After a pay system has been developed, we can begin to look at specific methods of paying our employees. Remember that when we talk about compensation, we are referring to not only an actual paycheck but additional types of compensation, such as incentive plans that include bonuses and profit sharing. We can divide our total pay system into three categories: pay, incentives, and other types of compensation. Pay is the hourly, weekly, or monthly salary an employee earns. An incentive, often called a pay-for-performance incentive, is given for meeting certain performance standards, such as meeting sales targets. The advantage to incentive pay is that company goals can be linked directly to employee goals, resulting in higher pay for the employee and goal achievement by the organization. The following are desirable traits of incentive plans:
- Clearly communicated
- Attainable but challenging
- Easily understandable
- Tied to company goals
Table 6.3 "Types of Pay" illustrates the three types of compensation.
Most organizations use a combination of pay, incentives, and other compensation, as outlined in Table 6.3 "Types of Pay" , to develop the total compensation package.