Remuneration can be described as money paid to an individual that has performed work or a service (Main 1996). Remuneration can come in the form of a salary, wage, and allowance, benefits such as company cars, medical plan, pension plan, bonuses or cash incentives with a monetary value (Business Dictionary 2015). It has always been a debate weather businesses should pay their employees on the bases of their effort exerted or the hours they have worked (Gray 2007). Remuneration alters between different businesses and countries. In Australia the government has set a minimum wage rate that most company’s cannot pass (Australian Government 2015), while in third world countries where sweatshops are prevalent like India, wages are extremely low and unfair (Arnold 20016). Samsung a multinational electronic and telecommunication company pay employees according to their ability portrayed through work accomplished ( Samsung Techwin 2015). During each year employee performance is monitored and evaluated, each individuals abilities are fairly depicted through their wage (Samsung Techwin 2014). It is said that companies that implement a performance base pay profit more as it automatically improves the performance of employees and increases work ethic to meet company targets and business strategy objectives (Aral 2012).
Performance pay is an enormous job for human resource management and usually requires a set equation to evaluate performance fairly and adequately ( Samsung SDI 2015 ). Samsung has applied a minimum base pay to all employees and incentives are added and paid accordingly ( Gan 2014). Employees are payed based on individual and group performance. Group performance is divided into Productivity and Profit Sharing (Gan 2014). Productivity is treated as an additional performance based on salary and is awarded when additional profit is achieved (Samsung Techwin 2014). Profit Sharing is a system that divides spill over profits to employees when the company has performed beyond the target (Samsung Techwin 2014) and comes in the form of cash, share and welfare funds (Gan 2014). Samsung also include incentives into employee remuneration as their focus is primarily on talent engagement (Gan 2014). Samsung provide employees with protection against health, children, education, and mortgage and after retirement plans ( Gan 2014). These incentives are provided to make employees feel comfortable, safe and stable. A happy employee is always willing to work more efficiently to meet company targets. Employees are placed in classes based on their job title which in turn influences their performance pay. Class 1-2 are employees that hold the title of Vice President and are subject to an annual salary system where Base pay + Incentive + Overtime pay is calculated (Samsung SDI 2015). Class 4 and 5 are employees that hold the title of Manager and are payed on a monthly system which includes Base pay + Incentive + Overtime pay + Other Allowances (Samsung SDI 2015).
Explain two advantages and two disadvantages of this approach:
1. Incentive to reach KPI:
Key Performance Indicators (KPI) is a measurable value that mirrors how an organisation is reaching their future targets and business strategy objectives (Gabcanoval 2012). Organisations that implement performance base pay have the advantage to push employees to reach their daily KPIs. Performance base pay allows an organisation to pay employees based on the work they have done, the more targets met the bigger the salary. Work ethic within the company is high and employees feel a sense of fulfilment and satisfaction completing company targets, as they can anticipate a reward through remuneration. Performance base pay not only creates an incentive for employees but also company targets are being reached which in turn is promoting profits.
Samsungs approach of performance base pay creates