Money, Money, Money . . .
Over the next few weeks, we will encounter a number of performance-based compensation models — some more effective than others — for you to explore. But first we need to address the modern compensation system framework.
Modern human resource management is attempting to address four objectives, namely: commitment, competence, cost-effectiveness and congruence. In addition to the primary activities including staffing, development and employee relations, is the activity of compensation. Compensation has moved from a focus on wages to total labor cost, performance and employee satisfaction.
The use of computer-based human resource information management systems assists companies in tracking and measuring the performance of individual employees and work teams. Advances in and widespread application of training techniques, organizational analysis, career planning, quality of work life analysis, and employee assistance programs, has created an environment geared towards the achievement of corporate and individual goals and the establishment of performance metrics.
It is important to understand that performance is a collection of criteria beyond simply the number of units produced or sold. Performance entails productivity, efficiency and profitability measures along with softer issues such as interpersonal skills, creativity and leadership. Measurement of performance usually occurs in the form of performance appraisals that involve the following activities: identifying, observing, measuring and developing.
There are a number of sophisticated performance appraisal systems that can be applied. Performance is best measured according to a documented set of guidelines and agreed upon goals and objectives for each employee and work group. SMART goals need to be defined in a cooperative fashion and which are specific, measurable, attainable and realistic, within a certain time frame.
The basic framework of modern compensation systems is comprised of three principal components, namely, financial returns, tangible services and benefits. Compensation is provided for employee services needed to successfully develop and sell the company products and services. Financial returns refer to the base pay, incentive pay, bonuses and educational incentives provided by companies to individuals. Tangible services refer to special perks such as parking, health club memberships, cellular phone and other company-paid services. Benefits refer to health care, insurance and accident programs designed to provide employees and their families a basic set of essential services for security.
