Briefly explain the guideline for compensation management

The following tentative guidelines are suggested:

1. A performance pay system should be designed to promote the kind of performance an organization needs. In order to do so

·         an analysis should first be made of the objectives and results sought

·         the principles/policies and practices needed to obtain the results (e.g. team work)

·         should be established

·         these policies and practices should form part of an overall human resource management strategy.

2. Employees should be consulted in the formulation of the plan (to ascertain the type of rewards most likely to have motivational effect), in regard to its operation and distribution of rewards, and in monitoring the scheme.

3. The criteria for the determination of performance pay should be

·         objective

·         measurable and measure only what is important

·         that it is operated along with an appraisal system which measures performance appropriately   

·         designed to feed back information to employees, and not only to management

·         easily understood

·         related to what is controllable, so as to exclude what is beyond the control of employees.

4. the intrinsic reward system should be strengthened if need be, e.g. through

·         consultation, communication, participatory systems

·         training

·         job satisfaction and responsibility

·         reorganization of work processes

5. How the performance pay is shared is as important as the quantum, because the manner of sharing affects employees' perceptions as to whether the scheme is equitable. 

6. The impact of the scheme also depends on the frequency of the payment. Therefore the reward should follow the performance as soon as possible.

7. The scheme should be given wide publicity within the enterprise.

8. The performance level should be achievable or else the scheme will have no motivational impact.

9. The quantum of pay on account of performance which is placed at risk (i.e. the amount that can be lost due to poor performance) should be carefully determined. At the same time the scheme should be sufficiently flexible to absorb downturns and adequately reward when performance is good.