Compensation is a systematic method that formulated by the employers to offer financial value to employees to exchange for their working performance. Employee’s satisfaction of job, performance of job and the employer’s organizational recruitment are direct affected by the compensation that the organization offered. Compensation is the implement that provided by employers for various objectives to further the development and existence of the organization. Compensation is flexible that could be changed according to the company’s operating status, business goals, needs, and available funding resources. Compensation could be a tool that to reward the employee who with exceptional performance of job, such as cash, stock, commissions, bonuses and sharing of profit. So the management of compensation is important for both employees and the organization, employee’s performance would affect by the compensation that they get, therefore compensation would direct effect the motivation of employees. This article would analyze the relationship between pay and performance, the influence factors of employee’s motivation that related to compensation. And describe the advantages and disadvantages of performance based compensation.
Compensation for motivation
The employees need motivation to get the high performance, Armache (2012) highlights that motivation is build up of wishes, needs and desires that lead people to achieve their objectives and targets. Explicit and implicit are the two types of motivation (Armache, 2012). Implicit motivations are incentives linked to primary or basic motives, implicit motivations are the personal behavior temper that are subliminally awakened and result in the emotional preferences; Explicit motivations are fully affected by society and the social pressures and rules, explicit motivations are related with a personal decisions, attitudes, judgment and behavior straightway (Armache, 2012).
Obviously, compensation is the most direct strategy that could motivate employees. Herpen et al (2005) report that motivation effected by compensation rewards, which would finally influencing effort and increase performance. Compensating employees with money is one type of the widespread method. Money is not only just a type of compensation for an employee’s work to the organization; monetary compensation is a signature of employee’s achievement, it increase employee’s confidence and decrease people’s anxiety, money is link to people’s emotions, demands and self-concept (Armache, 2012). According to Armache (2012), the reports show that money would be regard as a signature of successful, prestige, it could be symbolize as power, achievement and respect. As a result, money is absolutely very important for everyone, especially for employees who paid large amount of works, they want to get more money to balance their inputs and outputs, if they get more, they would willing to work more hardly. So the management should make an appropriate compensation practices, that they could get more returns which is employee’s high performance of job. Armache (2012) states that studies show that employee who with high paid would have better performance of job due to they feel they are more valued in the company.
Other studies indicated that when employees think they are more compensated than others, the rewards would motivate them. Herpen et al (2005) highlight that money is not only the exchange between employee and company, it also satisfied people’s demands, influence their emotions and set up the personal self-concept.
Compensation system could be simply understood as the managements provide rewards to the employees to obtain higher job performance from them. Armache (2012) reports 7 rewards types, 1, seniority and membership-based rewards, which rewards people who working for organization for a long period, that could encourage employees to work more stable and hard for the organization; 2, Job status-based rewards,