Fair and Equitable Compensation

From:
Angela Tolliver

To:
Patty Fisher
MGMT 365 Compensation and Benefit Systems

November 8, 2009

Fair and Equitable Compensation
The bases on which fair and equitable compensation are determined, and administered, can significantly affect employee productivity and the achievement of organizational goals. Establishing compensation programs require both large and small organizations to consider specific goals. Employee retention, compensation distribution and adherence to the budget must be carefully weighed against the overall organizational goals and expectations. Compensation must reward employees for past performance while serving as a motivation tool for future performances. There are many different ways to motivate employees. Employers can motivate their workers as individuals, groups, teams, or the organization as a whole. Motivation takes forms like offering rewards, improving working conditions, or employee recognition. When people get motivated, they will have a reason to put more efforts on what they are doing. Base salary is only one aspect of a retention plan for important employees. Benefits and incentive plans are valuable perks in recruiting and retaining essential employees. Benefits are an established and integral part of the total compensation package. In order to have a sound benefits package there are certain basic considerations. By utilizing a flexible benefits package, employees are able to choose those benefits that are best suited to their individual needs. Incentive pay plans can be advantageous to both the employer as well as the employee. The success of an incentive pay plan depends on the organizational climate in which it must operate employee confidence in it, and its suitability to employee and organizational needs. Importantly, employees must view the incentive plan to be equitable and related to their performance.
Manufacturers with incentive systems that reward employees for achievements and growth can increase their competitiveness and profitability in today's global market. Compensations, benefits and reward systems must create a win-win situation for employees and employers. Team-based incentive systems might work very well and are a preferred process for many organizations in today's work market; however, managers should adopt individual incentive systems in many cases, when employees are more skillful, efficient, and effective as working individually. The major purpose of the incentive system is to motivate and organize employees.
“A survey of 1000 adults working for Fortune 500 organizations revealed that salary and bonuses are not the key factors to job satisfaction. The people who conducted this survey found that these 1000 individuals placed greater value on benefits that impact their overall quality of life” (Turner). There will always be differences of opinion in whether non-cash or cash incentives are the most desirable and even the most motivating. Before getting into a discussion on non-cash incentives, I would like to discuss several reasons why cash incentives may be considered less motivating than non-cash. There are two major reasons. The first is that cash awards can be taxable. A $75 check might sound nice, but the truth to the matter is the actual value after taxes is only $65. The second reason is that monetary rewards are easily forgotten, because it tends to be added with the bills so we don’t see the difference. Another example was during a survey, “employees were asked if they remembered what they had bought with the $200 bonus they had received before. One could not recall at all and another remembered that he had bought a fishing rod with part of it. Over a period of time, people tend to think of that (cash reward) as an entitlement. They think of it as part of their compensation” (Simms).
“A recent study of 235 managers by the Forum for People Performance Management and