In the present report, we will concentrate upon different approaches to calculating payment to the staff, with especial emphasis upon the use of performance-based and skill-based payment systems, and compensation packages.
Whereas there are several types of salary (fixed, performance-based, skill-based, etc.), each having its merits and demerits, the companies choose the one that corresponds ideally to the profession, style of work, and even personal traits of workers. It is a well-known phenomenon that whereas some categories of employees are motivated by high salaries, others prefer getting compensation package rather than big salary. For companies' managers, it is often difficult to choose between offering their employees high salary, on the one hand, and other benefits on the other. Let us therefore consider two types of payment and compensation packages, and how their use influences the performance of the employees.
Skill-based system of employees' remuneration certainly has both advantages and disadvantages: on the one hand, it makes the task of calculating the payment for each worker easier for the company's management and allows to attract and retain highly skilled personnel, but on the other hand it takes into account skills rather than actual performance and therefore people get more not because they work hard but because of their background. Sometimes employees with better skills perform worse than those who are less skilled, and in these cases such a system of payment will affect the quality of work, lower employees' motivation, and even destroy team spirit.
Yet, it may be argued that those who had been able to develop a certain amount of skills are those whose motivation and performance are high, and the system of skill-based payment works under the condition that certain rules are stuck to. First of all, it is crucial that the employees understand the way the payment is calculated, and fully committed to the company so that there are no doubts as for its fair attitude to staff. (Schuster, 1998)
Secondly, the company's management has to make sure that the skills the workers acquire correspond to the company's goals, since it has been pinpointed that skill-based pay is likely to cause problems in cases when the skills acquired by the staff 'become outdated or if the skills are not being used to the fullest by the company'. (Ashish et al. 2004) Therefore, the company should "reflect the button of an employees learned skills to the achievement of company goals". (Fox 2002)
2.2. Compensation packages
Perhaps the main argument in favor of company's using compensation packages is that this brings the employees to a considerable degree of commitment making them regard their company as stable, reliable, and caring about its staff's wellbeing. Nowadays, practically any respectable company offers their staff compensation packages of some sort which may include bonuses, holding companies' stocks, getting discounts, medical insurance, etc. (What does a total compensation package include, 2001; Compensation package, 2005; Evaluating the total compensation package, 2005) Free trainings and courses are also extremely motivating, especially for the young