson J. Scot, ‘Module 6: Remuneration Strategies’.
11 Supra note 2 at p.14
12 Supra note 2 Figure 2 at p.15