This essay deals with the reward management of companies. Compensation and remuneration are important issues in human resource management. In the following chapters, we will describe the reward management in detail in order to give a basic understanding about this topic. First, the different levels of remuneration are presented which is a necessary background information. Furthermore we would like to concentrate on the practical work in the human resource department. We will describe how the operational tasks in compensation management are separated between the staff and how these tasks changed in the last decades due to changes in the business environment. In the following part we will name and explain more in detail important factors which influence the compensation and rewarding strategy. We add a short excursus concerning legal minimum wages. This topic is one significant force to control and manipulate the strategic decisions in the reward and compensation strategy.
Moreover we will focus on performance related payment systems. This issue became more and more important in the last year and there are many employees who argue against such a system. We will explain it and afterwards we would like to name some arguments which are against this kind of a structure.
Finally we will present a practical example of compensation management. We have chosen the global-acting company BASF because we could organise some background information and we think that this company uses some of the strategic tools we described in their compensation management. Not every company is willing to show their strategies to the public because they think that their competitors will profit from this knowledge.
Table of Contents
- Introduction
- Levels of remuneration
- Fixed levels of pay
- Reward linked to performance of the individual
- Reward linked to the results of the company
- Compensation Administration
- Variables influencing compensation strategy
- Workforce expectations
- Internal Environment
- External Environment
- Excursus minimum wages
- Pay for Performance Systems
- Development of a pay system
- Merit Pay
- Bonuses
- Profit-related pay
- Criticisms about performance related pay systems
- Fairness & managerial judgment
- Design of PFP Systems
- Value of compensation
- Unhealthy Competition
- Teamwork
- Development of a pay system
- Practical Example: How to establish a Compensation Strategy
Objectives and Key Themes
This essay aims to provide a foundational understanding of reward management in companies, focusing on compensation and remuneration strategies. It explores different compensation structures, the administrative aspects of compensation management, and the factors influencing compensation strategies both internally and externally within a company. The essay also examines performance-related pay systems and their potential drawbacks.
- Different levels of remuneration and their implications for employee motivation.
- The evolution and current role of compensation administration in human resource management.
- Key internal and external factors influencing compensation strategy decisions.
- The structure and criticisms of performance-related pay systems.
- Practical application and strategic considerations in establishing a comprehensive compensation strategy.
Chapter Summaries
Introduction: This introductory chapter sets the stage by defining compensation and remuneration, differentiating between direct and indirect compensation, and outlining the essay's structure. It provides a brief overview of the key topics to be covered, including various levels of remuneration, compensation administration, factors influencing compensation strategy, performance-related pay systems, and a practical example of compensation strategy implementation. The chapter establishes the context for understanding reward management as a critical aspect of human resource management.
Levels of remuneration: This chapter explores three main approaches to compensation: fixed levels of pay, reward linked to individual performance, and reward linked to company results. It details the characteristics of each system, highlighting their advantages and disadvantages concerning employee motivation, performance incentives, and risk. The chapter analyzes how these different systems affect employee engagement and the overall compensation strategy of an organization.
Compensation Administration: This section examines the evolution of compensation administration, highlighting the shift from paper-intensive processes to more service-oriented roles. It discusses the increasing complexity of the tasks undertaken by compensation administrators due to globalization and changing employee expectations. The chapter emphasizes the expansion of administrative responsibilities to include consultative services and a deeper understanding of legal frameworks.
Variables influencing compensation strategy: This chapter delves into the factors that shape a company's compensation strategy. It categorizes these factors into workforce expectations, internal environment (company mission, size, and culture), and external environment (economic, demographic, socio-cultural, and political-legal aspects). The importance of understanding minimum wage laws and their impact on strategic compensation decisions is also emphasized. The chapter underscores the interconnectedness of internal and external factors in determining effective compensation strategies.
Pay for Performance Systems: This chapter focuses on performance-related payment systems, detailing their development and common criticisms. It discusses different types of performance-related pay, including merit pay, bonuses, and profit-related pay. The chapter critically analyzes the fairness, design, and potential negative impacts of such systems, considering their influence on healthy competition and teamwork. This in-depth analysis helps to understand both the potential benefits and drawbacks of aligning compensation directly to performance.
Keywords
Compensation, Remuneration, Reward Management, Human Resource Management, Performance-Related Pay, Compensation Administration, Strategic Compensation, Internal and External Environment, Minimum Wages, Employee Motivation.
Frequently Asked Questions: A Comprehensive Guide to Reward Management
What is the overall topic of this text?
This text provides a comprehensive overview of reward management in companies, focusing on compensation and remuneration strategies. It explores various compensation structures, administrative aspects, influencing factors, performance-related pay systems, and practical application in developing a strategic compensation plan.
What are the different levels of remuneration discussed?
The text details three main levels: fixed pay, reward linked to individual performance, and reward linked to company results. Each system's advantages and disadvantages concerning employee motivation, performance incentives, and risk are analyzed.
What is the role of compensation administration?
The text examines the evolution of compensation administration, highlighting its shift from manual processes to a more service-oriented, complex role due to globalization and changing employee expectations. It emphasizes the expansion of responsibilities to include consultative services and legal compliance.
What factors influence compensation strategy?
Compensation strategy is shaped by internal factors (company mission, size, culture) and external factors (economic conditions, demographics, socio-cultural aspects, and legal frameworks, including minimum wage laws). The text stresses the interconnectedness of these internal and external influences.
What are Pay for Performance (PFP) systems, and what are their criticisms?
The text explores various PFP systems like merit pay, bonuses, and profit-related pay. Criticisms include concerns about fairness, system design flaws, the actual value of compensation, unhealthy competition fostered by such systems, and potential negative impacts on teamwork.
What is the purpose of the practical example included in the text?
The practical example section demonstrates how to establish a comprehensive compensation strategy, applying the concepts and principles discussed throughout the text. It provides a tangible illustration of the theoretical aspects.
What are the key objectives and themes of this text?
The primary objective is to provide a foundational understanding of reward management, exploring different compensation structures, administrative aspects, influencing factors (internal and external), and performance-related pay systems. Key themes include employee motivation, the evolution of compensation administration, and the critical analysis of performance-related pay.
What are the main chapter summaries?
The summaries detail the content of each chapter: The introduction sets the stage, defining key terms and outlining the essay structure. Subsequent chapters delve into levels of remuneration, compensation administration, influencing variables, pay-for-performance systems, and conclude with a practical example. Each summary highlights the key takeaways of each chapter.
What are the key words associated with this text?
Key words include compensation, remuneration, reward management, human resource management, performance-related pay, compensation administration, strategic compensation, internal and external environment, minimum wages, and employee motivation.
What is the intended audience for this text?
The text is intended for academic use, focusing on analyzing themes in a structured and professional manner. It is suited for students and researchers interested in human resource management and reward systems.
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- Christiane Zügner (Autor:in), Stefan Ullrich (Autor:in), 2005, Compensation and Remuneration, München, GRIN Verlag, https://www.grin.com/document/44273
