The role of the Human Resource Manager is changing as the global market continues to present a more competitive edge. The focus for Human Resources has shifted from administrational to strategical; the dynamics of the business world demanding more for less while the workforce perceives their own set of expectations. The results of a recent survey according to Benefits Quarterly (2009) revealed the need for HR professionals to creatively balance base pay, short- and long-term incentives and benefits. Compensation strategies include using and celebrating on-the-spot incentive rewards, highlighting growth and development to encourage engagement and openly focusing on succession planning. Heneman and Judge (2009) argue that compensation is the most important reward that the organization has to offer in its attraction strategy. Martocchio (2011) agrees, elaborating the idea that a companies’ functional structures and financial resources is a critical element in not only attracting, but retaining talented people. Spending too much or too little could make or break the organization.
The compensation system must be well thought out and planned according to the organization’s industry, culture, context, and job. This paper discusses business issues to consider when deciding whether to use people-focused reward systems versus job-focused reward systems and its impact on employee behavior and overall organizational performance.
Consider HR Compensation Issues
Greene (2003) emphasizes the difference between people-focused reward systems, specifically variable pay which recognizes person’s knowledge and skills versus job-focused reward systems such as merit pay which is based upon a job description. The distinction is variable (or incentive) pay does not fit an entitlement culture. Variable pay is not an expected increase to base salary, but an earned reward which must be re-earned each measurement period. The subjectivity of merit pay brings in question...