Market-Based Compensation Systems- Aren’t Employees Ever Happy with Their Pay?Describe your personal experiences (or a friend’s experiences) with an organization’s pay system.In your opinion, did the system possess internal and external equity (i.e., were employees compensated fairly)? What factors determined the level of pay employees received and how pay increases were determined? What factors should have determined the level of pay and how pay increases were determined? Discuss whether or not the pay system motivated employees to increase their productivity levels. What improvements do you suggest be made in the organization’s pay system?
Market Based Compensation Systems; Impact of Compensation Decisions.
Compensation is the reward employees receive in exchange for their performance. Employees are a crucial component of an organization. Compensation received from work is one of the main reasons people seek employment. It is a part of the employment contract. It may be a major instrument used to attract employees and motivate them towards higher performance. (Lipman & Hall, 2008).
In most instances, employees are willing to do their job to the best of their abilities if they believe that the pay is relatively equitable to their performance. Consequently, compensation and benefits affect employee’s decision to stay or leave an organization, to work effectively and to accept additional responsibility (Cummings & Worley 2009). An effective compensation system is desirable in an effort to increase employee satisfaction. Research indicates that if pay satisfaction is low, job satisfaction is low. This may result in higher absenteeism and higher turnover that can be quite costly to the business.
Employees are might not always be happy with their pay. At times employees may think that their current salary package is not fair and is not in line with the market. Due to the macroeconomic environment, companies may have to change some of their policies. For instance, a decrease in headcount may mean that in some cases one person has to do the work of two thus resulting in dissatisfaction (Lipman & Hall, 2008). Employees who are confident in their company’s growth prospects may also expect to receive more rewards. They are willing to put in the effort required during a downturn because they see things are hard across the board. However, as the economy rises employees that see their company profiting, expect they should profit too (Cummings & Worley 2009). Pay systems provide the basis on which organizations reward workers depending on their contribution, skill, and performance (Heneman, 2002).
For example while previously working in an organization; employees were under a basic rate system. They received a fixed rate per month with no additional payment. Pay did not vary in relation to achievements or performance. In addition to this system, pay was also related to the gaining of skills or competencies where an employee could work at a higher level or carry out a wider range of activities. This pay system did possess internal and external equity. Employees working at the same level in the organization and other similar organizations received more or less the same pay, while employees working at a higher level or carrying out a wider range of work received varying pay according to their skill, competency and level.
A grading structure where jobs were evaluated and placed into appropriate grades within the organization was formulated. Pay increases then depended on moving up to scale, skill development, promotion to a higher grade, or a general increase in pay levels. Pay increases were related to productivity (Heneman, 2002). An increase in productivity and efficiency would accrue to both the employer and his employees for their mutual benefit. This pay system did motivate employees to increase their productivity levels as higher production levels translated to higher pay. Moreover, it encouraged employees to take up more duties, responsibilities, and more work activities in the organization thus improving productivity due to the nature of the pay system
In my opinion, the pay system should also have include a quality factor into an incentive scheme calculation. The organization could also have offered additional payments for more good quality or services, reductions in waste, and increased customer satisfaction. This would have helped improve output in terms of quality of products and services, individual performance levels and waste reduction.

  

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