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Effect to Employees

Compensation Paradigm Development and its Effect to Employees Employee attitudes determine corporate achievement within a certain periods, while compensation significantly influences employee attitudes. Recent reports indicated that companies are becoming increasingly aware that their compensation plan contributes significantly to corporate productivity. They stated that when it comes to human resource management, the real test in entrepreneurial leadership began in two weeks –or so- after hiring day, where employees expect a sum of money to materialize in their bank accounts.

That sum of money will determine employees’ attitudes within the next production period. It will determine...

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... their level of commitment to the company. As the pressure of competition among rivals increases, managers’ concerns toward compensation scheme increases significantly over the last decade. Nowadays, managers of manufacturing and services companies spend a large portion of their time in board meetings to discuss the proper compensation plan to ensure productivity and growth. Many companies choose to turn to outsourcing companies to design their compensation strategies and employee management.

For employees, these developments bring positive atmosphere to their working conditions. Companies became a lot more sensitive when it comes to reward employees fairly according to their individual contributions to the company. However, a research indicated that the level of corporate sensitivity toward the fairness and equality of employees’ compensation scheme depends to the amount of incoming cash flow. Board meetings talk more about employee compensation when corporate financial condition are good and tends to neglect the subject when revenues are below forecast.

In short, despite the importance of compensation issues, they would still come second to –for instance- sales and marketing problems Compensation and reward system can become an important signal of an organization’s culture and values. To ensure successful implementation, organizations should develop classification and pay strategies that are in alignment with organization’s mission. The compensation system’s framework must come down to rewarding employees appropriately for the skill, intellect, innovation, energy and commitment that they bring to the organization.

Best practices indicated importance of the following values: Linkage between reward system and organization’s strategy Objectives of the compensation system must be clearly articulated Employees must have full knowledge of what is being rewarded and why. Behaviors motivated by the compensation system must support organization’s culture and values Design of the system must be adaptable to changing business conditions Employees must be involved in the design process Positive image of the system from the employees. (Cho, n. d)

Several writers believe that managerial compensation system is a lot more important than labor compensation system. The statement came from the logic that managers control actions of their subordinates and therefore had a greater impact toward the company. Within this increasingly decentralized business atmosphere, the importance of a sound compensation system is rocketing. Corporations are divided into investment centers, each have a manager responsible for revenues earned, cost generated and investment entrusted to them.

Decentralized managers are having more power over their subordinates, and also became harder to monitor. A fair evaluation and compensation system will keep them away from ill practices toward corporate assets. It will add the sense of trust within relationships between decentralized managers and the company. Traditionally, an investment center manager is evaluated based on their Return on Investment (ROI). However, the ROI-type measurement leads to manager’s action to be too careful, focusing only on short term benefits and ignoring the long term ones.

They also became consumed by a narrow focus on divisional profitability, sometimes at the expense of the overall firm (Hansen, 2003). Under such circumstances, the next development is using Economic Value Added (EVA) to measure managerial performance. In short, EVA is the return of any investment made reduces by capital cost over the operating period. This approach has more supporters because it gives a more accurate calculation over how much an investment really increases corporate economic value (Hansen, 2003).

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