This paper examines the essential components of effective employee compensation and reward programs. It argues that both financial and non-financial incentives are critical to motivating employees and improving organizational productivity. The paper discusses gainsharing as a team-based incentive strategy, the enduring centrality of pay in compensation design, and the role of non-monetary benefits such as healthcare, flextime, and telecommuting. It also addresses the administrative challenges employers face in managing these programs equitably. Drawing on peer-reviewed sources, the paper concludes that effective compensation systems must be tailored to employee preferences while recognizing and rewarding superior performance.
It is reasonable to suggest that most people go to work every day out of a combination of a desire to make a contribution and a need for compensation and rewards. For some people, pay and benefits may be less important than other rewards they achieve through working, but for others, compensation and rewards are what motivates them to superior performance levels. In this regard, Sulkin (1999) emphasizes that "compensation and reward programs provide greater motivation for employees to increase personal and organizational productivity" (p. 10). Understanding which program components are most effective — and how to administer them equitably — is therefore a central concern for human resources management.
One approach that has been shown to be generally effective in motivating employees and improving productivity is the sharing-the-wealth model. Providing employees with the opportunity to earn bonuses for superior performance is known by different terms, but O'Bannon and Pearce (1999) report that when bonuses are used as team- or group-based incentives, they are termed "gainsharing." According to O'Bannon and Pearce, "In its simplest form, gainsharing is a team or group incentive system which provides employee bonuses based on performance improvements" (p. 363).
O'Bannon and Pearce (1999) further add that "team-based incentives have the advantage of focusing independent-minded employee efforts on a common goal. Company benefits from gainsharing include stronger employee focus on cost reduction, quality improvement, employee involvement, improved labor relations, and more responsive managers" (p. 363). By using team-based incentives, companies can help channel individual efforts into achieving organizational goals while improving employee morale in the process — an outcome that must be viewed as a win-win by any measure.
This approach is also congruent with the vast body of evidence clearly indicating that pay remains among the top components of an effective compensation and reward program. For example, Chonko and Roberts (1996) note that "of all the many properties that characterize work in formal organizations, pay is one of the most important. Pay has been found to influence significant organizational behavior variables, including turnover" (p. 154). Ensuring that pay levels are competitive and fairly structured is therefore not simply a financial consideration but a strategic one with direct implications for workforce stability.
"Telecommuting, flextime, and healthcare benefits"
"Managing costs and tailoring reward offerings"
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