Question

money is probably the most important reward for every employee and employers constantly ask themselves how much employees should be paid to remain attracted, motivated and retained in the organisation.

a) Develop a compensation system that Will attract, motivate and retain the right quality of staff.

Answer 1

A compensation system is a clear understanding for the employer of how much to pay to the employees for the amount of work they do and for the employees to understand how they will be paid for their work and get motivated by it to perform better. A compensation system of an organization should be such that is fair, motivating and able to retain employees and also meet the organizational goals. A compensation plan should comprise of three elements namely, the basic salary and allowances, the incentives and bonuses and benefits and perquisites.

Salary and allowances- Salary is the basic pay an employee received for being hired for a position in any organization. It is fixed for every position based on the knowledge, skills, experience and capability required for the work to be handled in that position. Salaries are based on the levels of organizational structure too. For example, the executive level, managerial level etc. Allowances are the additional pay employees get after their basic salary which may include the house rent allowance, travel allowance, medical allowances, based on the position and work of the employee. Salary and allowances are the primary compensation for motivation because that is what an employee attracts to for accepting a job offer with the determination to give his full at work for the salary he gets.

Incentives and bonuses- Incentives and bonuses are included in the compensation plan to motivate employees to work harder and achieve their targets. These incentives are based on certain targets when the performance of employees can be quantified. The employee is informed about the incentives he will receive on achieving a target by which he gets motivated to work on that target. Bonuses are usually given to employees at a certain fixed period like early bonus based on the evaluation of their performance in that year. The yearly bonus also motivates employees to work better all year long.

Benefits and perquisites- These are the non-monetary rewards given to employees to keep them motivated and retain them in the organization. These are given to employee for some good performance, achieving a certain level of position, or completing a certain period of time in the organization. Benefits and perks can be chosen based on the type of organization and employee's position. Medical insurance, children education allowance, annual vacation, retirement plan are some kind of benefits attached with compensation systems for motivating employees to show efficiency ate work.