Introduction
An incentive system is a sufficient system of remuneration and benefits that contributes to the performance of an organization. In essence, the reward structure is equivalent to specific employees’ status and official recognition (Aburumman et al., 2020). Nevertheless, proper motivation involves building a competitive remuneration system for individual employees who are valuable to the organization regarding their qualifications and the scarcity of their profession. Accordingly, the absence of a reasonable and competitive remuneration and benefits strategy leads to the dismissal of employees or the inefficiency of their work. Thus, it is essential to identify three factors of an adequate compensation and benefits system and five main components of a large-scale organization’s reward and incentive scheme.
Three Factors of an Efficient Compensation and Benefit System
Material Motivation
First, material compensation is a factor in an optimal reward system. Material motivation is the money the staff receive for their work. This factor includes a constant and a variable part. The permanent position is set by the contract as salary, and the variable part depends on the employee’s performance; it can be a percentage or a commission. Employees receive a portion of the value of the goods or services they have sold (Aburumman et al., 2020).
In the second case, the employee’s wage is based on the commission. Moreover, bonuses for achieving goals are a factor in an effective compensation system. Employees are rewarded when they achieve high-quality goals or exceed the target criteria. For example, they accomplish tasks faster than planned or save company resources (Aburumman et al., 2020). Therefore, this factor of the system of incentives and rewards enhances the effectiveness of the team and the organization as a whole.
Non-Material Motivation
Secondly, the non-material motivation factor is required for the workforce to perform their duties properly. This aspect of a successful system of compensations and benefits does not concern payment for labor and includes everything the employee receives from the company, except for the salary (Aburumman et al., 2020). Non-material motivation measures, such as when the company provides free lunches, can be tangible. Such measures are either designed for all company employees by default or applied as a reward for good work.
Among such ways of non-material motivation can be listed social guarantees and benefits such as health insurance and transportation to work, training at the company’s expense, and participation in professional conferences. In addition, non-material motivation factors include corporate awards, plaques of honor, and corporate events (Aburumman et al., 2020). Consequently, the non-material factor of the effective system of compensations and benefits is aimed at stimulating the primary consumers of employees and demonstrating their value to the company.
Indirect Motivation
Thirdly, indirect motivation is also part of a well-designed compensation and benefits program that enhances organizational performance. This can include support and benefits for employees’ families, such as vacation packages, paid transportation tickets during vacations, New Year’s gifts, and even money for children’s education (Aburumman et al., 2020). Moreover, if workers understand that they can benefit from these factors, their work efficiency will increase.
Simultaneously, creating productive work in the organization is impossible based on benefits alone. In a company, there should be a system of penalties for poor-quality work, the order of disciplinary penalties, reduction or cancellation of bonuses, and reduction of social guarantees and benefits (Aburumman et al., 2020). Thus, it will allow the creation of a framework in which employees can use the system of compensation and benefits that contribute to the organization’s efficiency and uniformly assess the consequences of failure to comply with their obligations.
The Five Essential Components of the Compensation and Benefit System
Compensation and Benefit Philosophy
One of the primary considerations of the compensation philosophy is fairness. Ensuring that employees are rewarded comparably to their peers for doing the same or similar work should make it easier to defend the philosophy and increase employee satisfaction. Another important goal for a large organization when developing a compensation philosophy is competitiveness in the marketplace (Aburumman et al., 2020).
A company’s offerings compared to those of its competitors can impact the employees who work for them. Attracting talented and qualified candidates requires creating a system of incentives and bonuses for employees that is better than competitors (Aburumman et al., 2020). Further, to avoid losing valuable staff and encourage them to join the company, it is imperative to establish a retention philosophy. This pay philosophy can define incentives, recommendations for raises or bonuses, and ranges for different job classes. The purpose of these inclusions is to motivate employees and keep them engaged in their work and satisfied with their compensation.
Accordingly, top management must create a comprehensive compensation and benefits philosophy based on retaining essential employees and recruiting new ones to prevent permanent dismissals. They must fairly evaluate each employee’s work and create a system of bonuses and benefits (Aburumman et al., 2020). Moreover, managers need to present a holistic concept to the staff so that they can evaluate their capabilities and work productively to receive bonuses.
Pay Structure Architecture
Significantly, workers who hold similar positions and have the same qualifications should be divided into certain classes. Such gradation is necessary to create different classes of employees and to establish fair and equal pay and compensation for them (Stewart & Brown, 2019). Accordingly, employees in the same pay grade based on the degree of responsibility, experience, or complexity should receive the same salary and bonuses.
However, each pay grade must set transparent and understandable worker pay ranges (Stewart & Brown, 2019). This is critical because employees performing the same function may receive different bonuses and salary levels. Therefore, explaining the rules of pay ranges to employees of the same class is crucial to enable them to evaluate their work independently and not consider it unfair that employees in their pay ranges have better bonuses. Additionally, pay with is another way to structure labor in a company (Stewart & Brown, 2019). A wide range of pay should be applied so that every employee at every level can be fully realized and compensated depending on the quality of their work.
Top management should create a holistic pay structure divided into pay grades, ranges, and widths. They also need to clarify the criteria by which employees belong to different classes and have unequal salaries in the same class (Stewart & Brown, 2019). Thus, the pay width category will allow managers to set transparent and fair expectations among employees through a detailed explanation of bonus accrual. Hence, to implement this structure, top management must visually present the rules for calculating salaries and the range within which they can differ. Staff will not feel unfairly treated and will actively work to obtain the maximum pay.
Ratio of Base Pay to Incentive
The company’s management should determine the incentive compensation or bonus annually. Due to the large size of the organization, it is necessary to evaluate each department’s productivity for the enterprise’s overall efficiency. Hence, the highest bonus on the salary should be given to employees from the departments that perform the most crucial work.
The optimal ratio for rewards is thirty percent of the monthly salary for employees who are the leading specialists in the company (Stewart & Brown, 2019). Meanwhile, a fifteen percent bonus may be provided to employees who perform support functions in the organization. Moreover, managers’ primary responsibility is to evaluate each pay grade’s contribution to the company’s overall profit and to provide them with a bonus grade accordingly (Stewart & Brown, 2019). Top managers should provide a clear rationale for all pay grades regarding the bonus system.
Focus on External Equity
Since many employees have left the organization because they were paid more than the company’s competitors, we must focus on external equity. Therefore, introducing a system of payments and compensation in line with the market will help solve the problem of staff turnover in the organization. For this purpose, managers must research market dynamics and competitors’ compensation policies (Stewart & Brown, 2019). After that, they need to assess whether the necessary changes in compensation can be made, taking into account the organization’s profitability. As a result, such a policy will help to retain workers with experience and high qualifications in the team.
Principal Types of Benefits
It is essential to include health insurance in the list of bonuses because it is one of the main benefits. First of all, this benefit for the staff gives peace of mind that comes with the realization that a person and their family are insured in case of a severe accident or illness. Paid vacation or paid time off should also be provided. Like vacation, paid sick days will let people know they are cared for, valued, and understood (Reddy, 2020).
The reason is that meeting the needs of the company’s employees for rest increases staff motivation. Introducing such privileges allows workers to feel that their employer trusts them. It will enable them to calm their time by themselves, paying the necessary attention to the work project, and achieving the desired result. Meanwhile, managers need to finalize these basic categories to include the amount of vacation compensation and the number of days (Reddy, 2020). , depending on the employees’ desires. Moreover, they must introduce minor bonuses such as compensation for a gym or other activities.
Conclusion
Material, non-material, and indirect motivation are significant remuneration and benefits system factors. Only when workers receive additional payments or intangible benefits for themselves and their families will they maximize their productivity for the company’s success. The company should create a fair compensation philosophy and properly present it to workers to reduce employee turnover. This philosophy must include bonuses and fringe benefits to ensure the company can retain workers.
Furthermore, the compensation structure should be based on the complexity and importance of each employee’s job, and the emphasis on the competitive nature of the compensation and benefits system should be on the external market to avoid employee attrition. In addition, the primary benefits should include health insurance, predictable vacation and days, and additional provision of active recreation for the team. Therefore, it will allow workers to receive a competitive compensation and benefits system and help the company retain valuable employees.
References
Aburumman, O., Salleh, A., Omar, K., & Abadi, M. (2020). The impact of human resource management practices and career satisfaction on employee’s turnover intention. Management Science Letters, 10(3), 641-652. Web.
Reddy, V. S. (2020). Impact of compensation on employee performance. IOSR Journal of Humanities and Social Science, 25(9), 17-22. Web.
Stewart, G. L., & Brown, K. G. (2019). Human resource management. John Wiley & Sons.
