Analysis of position-based and person-based remuneration systems
Discuss about the Remuneration System for Omeara Electronics Company.
According to Armstrong & Murlis (2007) remuneration means a pay or bonus that is given to an employee and is exclusive of the basic salary of the individual. It is the compensation or extra benefits that an employee receives due to good performance and contribution to the organization. Every organization have their own remuneration system which should always be in compliance with the federal and state laws (Smith, 2010). It is the job of every organization that they treat each one of their employees in the same manner irrespective of their colour, creed and race. Every employee is entitled to a certain remuneration because of the contribution that he or she gives to the organization and this also increases the working performance in the employees (Gab?anová, 2011). In the case of O’Meara Electronics Company, the system of remuneration that had been followed since their inception was the position-based remuneration system which was not found to be effective for their organization. This essay will highlight the different remuneration systems and elucidate on the perfect remuneration system for the organization which will be chosen by a consultant that had been hired by them. The further paragraphs will analyse the position-based and person-based remuneration system and shed light on the recommendations of the consultant about chosen remuneration system.
Position-based remuneration system is focused on the responsibilities that comes with the position of an employee and the tasks that needs to be performed to fulfil those responsibilities (Shields et al., 2015). This kind of remuneration system is very common is every organization since many years and this is used for all of those employees who are in the same position. An extensive analysis of the job is performed and all the duties and responsibilities of the employee is segregated into different categories and then various tasks are assigned under those categories which needs to be fulfilled by the employee. In this system the remuneration is decided according to the responsibilities that the employee needs to perform and the working conditions of the employee as well (Main et al., 2008). The advantages of this kind of system is that is first of all based on hierarch, seniority and specialization. The system depends on the knowledge base, experience and the expertise of the person in the position that he is working in. Position-based remuneration system also motivates the employees into putting more effort in their tasks so that they can climb the organizational ladder faster. As the position changes, so does the remuneration. Hence, the more an employee can increase his job performance, the more he will be paid. This system is easier to analyse and evaluate as it just concentrates on position of the person and decides the pay according to that. However, there are also many disadvantages to this system. Since this system is based on hierarchy, it can create issues when an organization formulates any team structure (Westacott, 2010). There can be conflict within the team if the members are of different position in the organization. It can also happen that an employee with a junior position than other is more deserving but receives less remuneration that his senior. This could be cause for demotivation and unwillingness to work. This also stops people from developing themselves as they realise that their present competency would be enough to stay in the position. On the contrary, person-based remuneration system takes into account the performance of each individual employee (Daley, 2012). He pay is decided on the skills and abilities of each employee separately irrespective of the position that he is appointed in. This helps the employees to get the pay that he deserves and the amount of productivity that he gives to the organization. The pay is not decided according to the duties and responsibilities of the position that he is working in but according to the skills that he uses for acquiring the objectives that he has set. Having a good skill is very important for the employee in a person-based remuneration system, as the only way to climb up in the organization is to continually develop the skills that he possess and provide new and better results to the organization. The person-based remuneration system is also known as knowledge-based remuneration system, competency-based remuneration system and even skills-based remuneration system (Carpenter et al., 2010). The advantages of this system is that it pushes the employees to give more productivity and also quality work. People are satisfied with their work and hence helps in creating a good career path for the employees. However, just like in other systems, this system also has certain disadvantages. The most common disadvantage is that the organization has to incur high training costs to help the employees to learn better skills and develop better abilities to perform any kind of task within the specialization of the employee (Foss, Laursen & Pedersen, 2011). The increase in skill set would also mean the increase in the wages of the employees and this can become difficult for the organization to incur after a certain time as the employees will always try to improve themselves with time to get more pay.
Argument for most appropriate person-based remuneration system
Person-based remuneration system or skill-based remuneration system rewards the employees according to the kind of skill that they have. The person-based remuneration system is much different from the traditional pay system of position-based (Houle, 2012). The use of this system is slowly replacing the person-based system because of its ability to satisfy more employees and get more organizational performance. It has been seen that person-based pay structure can contribute to organizational effectiveness in three ways. Firstly, this remuneration system gives flexibility to the employees by giving them the opportunity to learn many new kinds of tasks and jobs. Having flexible employees is very important for an organization as they can help each other out in case of unavoidable circumstances where an individual might not be able to present and they could also help with urgent production situations (Lee, 2009). Employees would also be interested in learning new things as they would be able to develop themselves and every person is always motivated to help himself grow in the organization. Secondly, person-based remuneration system can lead to less supervision among the employees as they will be skilled and attentive enough to manage themselves and concentrate on their work at hand (Vegas, 2007). This can help the organization to appoint less managers to supervise the employees and hence they can save many managerial costs. Person-based system teaches the aspect of self-management to all the employees and gives them a much greater view of the production and delivery system of an organization. Every employee would always be inclined to complete their given tasks as they realise that with the completion of the task and by producing good results they will receive more benefits and compensation from the organization (Armstrong & Taylor, 2014). No one would be interested in lacking in their work as there will be an air of healthy competition in the organization with the aim to receive more remuneration in the organization. Lastly, if the organization is able to mix the person-based remuneration system to a good compensation strategy for the employees then it can lessen the labour cost to a great deal. It can be beneficial for the organization if an employee joins the organization at a less pay structure. This means that as the skills of the employee increases, his pay structure also increases. However, the organization can manage this pay structure and also retain the employee thereby keeping him happy and motivated with his work conditions. If an employee joins an organization, especially a start up with a high pay structure then with time the organization might not be able to manage and provide the deserved pay to the employee as the skill of the employee will be further developed (Lavy, 2007). These three causal factors contribute to the effectiveness of an organization and if this is maintained can provide for a good remuneration system of the organization. It can be derived that these factors can lead to better and much more productivity in the organization, less absence from the employees and better relations with the employees. These factors are what makes the person-based remuneration system a much better option than the position-based remuneration system. The position-based system only looks at the designation and position of the employee rather than looking at their skill set. This can disappoint many employees who can be lower in designation but much better at work than their seniors. They could be demotivated to work and hence not perform according to their talent and ability (Namazie & Frame, 2007). This could lead to a decrease in performance of the organization as a whole as the performance of each employee counts in the development of the organization. Hence, it is very important to choose a kind of remuneration system in the organization that would make the employees happy and keep them motivated to do their job and also is ethically and legally compliant. A good remuneration system contributes to a good organizational performance system.
Conclusion
Hence, as a consultant, it can be concluded by reviewing the above essay that both position-based remuneration system and person-based remuneration system has their own pros and cons. However, the position-based remuneration system is a traditional and old system of remuneration which could not be effective enough in recent organizational scenarios. People are more skill based in recent times and could get motivated when their skills are not appreciated by the organization. That is why to increase the performance of the organization it is very important to increase the performance of the performance of the employees. This can be done if the appraisal and benefits are offered deservedly to the employees. This is where the system of person-based remuneration comes into the scenario. This system concentrates on the ability of the employees are not biased towards the employees and does not take into account the designation of the employee. This provides a great chance of improvement for the employees and help them to prove themselves better within the organization. Hence, it can be derived from the above points that the person-based remuneration system is a much better choice than person-based system.
Considering the following strategies and analysing them, it can be recommended that the best system for remuneration that can be incorporated by O’Meara Electronics is the person-based remuneration system. As discussed above, the three main factors are the reason for choosing this system. It has been seen that the company has no self-management techniques and there is no proper measurement of individual employee performance. Implementing this remuneration system will also help in incorporating the performance goal of the organizations which says that the goals of the organization should always influence the goals and performance of every employee. The skills of the employees should be evaluated based on certain tasks that they would have to perform. Based on the results of the performance the remuneration should be decided forgetting the designation of those employees. The implementation of this system should be done immediately so as to avoid further demotivation and mismanagement within the organization. Therefore, after a detailed analysis it can be said that a person-based pay structure is the best choice for the organization.
References:
Armstrong, M., & Murlis, H. (2007). Reward management: A handbook of remuneration strategy and practice. Kogan Page Publishers.
Armstrong, M., & Taylor, S. (2014). Armstrong’s handbook of human resource management practice. Kogan Page Publishers.
Carpenter, M. A., Bauer, T., Erdogan, B., & Short, J. (2010). Principles of management. flatworld Knowledge.
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