Can Pay for “Position” rather than Pay for “Performance” be a reason for Negative Employee Experience ? What is your Experience on Remuneration?

From the employee point of view, Monetary Compensation or Financial Incentives are at the core of the ambition of many employees, thus it is one top reason for employment. It is realistic enough for the monetary perspective to become the core of employment in many cases since in terms of basic needs of humans - putting food on the table is the priority. Financial Incentives meets the employee in the form of a Remuneration Package. Thus, let’s consider the definition of a Remuneration Package first. The definition Scribd offers is;

“The remuneration packets of an employee include wages/salary, incentives, fringe benefits, perquisites and finally non-monetary benefits.” (Aniket)

Next let’s look into the components of a Remuneration Package;

1.Wages/Salary
This refers to a fixed amount paid in exchange of obtaining services by an employee. This could be annual, monthly, biweekly or weekly for full time employees while for part timers  this would be the hourly rate.

2. Incentives
These are drivers used to attract and motivate employees. The following types of incentives are available.

3. Fringe Benefits
These are extra benefits offered to an employee outside of salary/wages. Some examples are;

4. Perquisites
These are usually benefits offered to executive status employees in order to maximize the time available for business related purposes and at the same time enhance the quality of  their lives. Some examples include;

5. Non-Monetary Benefits
The could include many different elements. Some are listed below;

Remuneration of an employee may be decided on the basis of the Compensation System. Position/Job based compensation and Knowledge based compensation are two such compensation systems that we will review. These compensation systems need not be standalone or whole systems. But could be a combination of both compensation systems.

Eg- Base pay could be Position Based while incentive plans could be Knowledge Based.

Let’s review the two compensation systems;

F A C T  S	Knowledge Based Payment	Position Based Payment
	Based on; ·   Variable Pay ·   Business Performance ·   Based in individual performance ·   Based on team and organizational performance	Based on; ·  Cost of living and labor market ·  Base wage/salary ·  Evenly distributed between employees ·  Co-related with seniority
	Also known as contribution based pay, skill based pay etc.
	Focuses mostly on the ability of the employee to perform the job	Focuses mainly on the job analysis and the requirements of a given position
	Have been around since 1960’s but gained popularity in the 1990.	Usually comprises of an annual increment of 3%-4%
	Knowledge based payment is of three types;        1)   Merit Pay         2)   Individual based bonuses        3)   Long Term Incentives (Park,Struman,2016)
	“Merit pay is an incremental increase in base salary used to recognize past performance … and bonus pay is a lump sum cash payment used to recognize past performance.” (Anthony, 2013)
A D V A N T A G E S	Select, attract, motivate and retain key employees	Each position is provided a pay range based on job duties.
	Increases Organizational performance as a whole and strive towards the vision in a speedy manner	Will differ only according to education and seniority.
	Lower turnover rate and increased recruitment	Predictable payment method, eases in budgeting
	Encourages continuous learning and job enlargement	Reward long standing employees
	Flexibility in position coverage enabling work team to cover for absentees	Reduces potential for discriminatory practices since the pay is structured for the job
	Increased self-esteem and self-management abilities	Comparison of payments between companies is possible
	Faster adaptation to changes in technology	Provides an illusion of possible career paths and promotions
D I S A D V A N T A G E S	Bitterness and conflicts with colleagues receiving high pay	High performers may get frustrated when others get similar pay
	Spend time for learning and skill development in order to perform well	Leads to office politics in order for a promotion
	Personal reluctance to learn	Motivational scarcity for employees in the high end of the pay range
	The decisions on performance could be biased	Less compatible in team based structures and incentives
	Diverts focus from core business, where resources are required to identify the contribution of each employee on an ongoing basis	Does not assist on development of a flexible organizational structure or boundary-less organizations
	Some research shows that this method could tie up with health effects of employees, where they would try to achieve unreachable targets in order to reap the benefits	Job holder may not be competent in the job

In conclusion, both the traditional approach of Position related pay and the Performance related pay has pros and cons. Since the Human Resource approaches need to align with company strategies, and this in order has the requirement for well-equipped human capital in order to gain the competitive advantage; as of the Resource Based View. Thus, the need to motivate all members and retain key members, plays a vital role, for the company in its path on achieving its vision. The Performance based payment method seems to provide positive outcome on achieving that goal. Thus, the Performance based approach seems to dominate the future of payment slabs and enhance a Positive Employee Experience in an organization rather than the Position based approach. 

References

Barkman, D.F(2002)What is SBP? Its Pros and Cons. Why Use it? [online]http://bizcenter.com/index.php?page=skill-based-pay-excerpt[Accessed 1 November 2017]

Kokkemuller, N.Job based pay versus knowledge pay[online]Available from http://work.chron.com/jobbased-pay-vs-knowledgebased-pay-8232.html [Accessed 27 October 2017]

Kokkemuller, N.What are the Advantages of Job-Based Compensation Structure? [online] http://woman.thenest.com/advantages-jobbased-compensation-structure-19791.html

Available from [Accessed 1 November 2017]

Liritz,L.(2012)Introduction to Skill-Based Pay[online] https://www.erieri.com/pdf/skillbasedpay.pdf [Accessed 30 October 2017]

MaRSLibrary(2009)Employee Compensation: Salary, wages, incentives and commissions[online] https://www.marsdd.com/mars-library/employee-compensation-salary-wages-incentives-and-commissions/[Accessed 28 October 2017]

Mohanta,G.C.Bases for Traditional Pay System& Modern Pay System and Establishing Pay Plans[online] https://www.slideshare.net/GaurangaMohanta/bases-for-traditional-pay-system-modern-pay-system-and-establishing-pay-plansAvailable from [Accessed 1 November 2017]

Park,S., Struman,M.C(2015) Evaluating Form and Functionality of Pay-for-Performance Plans: The relative incentive and Sorting effects of Merit Pay, Bonuses and Long Term Incentives[online]

http://onlinelibrary.wiley.com/doi/10.1002/hrm.21740/epdf?r3_referer=wol&tracking_action=preview_click&show_checkout=1&purchase_referrer=journals.sagepub.com&purchase_site_license=LICENSE_DENIED[Accessed 25 October 2017]

People Center(2015)Job-based vs People-based pay Structures[online] https://peoplecentre.wordpress.com/2015/10/17/pay-structures/[Accessed 1 November 2017]

Root, G.N Types of Incentive Plans[online] http://smallbusiness.chron.com/types-incentive-plans-1307.html[Accessed 28 October 2017]

Thompson,S.What is the difference between merit pay incentives & Pay for Performance[online] http://smallbusiness.chron.com/difference-between-merit-pay-incentives-pay-performance-65935.html[Accessed 26 October 2017]