Equity and Fair Employee Compensation Systems (Research Paper Sample)

Student’s Name Instructor’s Name Course Date Equity and Fair Employee Compensation Systems Most organizations have established competitive compensation systems that seek to motivate their employees and contribute to organizational success. Compensation refers to all the benefits awarded to employees in exchange for their labor. Employee compensation is an essential element in an organization since it determines the organizational strategy. It has a substantial impact on attracting and retaining the staff and enhances optimal performance particularly in attaining the organization's objectives. Some of the factors considered in the establishment of an equal and fair compensations systems include the responsibility and complexity of the role of an employee, the balance of direct and indirect rewards as wells as the focus on the external versus the internal equity. There is need for organizations to establish an effective employee compensation systems that would facilitate an equal and fair compensation for employees. Establishing Effective Employee Compensation Systems The benefits may come in different forms including direct financial compensation, non-financial compensation, indirect financial compensation, and non-financial compensation. For the indirect financial compensation, employers give payments in the form of salaries, wages, commissions, and bonuses that are provided at consistent and regular intervals. Consequently, indirect financial compensation includes all the financial rewards that are not provided in direct compensation. This type of compensation comprises a social contract between an employee and an employer including leaves, benefits, education retirement plans, and employee services (Cole 55). Another form of compensation is the non-financial one that refers to the topics related to the career development, advancement opportunities, and opportunities for recognition. To determine the most efficient compensation systems, it is necessary for the employers to consider the uniqueness of each employee because individuals have various needs or reasons for working; thus, a particular compensation will meet the needs of these people. Apparently, an adequate or fair compensation is in the employee's mind to a larger extent. Thus, the capability of compensation systems is based on achieving results that are critical for the organizational success. An appropriate compensation system for the employees entails a balance between external and internal competitiveness. Compensation and benefits have a substantial impact on the productivity and happiness of the employees, as well as the capability of an organization to attain its objectives successfully. Apparently, organizations need to consider internal equity and external competitiveness to motivate employees and enhance their productivity (Cole 55). It will be advantageous for the employers to ensure that their workers are compensated and well informed of their benefits. One of the essential factors in creating an effective compensation system is the incorporation of equity and fairness. The workplace equity is an approach that seeks to ensure that all employees are treated fairly in an organizational setting. The external pay equity emerges from the perception of the workplace equity whereby the employees in an organization are being rewarded equally in comparison to other employees doing similar jobs in other organization (Milkovich, Newman, and Carolyn 40). Consequently, the internal pay equity aims to highlight that the employees are being rewarded equally according to the comparative value of the jobs they have performed within the organization. Thus, an effective compensation and benefits system should ensure that it balances between the external and internal pay equity for their employees. Employees and Employers Perspectives on Equal and Fair Compensation System Perceived unfairness or inequity in compensation, either internal or external, may lead to low morale for the employees and the loss of the organizational effectiveness. Unfair compensations demoralize employees, and it may result in the fact that the worker will restrict his or her efforts or even leave the organization, which will eventually damage the overall performance of the company (Milkovich, Newman, and Carolyn 40). Internal equity in the organization should be applied in terms of rewards, responsibilities, and working conditions that are perceived to be fair or equitable in comparison to the other workers in similar positions in the same organization. There are various factors that determines the kind of compensation systems to be adopted. This factors include, working conditions, skill level, efforts, as well as the responsibility of the role. Subsequently, an external equity exists when the pay rates offered by an organization are equal to the average rates that are given by other organizations in a similar market or sector. Apparently, most employees always strive to ensure that their compensation systems pays what is needed to find, motivate, and keep a satisfactory number of qualified employees (Cole 62). Therefore, it is critical to create a compensation system that focuses on a competitive payment basis. In most cases, employees compare their salaries or wages with the one offered to employees in other organizations; however, they do not always compare these factors with similar types of organizations. Generally, employees deliberate more than just the base pay in defining external equity. However, some may emphasize more on the employee benefits, physical work environment, job security, or the opportunity for the development in determining if external equity exists (Hansen 6-26). Before creating a compensation system, it would be necessary to use salary surveys to determine if the benefits and compensations are similar to comparable roles in other organizations. Thus, it is crucial to ensure that the primary responsibilities and objectives of the roles that are being com...