The Various Methods of Remunerating Employees

Essay, 2020

6 Pages, Grade: 86.0/100.0


The Various Methods of Remunerating Employees


Reward can be characterized as a remunerations and compensation given to employees in return for their services (Torrington Et al, 2014). Compensation shapes a significant subset of the complete rewards and contains those components that can be esteemed in money related terms (Jiang Et al, 2009). Compelling compensation technique regularly supports the achievement of the business as it is considered as one of the vital components to draw in and propel human capital. Herzberg (1993) attests that lacking compensation is one of the key components causing disappointment among employees.

The term compensation is frequently connected with fundamental pay. Be that as it may, compensation is a lot more extensive term and can incorporate a wide scope of procedures for compensating employees as salaries, rewards, bonuses, piece-based compensation, commission, worker investment opportunities, fringe benefits, differed considerations, performance-related compensation and benefits sharing among numerous others (Torrington Et al, 2014).

One of the significant difficulties for associations in the contemporary business climate is that of employees motivation. Motivation can be characterized as 'how much an individual needs and decides to participate in certain predefined conduct' (Mullins, 2002, p.418).

The reason for this exposition is to fundamentally look at different strategies for worker compensation and survey its function in the vital administration of HR for an association by revealing insight into its key focal points and disadvantages. The essay will at long last finish up by investigating if a specific strategy for compensating employees fits all circumstances or is favored over different methods for compensation.

Different Methods of Remuneration Packages given to Employees

Performance-related pay scheme

As the name recommends, performance-related compensation plans reward employees by connecting the degree of remuneration with the exhibition of the employees (Perry, Engbers, and Jun, 2009). Common instances of performance-related compensation incorporate rewards, commissions and deferred considerations. One of the vital focal points of performance-related remuneration is that it gives a successful method for compensating by recognizing great and helpless entertainers (Torrington Et al, 2014). Different favourable circumstances of performance-related compensation are expanded motivation among employees to improve execution, pull in and hold superior workers and skilled people, and at last improve corporate performance (Torrington Et al, 2014).

In any case, exact proof features that performance-related compensation has frequently been incapable (Frey and Osterloh, 2012). Frey and Osterloh (2012) additionally feature that the connection between the expansions in performance-related compensation and corporate execution has stayed frail. Performance-related compensation is additionally censured for actuating employees to take useless choices, as it goes about as an incitement for employees to face more noteworthy challenges which could put an association's endurance in question (Frey and Osterloh, 2012). Performance-related compensation may likewise prompt an irreconcilable situation for the employees by actuating them to zero in only on territories that sway their compensation and disregard other significant undertakings that might be in the drawn-out interest of the organization. Performance-related compensation may frequently stifle the natural motivation of employees (Frey and Osterloh, 2012, p.2). Amabile (1998, p.79) declares that inborn inspiration reflects employees enthusiasm and interest in work, which strongly affects the performance of an employee and the business. Furthermore, Maslow's hypothesis of motivation explains that inside each person there is an order of five requirements, hence, these are fundamental physiological necessities, security needs, belongingness needs, esteem needs and self-actualisation needs (Maslow, 1943). Maslow affirms (1943, p.363) that the necessities lower than the self-esteem needs can be cultivated through remuneration, while the more significant level requirements of esteem and self-actualisation for the senior management are probably not going to be accomplished through extraneous reward such as performance-related compensation. Accordingly, it may not go about as a persuasive factor for the senior administration.


In contemporary occasions, expanded quantities of business associations have begun connecting the degree of remuneration offered to the employees with the profits of the association (Torrington Et al, 2014). Investment opportunities are a typical illustration of this sort of remuneration. One of the vital focal points of this remuneration strategy is regarded to be a more elevated level of duty by the employee towards the organization due to an expanded degree of shared revenue (Torrington Et al, 2014). Another basic favourable position of profit-sharing plans is regarded to be changed in the disposition of labourers because of the expanded feeling of belongingness with the organization (Rappaport, 1999). Amabile (1998) states that the sentiment of an expanded feeling of belongingness prompts natural motivation which has a more straightforward and more grounded relationship with the organization's performance.

Nonetheless, observational proof features an absence of proof of the connection between this kind of remuneration and performance of the organization (Rappaport 1999). One of the vital reactions of this kind of remuneration is that any improvement in organization's performance will reward both great and awful entertainers, bringing about helpless motivation for superior workers as they may feel that part of the reward that they merit is being delighted in by the low entertainers (Rappaport 1999). Besides, once in a while profit-based remuneration approaches may neglect to persuade the employees as they regularly feel share costs are underestimated notwithstanding business beating the conjectures (Rappaport 1999). Finally, Kohn (1993) contends that investors anticipate that the board should reward employees when the organization has beaten the market. In any case, exact proof features that for heads to practice the alternative profitably, the performance of the organization need not be unrivalled and chief can without much of a stretch benefit in the hours of the rising business sector (Rappaport 1999). In this manner, if employees feel that the development in offer costs are free of their performance, there is a danger that profit-based remuneration plan may not go about as a persuasive factor.

Piece-Based Remuneration

Piece-based remuneration scheme is truly one of the most regularly utilized impetus conspires by and by for manual workers and is based on the number of things they produce or the number of hours worked by them (Torrington Et al, 2014). Common instances of piece based remuneration plans incorporate the individual efficient plan, estimated day work plans, bunch motivations, plant-wide extra plans and commissions (Torrington Et al, 2014). Points of interest of such plans ordinarily incorporate the expanded degree of control by the administration over the creation cycle and it likewise goes about as a cost-control measure on the grounds that the specialist's primary objective is to manage the work practically and effectively to accomplish the objective (Kohn, 1993). Besides, Maslow's hypothesis of motivation (1943), as referenced above, features that extraneous rewards, for example, piece based remuneration, may go about as a persuasive factor for manual workers in light of the fact that these workers are probably going to have the lower level requirements according to Maslow's hypothesis.

Like different sorts of remuneration, piece based remuneration has its own arrangement of detriments. Remunerations, for example, bunch motivations and plant-wide extra plans lead to extra tension on employees and make relational hostilities as a result of superior workers not having the option to get the impetuses because of some low entertainers in the gathering (Torrington Et al, 2014). Moreover, efficient plans and estimated day work plans may go about as an obstacle to the imagination, as individual employee's attention is on normalization and consistency to finish the work in the base conceivable time (Kohn, 1993). Herzberg (2003) motivation hypothesis recommends that work fulfilment and occupation disappointments are two free encounters. While outward rewards, for example, piece-based remuneration, can assist the manual workers with keeping away from work disappointment, it probably won't prompt occupation fulfilment as the employees are not naturally spurred by the work itself.

Skill-Based Pay

This is a remuneration strategy where employees are compensated based on the skills and abilities they have (Armstrong, 2002). Perhaps the greatest preferred position of skill-based remuneration is that it elevates employees to procure numerous skills, along these lines, offering adaptability to the association as far as utilizing same employees for different purposes and reacting to client needs more effectively (Torrington Et al, 2014). Such remuneration conspires likewise empower associations to pull in and hold skilled employees effortlessly contrasted with their rivals as individuals are probably going to be rewarded fittingly for the skills they have under this plan (Torrington Et al, 2014).

Likely weaknesses with this plan are that costs regularly exceed the benefits if the expansion inefficiency is not sufficient to make up for the expanded expense of recruiting and preparing skilled employees (Armstrong, 2002). As the business works in a unique climate, there is a danger of skills out of date quality and related significant expense of preparing. Ultimately, the business may likewise bear the danger of losing a skilled employee, on whom the business has put a critical sum in preparing, to a contender because of a profoundly serious work market (Torrington Et al 2014).

Flexible and Fringe Remuneration

Fringe benefits can be characterized as the benefits in kind, given to the employees and have significant development as of late (Armstrong, 2002). The estimation of the fringe benefits paid to the employees reflect around twenty to fifty per cent of the remuneration and regularly incorporates benefits like annuities, organization vehicles, debilitated pay, private medical coverage, cell phones, staff limits, maternity or paternity pay, crèche offices and movement cost among numerous others (Torrington Et al, 2014).

Flexible benefits give choices to the employees to choose how their remuneration should be organized (Torrington Et al, 2014). Under such plans, the gross estimation of the remuneration bundle is controlled by the business; nonetheless, the employees have the adaptability to pick the blend of money and different benefits as a piece of remuneration bundle (Dychtwald, Erickson, and Morison, 2006). Instances of flexible benefits incorporate the alternative to pick between extra occasions, admittance to organization crèche, childcare vouchers or money, among numerous others. The upsides of flexible benefits incorporate the capability of expanded employee inspiration as they wind up getting the rewards they want. Reserve funds in government-managed retirement charges could likewise be made through involving the compensation for the ideal benefits that may pull in a lower level of duty (Thomsons, 2015). Moreover, research has featured that flexible remuneration programs add to drawing in new employees, improve the maintenance of existing employees and improve employee commitment (Thomsons, 2015).


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The Various Methods of Remunerating Employees
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ISBN (eBook)
Human resource management, Employees, Remuneration, Benefits, Management
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Jeff Anim Boateng (Author), 2020, The Various Methods of Remunerating Employees, Munich, GRIN Verlag,


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