Importance of an ideal Remuneration system

An effective system of remuneration is highly significant because several problems relating to personnel Centre around on element, namely, remuneration. Many employees for example, absent themselves from work often because they feel they are not paid enough. They look for new and better prospects because the present emoluments may not be attractive enough to stay on. They agitate, pelt stones, use foul language, resort to graffiti, turn violent, fall sick, because the remuneration paid to them may not be adequate .

Talks on job satisfaction, loyalty, organization before self, atrium, and the like, may be all right for boardroom discussions, and for delivering lectures in classrooms. The talk may also be relevant in a country like Japan, where people are inspired by a fanatical devotion to work. But in our country, an average worker cares only for money. Such being the reality, remuneration must fulfill the expectations and aspirations of employees and exploit their energies for the benefit of organization.

Retaining competent individuals for long is more difficult than attractive fresh ones. An employee’s longevity of service in a particular organization depends more on non-financial benefits, but the role of financial benefits cannot be ruled out, particularly at the lower levels of hierarchy. Loyalty towards an organization also depends on his or her perceptions about remuneration. It is common knowledge that an employee feels satisfied or dissatisfied with his or her remuneration- not so much by the total amount he or she receives, but by comparing his or her benefits with those enjoyed by others. Comparison provides a feeling of equity or inequity. There is a sense of equity when the employee’s remuneration is equal or more than the remuneration received by others in the same category of jobs. If the remuneration is lower, the employee feels he or she s inequitably treated. An employee sticks to an organization when he or she is paid equitably. The organization’s pay structure must, therefore, be equitable and consistent.

Employees get motivated to perform better when their past performance is rewarded adequately. Employees set expectations about rewards and compensation to be received, if certain levels of performance are achieved. These expectations determine goals or levels of performance for the future. Employees achieving the desired level of performance expect a certain level of compensation. At some point, the management evaluates and rewards the employee’s performance. Examples of such rewards include merit-pay increases, promotions, and non-financial rewards such as recognition and increased status. Employees consider the relationship between their performance and rewards related to that performance, and then the fairness of the relationship. The final step in the process will have the employee setting new goals and expectations, based on past experiences within organization.

If employees see that hard-work and superior performance are recognized and rewarded by the organization, they will expect such relationships to continue  in the future. Therefore, they will set higher levels of performance for themselves, expecting higher levels of rewards. Of course, if employees see little relationship between performance and rewards, then they may set minimum goals in order to retain their jobs, but will not see the need to excel in their positions.

Remuneration is the only  HR activity which has its impact on all other functions regarding personnel. Take job evaluation, for example. It is job evaluation which establishes satisfactory wage and salary differentials. As was stated above, competent people are attracted towards an organization if its remuneration is attractive. Recruitment and selection are dependent upon wages and salaries offered to prospective employees. There is a close relationship between performance appraisal and remuneration. This is particularly true in cases where payment by result schemes exits. Incentive payments depend on the employee performance which needs to be carefully assessed. It needs no particular emphasis that union-management relations largely depend upon employee remuneration. Industrial conflicts between employees and employers take place on remuneration-related issues. There are other benefits of an effective remuneration system. Such a system, for example, helps the organization obtain and retain employees at a reasonable cost. In the absence of a rational payment system, employees are likely to be overpaid or underpaid. There are a number of labour acts which need to be complied with by an organization. Non-compliance of any provision maker the organization guilty and punishable. A properly designed wage and salary system helps the company avoid such possibilities.

Finally, the primary goal of a wage policy in any country should be the promotion of economic development . If economic development has been merge and all round development is stunned, one of the reasons might well be failure of wage policy to contribute adequate to the process of economic development.

HR-Professionals 12 Appraisal 12


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