Employee Compensation and Employee Right Issues

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Part 10

Four major forms of performance pay:

The first form of performance pay is merit pay plans. These plans are based on the contribution value. The objective is that the employee who puts in greater effort gets rewarded. The design is that in a project the employee who takes responsibility for larger number of tasks receives a higher pay. The implementation of this form of performance pay is that the higher effort is identified and rewarded with an annual increase in salary. The employees who perform, contribute, and produce the most are eligible to receive incentives in the plan. The employer keeps track of the performance of each employee through different means. One is the number of tasks allocated in a project, the effort put in work groups, and the contribution to the achievement of company goals.
The second form is incentive compensation system. The design of such plans is a piece rate incentive plan. This performance system compensates the employee a specific amount of money based on the individual employees unit production output. The implementation is that a specific sum of money is paid for every unit of good produced fully. For example, an employee is paid $1 for every brake shoe key produced by the person. The per unit incentive compensation system is one of the oldest in existence. This is based on the employees' unit production output. A variation of the system is that the individual incentive plan compensations workers based on their performance during a period of time. For, examples, workers who have produced more than 4000 units of goods in a year are given a monetary award (1).

The third form is skill and knowledge based pay system. In this system pay is not determined by the level of performance of the employee but at the level in which the employee acquires additional job specific skills. The design of this system is that the skill and knowledge level of employees is assessed every year and compensation is adjusted to the skill and knowledge level of the employees. The implementation is that there is an increasing level of skills and knowledge specified by the HR. The skills and knowledge acquired during the year related to the job are listed. Compensation is adjusted to the new level. The purpose of this method is to focus on the development of employees. The companies that adapt this method want their employee to learn continuously and upgrade their skills.

The fourth form is team/group incentive systems. The design of team incentive systems is in the form of gain sharing, performance increases, or profit sharing. The implementation in gain sharing is that an incentive is given to a team if it is directly responsible for lowering the firm's operating costs due to their own efforts. The implementation of performance increases is that if the team is responsible for improvement in performance, the team is rewarded. The implementation of profit sharing is that teams are given a bonus based entirely on how the company profited during a year. Currently, as companies are changing over from a hierarchical structure to a team based structure, team and group ...