Remuneration systems

One of most important obligations of the employer towards its employees is to pay them. Fulfilling the duties assumed, means for most employers one of the biggest expenses related to their activity. Salaries and their related costs (contributions to health, unemployment, pensions, etc.) usually add up to approximately 60% of total operating costs of a large-scale enterprise.

One of most important obligations of the employer towards its employees is to pay them. Fulfilling the duties assumed, means for most employers one of the biggest expenses related to their activity. Salaries and their related costs (contributions to health, unemployment, pensions, etc.) usually add up to approximately 60% of total operating costs of a large-scale enterprise.

Wages are paid for at least one of following reasons: to comply with legal obligations, to get a sufficient share of the relevant labor markets, to provide a fair reward to those who fulfill their roles assumed, to provide an incentive for employees and/or to keep pace with inflationA persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

I will try to underline below the main systems of remuneration, based on some major criterias:

• Pay tariff in the light of time systems

These systems are most common. Compensation is in default rates, per hour or per week, and generally do not vary with the effort and results. The advantages of such a system are that organization exercises control over production and employees benefit from predictable earnings. But there are also disadvantages and biggest is that some workers are tempted to slow the pace of activity where there is no element of direct stimulation, but everything depends in this case on the quality of supervision. These systems have some benefits such as easy to apply, ensure predictable earnings, cost labor can be controlled at any time, foster collaboration among employees, not competition, stimulate flexibility of labor.

• Remuneration systems according to the results (payment-by-results)

Here we talk about systems that bring in direct report remuneration with production or effort and are providing the best textbooks in activities involving repetitive operations in a cycle within a relatively short time. Best known is the “agreed” or “the piece”, where the employee is paid based on the number of pieces made at a rate agreed on the piece. The advantages of this system would be that employees may be motivated to seek additional and otherwise can achieve higher production volumes. Disadvantages are higher than the benefits, as can be seen: the fixed rate cut may be often subject to dispute, the effort is productive in the pocket of every employee in part, and the quality has sometimes suffered because of intense efforts in achieving a certain higher quantity production.

• Incentive systems at company level

In a system at the company level there is a prize for each existing employee, based on productivity achieved throughout the company. Typically, the amount of award is determined on a key measure of labor productivity, for example, the relationship between labor and unit of product, or production man-hours. Unlike payment systems based on the results, which tend to encourage competition between employees, those of stimulation at the company level are based primarily on work group and team collaboration. Also, it is important that employees receive an adequate feedback about performance, both in terms of expectations of management and of the results obtained. Such systems do not require a very detailed study of the behavior of productive employees, as happens with most systems of incentives at the individual level.

• Systems based on single status

These systems are designed to harmonize the system of remuneration which operates in an organization, primarily by the distinction made between the treatment applied to manual workers and the one applied to staff carrying a brain work. The benefits of this unique system would be that the organization realizes savings in terms of administrative costs, may lead to improve professional relationships; manual workers benefit from a wider range of benefits than before. Chapter disadvantages: the increase of labour costs, due to improving conditions offered to manual workers. The latter ones must wait a whole month, instead of a week, to be paid.

• Systems of remuneration on the basis of competence (skill-based pay)

This system puts the remuneration in direct report with appropriation/acquiring skills and knowledge needed and is especially applicable where the work practice involves higher qualification. An important condition of this system, necessary and obligatory, is a clear set of rules, including criteria for performance evaluation. Employees will be considered rather to satisfy a particular professional role, which involves performing a series of tasks and obligations. These systems also require a solid basis of communication between employees and a specific training component of exercise, so that they can be used effectively.

A well thought remuneration policy should cover most of issues listed below: to attract, retain and motivate a sufficient number of corresponding employees, to meet the requirements of production, to stimulate an optimal level of productivity from the employees, to ensure a high quality production results, to recognize the value of each post, compared with the other, to allow employees to benefit the development and prosperity of the organization.

Such a policy clearly states the involved company is willing to pay to attracting a suitable number of employees with appropriate training, and that after hiring them; they will use the system of remuneration to retain and motivate these employees. Of course, compensation is not the only factor involved in attracting, retaining and motivating employees, but it is of utter importance.