Compensation & Incentive Systems
One common, but improperly, used compensation system involves employee pay based on years of service, internal equity and the basic entitlement mentality. If companies function in this manner, they could very well see their profits erode away.
Compensation is the primary motivator for employee work attitudes, behaviors, and their level of engagement. The way employees are paid can affect their quality of their work, quality of customer service, their willingness to enhance their skills through additional training, and their willingness to provide innovative ideas to enhance the company.
There are 2 basic factors that drive company success when it comes to motivating the workforce:
1. The intrinsic rewards of employee responsibility, personal development, personal growth and recognition, and an understanding of their importance in the company.
2. The extrinsic rewards of pay and promotion opportunities
Merit-Based Pay. Merit-Based Pay combines these two powerful forces of extrinsic and intrinsic rewards along with performance review standards that help to provide the catalyst for improving employee morale and driving a successful company. The theory behind this type of merit pay system is an emphasis on variable pay for performance. This cannot be done without a sound performance review process.
Inaccurate and misplaced performance review processes will create division and discord in the company. A properly implemented compensation and incentive system will transform a company from an entitlement mentality to a culture were performance is valued and rewarded. This can be a paradigm shift for some companies who have historically used a reward system for tenure.
Variable pay,that is competitive in the marketplace, will help to create partnerships between the company and its employees that result in higher levels of inter-departmental teamwork. Having employees share in the rewards for the success of the company is a truly powerful tool to create a team centered environment that focuses on improved customer satisfaction through an internal desire to produce higher quality products and customer service.
