Human resource managers work to develop an equitable compensation system pning wages and salaries plus benefits. Because human resource costs represent a sizeable percentage of any firm’s total product costs, excessive wage rates may make its goods and services too expensive to compete effectively in the marketplace. Inadequate wages, however, lead to difficulty in attracting qualified people, high turnover rates, and inefficient production. An effective compensation system should attract well-qualified workers, keep them satisfied in their jobs, and inspire them to succeed. Most firms base their compensation policies on the following five factors: 1.) salaries and wages paid by other companies that compete for the same people, 2.) government legislation, including the federal, state or local minimum wage, 3.) the cost of living, 4.) the firm’s ability to pay, and 5.) worker productivity. Many employers balance rewarding workers with maintaining profits by linking more of their pay to superior performance. They try to motivate employees to excel by offering some type of incentive compensation in addition to salaries and wages.
Today, almost one-tenth of the compensation of salaried workers is some form of variable pay. These programs include: profit sharing, which awards bonuses based on company profits, gain sharing, which awards bonuses based on surpassing predetermined performance goals, lump-sum bonuses and stock options, which reward one-time cash payments and the right to purchase stock in the company based on performance, and pay for knowledge, which distributes wage or salary increases as employees learn new job tasks. Some companies, such as Altria, Schering-Plough, and Anheuser-Busch, offer these programs to top and middle managers, as well as to employees with professional degrees (Louis E. Boone, 2006). Wage is formulated by considering the knowledge, skills and abilities required in the job. Those jobs requiring higher level of knowledge and skills are generally paid higher wages. The responsibilities of the job also impact pay. Salaries are often higher for jobs involving hazardous circumstances or dangerous responsibilities (Buhler, 2002).
Kinds and levels of required knowledge and skills
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Most organizations have developed a salary band structure as part of their compensation system. Great rewards that are enjoyed by people at the top are accompanied by greater risks too. Those who have doctoral or masters degree, tend to have higher salary than those that have bachelors degree. Employees, who have worked with good records from a highly reputable, large corporation, tend to be compensated more than those who had work experience in a small firm. Those jobs that have high levels of risk and managerial responsibility are designated to top performers of the organization, thus, offered with tempting benefits. The more contributions and influence an employer offers to the company, the more the employee is encouraged to stay through benefits and increase in salary. Companies tend to keep those top performers than those who are poor and average performers. Organizations often conduct forced ranking sessions that open up opportunities for the most talented members of organization by exposing their capabilities to executives in other parts of organization who now can consider them when proportional opportunities arise (Grote, 2005).
Intense competition is most likely to happen for position of top executives because it attracts qualified applicants with the prestige and high rate salary and benefits. The best benefits the company offers usually are being presented to veteran managers because of their strong leadership traits and the capability for improvement of efficiency or competitive disposition of an organization. As the global economy continue to raise, experience in international economics, marketing, information systems, and knowledge are also advantageous like for example, there is tremendous increase of demand for professional, scientific, and technical services and administrative and support services. On the other hand, employment tends to decrease in some manufacturing industries. Therefore, it is important to be more flexible and more immune to automation and corporate restructuring (Labor, 2004).
The nature of society has changed dramatically over the last 50 years, and gender roles have also changed. Both young men and women now expect to go to work. The Equal Pay Act 1970 and Sex Discrimination Act 1975 brought in the principle that women are equal to men. Before, men were often thought to be more valuable employees and were paid more money because they are expected to work full time, they are expected to provide money to pay for housing and family. While women are expected to support husband by undertaking household duties and taking care for children and old relatives. Furthermore, at the beginning of new millennium, the pattern of family life has altered. Despite all the changes some gender role differences still exist. Jobs that involve working with young children or cleaning are still mainly done by women.
Job that involve engineering, vehicle repair and other extraneous jobs such as fire fighting, mural paintings, truck driving and many others are still done mostly by men. Men tend to achieve the top-ranking (highest paid) jobs more often than women (Gwyneth Windsor, 2000). Despite the assurance of the government for "equal pay for equal work," but in general, women still continue to receive lower pay, lower rank of jobs and experience additional inequities in terms of compensation than men. There is a law for this kind of issue but often times; it is difficult to determine if wage discrimination is intentional like for example, in a situation wherein women may earn less because of low tenure or a lower degree of education.
Employee Tenure and Performance
Usually, an employee’s salary increases with years of service within the company because through experience, employees become more effective problem solvers, more dependable and is already adjusted with the organizational environment. But as the global economy tend to increase its demands on business change, higher levels of productivity and innovations, employers have discovered more effective method of payment and reward systems to improve the performance of the organization. Most employers have created a new goal which is, integration of the organization’s compensation and reward philosophy with its strategic program with regards to customers, profitability, and the development of a strong, competitive work force geared towards the success of the organization. This results to creation and implementation of more sophisticated performance evaluation systems for the identification and recognition of the company’s top performers. The length of employment relationship may be connected with productivity while short employee tenure may be attributed to a larger degree of labor mobility among companies and jobs, thus leading to adjustments.
It seems that tenure can be also linked to level of skills wherein, tenures for competent workers has seemed be likely to increase, while tenure for unskillful workers tended to decrease (Gunter Heiduk, 2003). But in some cases, it is the other way around, especially when better job and compensations are being offered by other firms or companies. Tenure is also been related to gender. Tenure of female workers tends to increase while the tenure of male workers decreases. However, some would believe that low tenure is associated with higher job creation therefore faster productivity growth. These relationships could be a sign of companies’ adaptation and submission to the latest technology, leading to emergence of new business opportunities, and countries where labor is more mobile and tenure is at the same time lower, gain more advantage to exploit these opportunities at least in the short-run (Gunter Heiduk, 2003).
Buhler, P. M. (2002). Streetwise Human Resource Management: All the Information You Need to Manage Your Staff and Meet Your Business Objectives: Adams Media.
Grote, R. (2005). Forced Ranking: Making Performance Management Work: Harvard Business School Press.
Gunter Heiduk, C. E. B., Paul J. J. Welfens. (2003). Internet, Economic Growth and Globalization: Perspectives on the New Economy in Europe, Japan and the US: Springer Publishing.
Gwyneth Windsor, N. M. (2000). GNVQ Health and Social Care: Harcourt Heinemann.
Labor, U. D. o. (2004). Occupational Outlook Handbook, 2004-2005: Bulletin 2570: Claitor's Law Books and Publishing.
Louis E. Boone, D. L. K. (2006). Contemporary Business 2006: Thomson South-Western.
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