Analysis of position-based remuneration systems and person-based remuneration systems and the drivers/elements of such systems.
Structured and detailed argument for the most appropriate person-based remuneration system for the organization.
Human Resource Development
The current situation at O’Meara Electronics, as pointed out by James, one of the staff members, is ad hoc and as such, there is the need to rationalize various aspects particularly remuneration administration strategies as well as performance management. This paper provides an in-depth explanation and analysis of the elements of two major compensation schemes at the disposal of the organization. These include both position-based and person-based systems. Gerald & Herbert III (2011) define position-based payment structure as a form of payment plan where employees' pay levels are established on various compensable factors dictated by the job. In other words, the amount of salary given to the staff member on a particular occupation depends on its duties and responsibilities, and often its work conditions. In person-based compensation schemes, Gerald & Herbert III (2011) hold that an individual is paid in terms of his or her skills, the level of competence, and knowledge. Just like in job-based payment systems, person-based structures require a thorough understanding of the responsibilities and tasks of a particular job occupied. Besides, implementation of both remuneration structures in any organization setting need detailed analysis and description of the job echelon (Pouliakas, 2010). Remuneration, in this context, can be defined as a reward for employees in form of salaries and wages which comprise of allowances, monetary incentives, or benefits, often given to an employee depending on his level of knowledge or position. This essay will provide a comprehensive analysis of various theoretical writers attempting to express their understanding of these two remuneration systems. Elements or drivers of both position-based and person-based structures will be critically analyzed and ultimately recommendation for the most suitable system to be implemented at O’Meara Electronics.
Position, also called job-based payment scheme is one of the traditional compensation structures whereby occupations are slotted into salary schedules. Every job position is allocated a particular recompense range in accordance with its specific responsibilities and the only disparity on pay levels is grounded on employee's education qualifications and seniority (Ding, Cai, & Niu, 2012). It is evident from this description that this plan provides workers with an enhanced and predictable pay method thus making it easier for them to budget and plan for promotions every year. In our case scenario, it is pointed out that O'Meara Electronics has been in existence for approximately two decades and therefore employees who have been running this business for all that time can be rewarded by this payment system. Apart from this aspect, a study carried out by Coz, (2008) proved that job-based payment structure provides little or no room for unfairness within occupation titles since pay level of an individual is determined by the job held. It therefore, reduces the possibility of discrimination based on pay norms in an organization. Though not necessary the intent of employers at O’Meara Electronics, this existing compensation plan is allowing the Company to compare its salary levels to those offered by their competitor firms such as Ballantyne Engineering. As a result, this element of position-based remuneration has a side benefit since it enables management at O’Meara Electronics to be more cognizant to compare wage levels to those provided by competitors, an aspect which shows the earning potential of the Firm and its current market value vis-à-vis to other electronic companies in Australia (Cowan & Bochantin, 2011).
Analysis of Position-Based Remuneration Systems and Its Drivers/Elements
Nevertheless, since its inception, O’Meara Electronics has been utilizing Position-Based Remuneration System, and according to the current report by David O’Meara, the President, the organization is facing a declining profitability, and he attributes the occurrence to two main factors, deprived performance, and remuneration management systems. Henceforth, from the President’s sentiments, the prevailing payment scheme has got various elements failing the company and as Sara Jones Director of HR Management, says, it is time for a transformation, and since the firm has embraced position-based pay structure for a long time, there is need to introduce another compensation approach and procedure.
Research carried out by Lepak, Liao, Chung, & Harden, (2009), showed that position-based pay system provides little chance for upward payment mobility. It, therefore, follows that employees deemed to have a minimal desire for a job promotion, have got petite incentive to acquire new skills and knowledge; an aspect which gradually affects their individual performances. Besides, this system according to Zhang & Long, (2013) contributes to high business operating costs. Although Zhang and Long do not provide a detailed account of the main reason behind this scenario, position-based structure creates a situation whereby the top occupation is overpaid, and simultaneously the job at the bottom is paid too little (Stoddard, Jarvenpaa, 2015). Another critical element of job-oriented pay is that it fails to compensate workers directly for their skills, knowledge, and personal strengths. This is true considering that much of the tasks assigned to individuals at O’Meara Electronics are quite technical and require an employee to utilize his or her personal aptitudes, talents and know-how to augment his productivity and failing to compensate them based on this often demotivates them (Simons, 2010).
As hinted earlier in this essay, the person-based payment system is the one in which pay levels depend entirely on the skills, knowledge, and competence of an individual. This structure has emerged the most outstanding in the current competitive and ever-changing business environment (Leonardi, 2015). Companies are looking for a way to appreciate or reward their employees based on their distinctive personal attributes such as talent and high echelons of experience. As a worker gains more experience over time, his or her pay level increases simultaneously (Dale-Olsen, 2011).
The remuneration increments are often tied to three types of skills, namely, horizontal, vertical, and depth skills. These three types of skills are quite applicable in our case scenario. Horizontal skills, for instance, involve broadening of abilities in terms of tasks range. Employees in a certain department at O’Meara Electronics can develop their skills horizontally in a given range of tasks; an aspect which allows them to be the best and most suitable in their line of duty. Vertical skills, on the other hand, involve obtaining technical abilities of a higher level. A staff member at a lower level in the organizational structure may feel incentivized by the operations of a subdivision above him after which he feels more motivated to acquire the skills needed in the upper department. Finally, depth skills encompass a high level of abilities in a particular specialized area relating to a similar job. Often, this occurs when an employee opts to develop his or her knowledge base in the same job specialization (Elembilassery, 2016).
Analysis of Person-Based Remuneration Systems and Its Drivers/Elements
Skilled-based system, unlike occupation -oriented structure, appreciates an employee for what he or she is worth rather than the job. This scheme rewards people for what they have strived to acquire and hence it makes them more multi-skilled and flexible. A study conducted by Heneman III, et.al. (2008) revealed that employees compensated in terms of how much they contribute to the success of a firm using their technical abilities had higher chances of augmenting their talent base so that they can continue being more productive and earn more in return. This means that the structure apart from just developing productivity and quality through improved usage of the human resource, it also encourages self-development. Since it enhances flexibility within the workforce, it facilitates performance of multiple job tasks by enabling job rotation and filling of temporary occupation vacancies such as absenteeism. In other words, it leads to a leaner workforce. Moreover, Shaw, Gupta, & Delery, (2011) supported that successful implementation of person-based compensation contributes to enhanced job satisfaction because it gives workers a chance to have greater control over their planning and execution of their tasks. It is common knowledge that job satisfaction is the most critical element of human resource which practitioners and administrators strive to augment within their workforce owing to the many benefits which come along (Goldhaber, Dearmond, & Deburgomaster, 2011). With increased job satisfaction, an individual employee is more dedicated to working, has a positive attitude toward the job, and generally passion for their work increased significantly. Improved job contentment among the employees is reflected in their individual productivity and typically in the overall performance of the entire organization.
It is now clear that change is needed in this organization. As Sarah Jones supports, it is time for transformation, and since the company has relied on position-based pay in its entire life, it is imperative for them to alter their strategy to advocate for a better new system and that is person-based remuneration scheme. Implementation of this payment criterion will eliminate what upsets some people like Harry, Manager Production who feels uncomfortable and sees partiality when he witnesses Joe being overworked by the supervisor who according to him does nothing.
A study made by Kim & Wright, (2011) discovered that in a person-based pay system, even though hourly wages increased and employee productivity (labor hours per part) augmented, the general labor costs decreased drastically. As hinted before in this paper, the job-based system increases overall operation expenditures, and this might be the reason for the reduced profitability realized by the company. This worsening situation can be solved by the implementation of the new system, skilled-based remuneration plan. This strategy creates room for employee self-development and increase in individual's knowledge base and consequently improved flexibility in the workplace (Almoallim, 2010). This scenario leads to the abolition of unnecessary jobs and it also diminishes the need for supervision and thus lower administration and operation costs. Expansion of skills will enable workers at O’Meara Electronics to develop better perceptions of operations as a whole, and with this element in place, the company's overall profitability will increase substantially.
Moreover, person-based payment structure enhances personal goal setting and upon its implementation, all employees at O’Meara Electronics regardless of their job occupation or position in the chain of command, will set their own objectives and align them with the major goal of the company (Conroy & Gupta, 2015). Employees who have worked with this firm since its inception 20 years ago have undoubtedly acquired great deals of experience not only in their respective areas of specialization but also in other subdivisions. When an individual is aware of what transpires in another department in the same company, Pearce, Branyiczki, and Backacsi, (2014) say that he or she circumvents duplication of efforts and sets his or her goals which will play a unique role in the ultimate productivity of the company. In short, successful implementation of person-based compensation plan will cut across and facilitate viability of O’Meara Electronics in nearly all dimensions. An employee paid depending on his level of knowledge and skills will be more motivated to utilize his abilities and produce the most thrilling product in the eyes of the customer who will consequently support the business without fatigue (Andreas Hinterhuber, 2008).
This paper has served several purposes. At first, it has analyzed various elements and drivers of two central compensation schemes at the disposal of O'Meara Electronics, namely, position and person-based structures. Since the foundation of this firm, managers have been remunerating their employees based on their position in the hierarchical organizational structure. However, owing to the massive contemporary changes in the business arena, the executives in conjunction with other stakeholders at O’Meara Electronics have come together to decide on the best course of action of alleviating the setbacks concomitant to this archaic and outmoded payment structure. According to the views of the majority, the person-based system is the solution to many challenges such as pay discrimination, low morale, poor performance, low customer loyalty and underperformance encountered in this organization. It is recommended that skilled-based payment scheme will go a long way supporting the success of O’Meara Electronics in the competitive business environment both in the short run and in the long term.
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