The Effects of Compensation on Employees Work Performance

Jul 13 2020 Published by under Uncategorized

HRM strives to achieve organizational goals and the goals of employees through effective personnel programs policies and procedures. Successful performances of the personnel function can greatly enhance the bottom line of any organization. The personnel practitioners however are challenged more today than at any time in the history by a changing and more demanding labor force that has high expectation about the work place. At the same time, rapidly advancing technologies and outside influences are changing the nature of our jobs. It is thus more critical and more difficult to maintain a work environment that motivates and satisfies Human Resources.


Edward flippo states: “personnel management is the planning, organizing, directing and controlling of the procurement, development compensation, integration, maintenance and separation of human resources to the end that individual, organizational and societal objectives are accomplished.”


According to Wayne. F. Cascio “Compensation which includes direct cash payment, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity is a critical component of the employment relationship. Compensation affected by forces as diverse as labor market factors. Collective bargaining, government legislation and top management philosophy regarding pay and benefits”     

Compensation may be defined as money received for the performance of work plus many kind of benefits and services that organizations provide their employee.

Compensation is recompense, reward, wage or salary given by an organization to persons or a group of persons in return to a work done, services rendered, or a contribution made towards the accomplishment of organizational goals. Wage, dearness allowance, bonus and other allowance are examples of monetary compensation, while good accommodation, children education, transport facilities, subsidized ration of essential commodities, etc. come under non-monetary compensation. In short, wage paid to collar workers or salaries paid to white collar employee can be classified as compensation.

A good compensation package is a good motivator. Hence, the primary responsibility of the HR manager is to ensure that the company’s employees are well paid.


To attract capable applicants. To retain current employee so that they don’t quit. The employee is motivated for better performance. Reward desired behavior. To ensure equity. To control cost.Facilitate easy understanding by all i.e. employee operating manager and HR personnel




The remuneration paid, for the service of labour in production, periodically to an employee/worker. Wages means any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Usually refer to the hourly rate paid to such groups as production and maintenance employees’ wages include family allowance, relief, pay, financial support etc.


Salary is influenced by the size of a company by the specific industry, and in part by the contribution of the incumbent to the process of decision-making. Salary refers to the weekly or monthly rates paid to clerical, administrative and professional employees. Salary is determined by mutual agreement between the individual and the employer.


An incentive scheme is a plan or programs to motivate industries or group performance. An incentive program is most frequently built on monetary, but may also include a variety of non- monetary rewards or prizes.


The effective use of incentives depends on three variables. They are:

1. The individual.

2. The work situation.

3. The incentive plan.

Factors influencing compensation:

1. Organization’s capacity to pay

2. Prevailing pay and benefits in the industry:

3. Compensation in the industry and availability of special competent personnel

4. Flexibility, i.e. kind of competencies and abilities in managers:

5. Performance/productivity/responsibilities of individual.

6. Organization philosophy such as to be leader or pay prevailing rates.

7. Qualifications and relevant experience.

8. Stability of employment and advancement opportunities.  


“Compensation literally means to counterbalance to offset, and to make up for. It implies an exchange. Compensation translates into different meaning among countries and even overtime”.

Society View:

According to G.T Milkovich and bloom “perception of compensation differ within countries as well. Some in society may see pay difference as a measure of justice.


Stockholder View:

To stockholder, executive’s pay is of special interest. In united state stock option are commonly believed to tie pay of executives to the financing performance of the company.



Employee may see compensation as an exchange of service rendered or as a reward for a job well done. Compensation to some reflects the value for their personal skills and abilities, or the return for the education training they have acquired. The pay individual receive for the work they perform is usually the major source of personal income and financial security and hence a vital determinants of an individual economic and social well being.



Managers also have a stake in compensation: it directly influences their success in two ways. First it is a major expense competitive pressure both internationally and domestically, forces managers to consider the affordability of their compensation decisions. Studies show that many enterprises labor costs account for more than 50% of total costs. Among some industries, such as service or public employment, this figure is even higher.

In addition to treating pay as an expense, a manager also treats compensation as a possible influence on employee work attitude and behavior and their organization performance. The way the people are paid affects the quality of their work, their focus on customer needs, and their willingness to be flexible and learn new skills, to suggest innovation and improvement, and even their interest in union or legal action against their employer. 



Total compensation includes pay received directly as cash (e.g., base wage, merit increases, incentives, and cost of living adjustment) or indirectly through benefits and services (e.g., pensions, health insurance, paid time off). Programs that distribute compensation to employees can be designed in an unlimited number of ways, and a single employer typically uses more than one program. The major categories of compensation include base wage, merit pay, short and long term incentives, and employee benefits and services.

Base wage

Base wage is the basic cash compensation that an employer pays for the work performed. Base wage tends to reflect the value of the work or skills and generally ignores difference attributable to individual employees. Some pay systems set base wage as a function of the skill or education an employee possesses; this is common for engineers and scientists. Periodic adjustments to base wages may be made on the basis of change in the overall cost of living or inflation, changes in what other employers are paying for the same work, or changes in experience/ performance/ skills of employees.


Incentives also tie pay directly to performance. Sometimes referred to as variable compensation, incentives may be long or short term, and can be tied to the performance of an individual employee, a team of employees, combination of individuals, team of employees, a total business unit, or some combination of individuals, teamed unit. Performance objectives may be defined as cost savings, volume produced, quality standards met, revenues, return on investments or increased profits; the possibilities are endless.   

Long-term incentives are intended to focus employee efforts on multi year result. Top managers or professionals are often offered stock ownership or bonuses to focus on long-term organizational objectives such return on investments, market share, return on net assets and the like. Coca-Cola grants shares of stock to selected “key contributors” who make outstanding contribution to the firm’s success. Microsoft, Pepsi, Wal Mart and Proctor & Gamble offer stock options to all their employees. These companies believe that having a stake in the company supports a culture of ownership. Employees will behave like owners. 

Incentives and merit pay differs. Although both may influence performance, incentives do so by offering pay to influence future behavior. Merit on the other hand, recognizes outstanding past performance. The distinction is a matter of timing. Incentives systems are offered prior to the actual performance; merit pay on the other hand, typically is not communicated beforehand. 

The national commission on labor makes the following recommendation with respect to incentives:

(a) The application of incentives schemes has usually to be selected and restricted to industries and occupations where it is possible to measure on an agreed basis, the output of workers or a group of concerned workers and maintain a substantial amount of control over its quality.

(b) Incentive schemes have to embrace as many employees of an enterprise as possible and need not be limited only to operative or direct workers.

(c) A careful selection of occupations should be made for launching incentives scheme with the help of work-study teams commanding the confidence of both the employer and employees. The incentive scheme is required to be simple so that the workers are able to understand its full implications. The employers need to ensure that external factors such as non-availability of raw material and components, transport difficulties and accumulation of stock do not exert an unfavorable impact on incentive schemes.


(d)   Production has to be organized in such a way, which does not provide incentive wage on one day, and unemployment on the other day- there should be a provision of the fullback wage as a safeguard against it.

(e)    According to Subramaniam, there are several prerequisites to the effective installation and operation of payment system:

a.) It should be developed and introduced with the involvement of the workers concerned in a harmonious climate of industrial relations.

b) Work-study precedes the installation of incentive programs.

c) The wage structure should be rationalized on the basis of job evaluation before devising an incentive plan.

d) The objective to be accomplished through incentives should be defined and accordingly, an attempt should be made to select a scheme, which is most suitable to accomplish them.


The fringe benefit systems purported to develop a climate for healthy employer-employee relationship, minimize excessive labor turnover costs and provide a feeling of individual security against hazards and problems of life with a view to eventually enhancing employee loyalty to the company and improving productivity.

M.Chandra lucidly describes fringe benefits provided by the employers to their employees under the statutory provision or on a voluntary basis. The social services provided under the factories Act, 1948, in the manufacturing industries include canteen, rest shelters, crèche , storage or lockers, sitting arrangement, bathing and washing facilities and appointment of welfare officers, etc. other benefits include festival, year-end profit sharing, attendance and production bonuses, protective equipment’s, free supply of food items on concessional rates. Social security system provides benefits such as provident fund, employees state insurance (ESI) scheme, retrenchment compensation, employment injury compensation, maternity benefits, gratuity, pension, dependent allowance and contribution toward pension and gratuity claims.

In addition, other facilities enjoyed by the workers include medical and health care, restaurants, cooperative credit societies and consumer stores, company housing, house rent allowance. Recreational and cultural services, clubs, cash assistance. Some employers also provide education, transport facilities and conveyance allowance.

Laxmi Narain points that fringe benefits are an integral part of the reward system in the public sector undertaking and relate to management motivation similar to basic compensation.

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6 Strategies to Ensure Employees Return to Work Following a Work Comp Injury

Jul 13 2020 Published by under Uncategorized

The Link between Worker’s Comp and the ADA

In 2009, The U.S. Equal Employment Opportunity Commission (EEOC) announced a record-setting consent decree settling a class action lawsuit against Sears, Roebuck and Co. under the Americans with Disabilities Act (ADA) for $6.2 million. The EEOC’s suit alleged that Sears maintained an inflexible workers’ compensation leave exhaustion policy and terminated employees instead of providing them with reasonable accommodations for their disabilities, in violation of the ADA.

This case highlights the importance of having a proactive return to work program that addresses the ADA accommodation requirements. When employees are injured on the job, employers must have a plan that addresses return to work options and ADA accommodations.

Return to Work Strategies

Normally, when employees are released to work following a worker’s comp injury, they will return to their previous position. However, employees may have an occupational injury or illness where they are released to work but can’t perform all of the essential functions of their regular job or need an accommodation.

When creating return to work opportunities consider several strategies. Think “out of the box” in your approach to getting employees back to the workforce. There are many tasks to keep workers productive and involved in the workforce.

1-Prepare a physical binder

Create a binder full of alternative job descriptions within the company or sister companies that employees can easily access. Have Human Resources regularly update the binder with all job openings, full and part time, temporary and permanent. Make sure the supervisor and the employee are aware of the binder and regularly check it for openings.

2-Promote internal onlinejob listing resources

As with the physical binder, make sure there is an on-line job listing resource that the employee can access. Email all job openings to the employee in addition to what is available in the physical binder.

3-Create a return-to-work resource center

Have your Human Resources Department encourage the injured employee that they are wanted back at work. Make sure that HR is a resource to support the employee in creatively finding a way to return to work, even if it is in another position more compatible with the employee’s limitations. Have HR consult with the employee about any reasonable accommodations that would make it possible for the employee to return to work in any available positions. Have a written Return to Work Policy so that all management and supervisors understand the goals and methods of having employees successfully return to work.

4-Consider outside resources to accommodate transitional duty workers

Vocational rehabilitation (voc rehab). Voc rehab is a federally funded agency in every state that offers vocational rehabilitation, employment opportunities and independent living services for disabled people. The programs vary by state but may include medical, psychological and vocational assessments, counseling services, therapy, training, job placement and rehabilitation.

The Job Accommodation Network (JAN) provides free consulting services to employers.. Services include one-on-one consultation about all aspects of job accommodations, including the accommodation process, accommodation ideas, product vendors, referral to other resources, and ADA compliance assistance. JAN has several on-line tools and publications to help employers accommodate employees with a disability.

Occupational Health & Safety Administration (OSHA) regulates safety compliance in the workplace. In some instances, OSHA safety regulations may prevent certain accommodations for an injured employee. OSHA has a website that employers can consult for guidance. Sometimes OSHA will publish bulletins with innovative safety accommodation ideas, e.g. how to safely accommodate employees with hearing loss injuries.

5-Encourage volunteerism and partner with local employment agencies or volunteer groups to enhance workers’ options.

Often employers want to offer modified duty but do not have appropriate positions available. Some states have Workers Compensation Funds that have partnered with charitable organizations to offer a return-to-work plan that provides modified duty for injured employees. These plans can lower claims costs, decrease workers’ compensation insurance costs and increase morale.

In addition, employers who do not have appropriate position available may want to partner with local employment agencies that may have appropriate temporary or permanent positions available for the employee.

6-Consider home-based employment

Telecommuting may be a reasonable accommodation under the ADA for an injured or ill worker. Have HR consult with the supervisor and the employee to see if there are any tasks that the employee can perform from home on a temporary or permanent basis.

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