The Continuum of Compensation Philosophies

HUMAN RESOURCES: THE CONTINUUM OF COMPENSATION PHILOSOPHIES
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(01, October, 2010)

The Continuum of Compensation Philosophies.
Introduction
The continuum for compensation philosophy has two ends that most compensation lie, these are the entitlement philosophy and the pay for performance philosophy.
Entitlement Philosophy
The entitlement philosophy forms the beginning of the continuum. It makes an assumption that individuals that have worked for another year have an entitlement to a pay increase, this is without the consideration for the differences in performance .The employees of the organizations that have effected this philosophy receive automatic increases every year, these automatic yearly increases are termed as cost of living raises. However, these benefits are not tied to economic indicators and most of the organizations give the same percentage increases to their employees every year. The employees normally expect the bonuses to be a form of an entitlement since many of the organizations that are entitlement oriented are determined without a consideration of the operating results.
Pay for Performance Philosophy
This philosophy is based on the requirement that performance differences determine the level of compensation. The employees of the organizations that practice this philosophy are not entitled to yearly increases in the pay. The payment and the incentives are structured in way that they reflect the performance differences. Organizations that have effected this philosophy ensures that employees that have high performance standards have advancement in their compensation levels compared to the marginal performers. Group or individual performance determines the bonuses and incentives.
The advantage of the entitlement philosophy is that it leads to a stable work force. It has the disadvantage where it leads to low production levels. The pay f...