Page 170 - DMGT406_HUMAN_RESOURCE_MANAGEMENT

Unit 10: Compensation and Benefits

 As employees begin to equip themselves with more organizationally-relevant skills- Notes
through constant training and developmental initiatives undertaken by the organization-
they become more valuable to an organization.
 Of course, the system is not without critics. Identifying competencies, their proficiency
levels, and assessing employee competencies from time to time would demand
considerable amount of managerial attention, time and commitment.
 Many a time, an organization might be forced to pay employees for knowledge and skills
they possess but not put into practice!
 The linkage between competency learning and pay increases need to be highlighted
constantly.

 It all depends on how employees ultimately evaluate the effort-reward relationship.
 If competency development is viewed as something not related to increases in pay,
employees may not be enthusiastic about learning new competencies.

It is therefore, not surprising to find that in recent times, competency-based pay has become the
focus of much heated debate in corporate as well as academic circles. While its advocates assert
it achieves precisely measurable benefits, its opponents argue that it tends to lead to unfair,
invalid, and discriminatory outcomes. Among companies that have implemented competency-
based pay, there is evidence that the failure rate is relatively high.
10.6.2 Guidelines for Effective Performance based Pay System

To be fair to employees, organisations should keep the following guidelines in mind while
instituting merit-pay systems.

Establish high standards of performance, so that only the truly outstanding employees emerge
as winners.
Develop accurate performance appraisal systems. The focus must be on job-specific, results-
oriented criteria as well as employee behaviours.
Train supervisions in the mechanics of carrying out appraisals and offering feedback to employees
in a proper way.

Tie rewards closely to performance.
Use a wide range of increases. Also, make pay increases meaningful.

10.6.3 Incentives

Fringe benefits are different from incentives. Incentives are paid in lieu of superior performance
shown by an employee. It is like a reward paid for performance. They are paid as a means to
attract, motivate and retain employees. Incentive pay plans can elicit strong feelings. Incentive
pay plans is based on the philosophy that a fair day's work is not normally attainable without
some proportion of pay being at risk because time based workers produce only about 50 to 60
percent of the output of incentive pay workers. Incentives can be broadly classified into financial
and non-financial incentives. Financial incentives are the monitory benefits provided to
employees for their superior performance whereas non-financial incentives are those incentives
that satisfy social and psychological and esteem needs of an employee. They can be further
classified into following types:

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