¶ … components we need to analyze and discuss here. First of all, there is the compensative/remunerative component. Benefits and compensations represent a way of increasing personal revenue and partially represent the compensation for a cost of opportunity. For example, in some cases, compensations are paid for extra hours spent at work. These are a way to remunerate the time you have spent working for the company, time you could have used to produce the same amount of money otherwise. As an individual, however, the reward component is even more important in the case of compensations and benefits. It is the most practical way by which the upper management can show an employee that the work he or she is performing within the company is important and boosts overall profits for the entire company. It is also a way to show how important the role of the respective employee is within the company and a way to stimulate him in achieving higher performances in the future.

Some forms of benefits have a certain psychological component as well. In this sense, we may enumerate benefits such as Easter or Christmas bonuses. At a time of celebration, the company can show that, at a time of personal celebration for each employee in part, it can contribute to the employee's benefit for the festive season, in a way that affects his...

In my opinion, the merit pay is obviously the best way to show an employee that his performance is appreciated within the company. The most important term to be used in evaluating the merit pay from an efficiency perspective and its main advantage is differentiation
. There are several things that need to be considered here. First of all, there is the fact that the employee has achieved something he would not normally accomplish. This may be represented by a tremendous amount of work on a certain project or by an outstandingly high performance. Nevertheless, these would be facts that do not normally occur in the employee's activity.

Second of all, the differentiation principle allows the employer to distinguish a certain employee and show he has performed better than others. This may also have a simulative effect on the rest of the employees within the company, as they may strive to perform better themselves on other projects. As such, in projects involving teamwork, the merit pay may show itself to be excellently suited. Additionally, merit pays, given their motivating component, can also be satisfactorily used when team with several projects in a certain period of time.

b. Incentives are used to motivate the personnel towards achieving a certain goal (a…