Types of Remuneration Systems

Different employees of the same organization might be remunerated by different systems, according to the type of work they perform. In some organizations, a combination of two or more remuneration systems may be used e.g. piece work rates with guaranteed time pay. However, the following are the most common systems of remuneration:

Time rates

Under this system, payment of an agreed amount is made for agreed period of working time which may be a day, a week or a month. Time rates are mainly used when output cannot be directly related to the wage or labour cost, or when the emphasis is on the quality of work to be performed rather than on quantity alone. If the same employee works for additional hours, he/she is likely to be paid extra for the time worked in excess of the agreed number of hours at an `overtime rate. This overtime rate may vary from organization to organization or from one department to another. Other employees such as managerial and supervisory staff, clerical and secretarial staff, professional and specialist staff etc. might be paid monthly.

The advantages of this method are that it:

• Is simple to understand and administer;
• Provides a basis for regular payment of employees;
• Is reliable since pay time is known; leads to harmonious relationship in the work place since it is based on remuneration policies which determine wage differentials among employees;
• Makes it easy to budget and track the amount of money spent on employees compensation;
• Is the most useful when paying employees who provide services that are not easily measurable and whose performance is not tangible.
• Is useful in paying employees where the employee have no control over the quantity of output.
• Is useful in rewarding collective responsibilities such as where tasks have been achieved by a team.

The disadvantages of this method are:

• It lacks a basis for rewarding high performers which de-motivates employees and some become indifferent since they are sure they will be paid at the end of the month;
• it requires close supervision of employees by their superiors which may lead to tension; and it is slow when implementing new salary scales.

Piece work rates

Under this system, payment is made according to the output: that is, the quantity of an acceptable quality of an item produced. It is therefore based on the amount of work completed by an individual within a given period of time. Every unit of output is assigned a particular amount of money and the employees are paid depending on number of units produced.

The main advantages of this method include:

• There is a direct relationship between effort and reward which makes it possible to motivate high performers by providing them with higher earnings.
• The method requires less supervision because employees have self-drive and want to maximize on their earnings.
• It is also fair since it prevents employees from soldiering on the job and reduces employee resistance to change especially if the change introduced will help enhance performance.
• Piece rate method also helps the management to distinguish between high and low performers which makes it easy to decide who deserves promotions or the manhunt of bonuses.
• In addition, it reduces the costs of production because employees want to reduce the amount of wastage of materials and time in order to maximize production.

The disadvantages of this system include:

• Uncertainties in the earnings of employees since it is based on quantity produced;
• It creates frustration in the workforce if work is delayed by factors beyond the control of the employee such as power failure, machine breakdown, delayed supply of raw materials etc;
• Quality of the products may be compromised because employees are more interested in quantity;
• It discourages team work and makes the employees adapt an attitude of every one for himself. However, this method is useful where employees are working on temporary basis.

Team Based Pay

This is the provision of rewards to groups/ teams of employees who have carried out tasks that are linked to the team performance.

Advantages of Team Based Pay include:

• This system encourages effective team effort and cooperation;
• Leads to collective responsibility;
• Encourages team members to multi-skills and multi-task and
• Encourages less effective team members to improve individual performance for the sake of the group.

The disadvantages of this system are that:

• It can only work if the group is very mature and cohesive, high performers may resent
• It may result to undesirable behavior and attitudes as a result of peer pressure.

However, the system is suitable where: teams are well established, the work carried out by team members is interrelated, when standards and targets of performance are agreeable amongst team mates and if there is an acceptable to be able to meet the final pay.

Other systems used in addition (together with) to the above are:

• Bonus

Bonus is a reward for output or achievement above previously agreed levels. Sonic schemes are based on an individual’s output, while others are based on the output of the group. This is usually paid at the end of the work year. Commissions or target bonuses generally applies to sales people, and is based on the values of sales achieved above a certain predetermined ‘target. Some are paid on an individual salesperson’s achievement, while others are based on the performance of a group, and shared out proportionately.

• Incentives

They are usually given to employees for a variety of factors such as good timekeeping, increased productivity, reducing operational costs or wastage, or involving in innovative activities.

• Allowances

Depending on the nature of their work, some employees might be paid allowances, for example: Cost of transport; Cost of expenses incurred on entertaining existing or potential customers or clients; Cost of buying and maintaining clothing and accessories; Travel allowances etc.