The Basics of Compensation and Rewards

One of the most important things for companies to stay competitive is to come up with reward packages and adequate compensation that can satisfy their employees. Reward packages can also be known as Rewards, and Compensation is the money employees receive for completing there jobs. Total Rewards and Compensation include "all monetary and non-monetary rewards provided by a company to attract, motivate, and retain employee. The success of a total rewards and compensation systems depends on being able to combine organizational goals to compensation so that employees are motivated work in an effective way that benefits the company and its functions.

Compensation Types

An organization could not maintain a workforce with providing compensation. There are a few different types of compensation that should be addressed. The first is called base/fixed pay. Base/Fixed pay is essentially the simple compensation that any employee receives. It can be divided into two more categories known as wages and salaries. Wages are hourly payments based on the time and employee works. Salaries are consistent payments made to the employee and do not change each period. Salaries remain the same regardless of the amount of time employee’s work. The second type of compensation is Variable pay. This type of compensation is related to how an employee or team of employees performs on certain tasks or projects. Types of variable pay can include bonuses and incentive program payments. The final type of compensation is also its own category under the total rewards system. This type is known as benefits. Benefits are rewards, which may not just be cash, for an employee’s membership not based on their performance. They can be healthcare, vacation pay or even a pension. (Compensation and Benefits Review)

Compensation System Issues

All employees work to gain compensation for their efforts and performance. Many employees go through issues of perceiving if their compensation is fair or not. This can affect their performance and they view their job and company. Equity is the supposed fairness of what an employee does for their company and what they get out of it (Compensation). Employees often judge equity on how much effort they put into work and what they received compared to what their peers received for their efforts. There is another issue with equity known as pay secrecy. There are some concerns about the secrecy some companies have with their pay systems. Information containing what other employees make and what raises they may have received may be kept in secret closed systems (Human Resource Management). Some companies also have rules on what pay information employees can talk about with each other. Violation of these rules can sometime result in discipline by employers. These policies were erected under the National Labor Relations Act. Most employees refrain from brining up pay topics because it can easily make the work environment very uncomfortable for employees and employers. (National Relations Labor Act.)

Compensation Pay Systems Legal acts

The Fair Labor Standards Act (FLSA) passed in 1938 is the federal law that governs compensation acts throughout corporations.  This act included a minimum wage for covered employees (Fair Labor Standards Act). It states minimum dollar amount that an employee can be paid. Currently the minimum wage in the United States is $7.25. This was passed in 2007 in the Fair Minimum Wage act of 2007. The FLSA has also set “child labor provisions”. These state that the minimum age that someone can work at a job with unlimited hours is 16. It also says that for jobs that may be hazardous the minimum age is 18 years old.

Compensation Pay Principles for Tough Economic Times

Organizations must remember to continue to reward their top performers. It does make sense to reduce compensation of employees who do not perform to specific company standards, although it is more important to reward top performers. This can attract more talent during tough economic times (Compensation). Companies need to also note that non-cash benefits as well as other rewards are essential in down times.

Conclusion

Compensation and Rewards are quite simple and easy to comprehend although they are an essential part of any organization. It is a crucial part of any HR manager to be able to handle the functions of compensation and benefits to keep their employees satisfied. Over the years base lines have been made for the total rewards systems through legal acts such as the FLSA and Fair minimum wage act. An important part of compensation practices is being able to match employee’s perception of fairness of how they think they are performing with pay increases and not going so far as to greatly increase company costs. Without proper control of compensation and the total rewards system, companies and HR managers may lose employees that could potentially be very valuable assets to the company.

References

Anonymous (2002). Compensation: IOMA's Report on Controlling Law Firm Costs. [ONLINE] Available at: http://search.proquest.com/docview/232014533. [Last Accessed March 24/2013].

Pankaj M. Madhani (2009). Compensation and Benefits Review. [ONLINE] Available at: http://cbr.sagepub.com/content/41/4/44. [Last Accessed March 24/2013].

Mathis Jackson, (2009). Human Resource Management. 13th ed. Ohio: South-Western Cengage Learning.

"NATIONAL LABOR RELATIONS ACT." Poverty and the Government in America: A Historical Encyclopedia. Santa Barbara: ABC-CLIO, 2009. Credo Reference. 24 May 2011. Web. 25 Mar. 2013. <http://huaryu.kl.oakland.edu/login?url=http://www.credoreference.com/entry/abcpga/national_labor_relations_act>.

"Fair Labor Standards Act." The Reader's Companion to U.S. Women's History. Boston: Houghton Mifflin, 1998. Credo Reference. 22 June 2006. Web. 25 Mar. 2013. <http://huaryu.kl.oakland.edu/login?url=http://www.credoreference.com/entry/rcuswh/fair_labor_standards_act>.