Market-Based Compensation Systems: Impacts of Decisions

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Table of Contents

Introduction
Description of Personal Experience with Payment Systems of Google
Factors Determining the Level of Payment Employees Receive
Whether Compensation Policies Result in Motivation
Comparisons of US Payment Policies and Practices with Other Countries
Conclusion
References

Introduction

A market-based compensation system is a set of reward programs that firms undertake to attract, retain and develop employees in line with what is offered in the external market (Minow, 2012). Generally, the pay rates in the external markets should be taken into consideration when making compensation decisions. Market-based compensation is critical in retaining the firm’s competent employees as well as monitoring the market trends. In addition, internal equity must also be considered and monitored. However, fairness in compensation at times conflict with the demand of market-based compensation procedures.

Description of Personal Experience with Payment Systems of Google

Most organizations normally pay employees based on the market rates (Murphy & Zabojnik, 2004). Besides, the compensation systems of most organizations are aligned to the legal requirements and labor regulations. However, in Google the payment system is one of the best since the firm’s payment rates are above the normal rates. Essentially, Google pay rate is approximately thirty-one percentages above the external market rate, which is quite consistent with good compensation practices and decisions.

The compensation system of the organization ensures both internal and external balance in the reparation practices. Actually, the firm’s remunerations design also ensures internal equity through profit sharing, which results in increased performance level among employees compared to other competitors in the market (Yeganeh & Su, 2011). Besides, the firm maintains a balance between compensation and net income ratio of about thirty percent.

Factors Determining the Level of Payment Employees Receive

Many factors determine the level of payment received by employees in an organization ranging from market-based rates to experience (Hale & Bailey, 1998). Essentially, compensations based on the market rates play a crucial role in determining the salary of employees. In most cases, the firm’s compensation system is based on the industry practices. Google is one of the most profitable firms in the industry and attracts higher pay rates. Through the enormous profits, Google sustains the high pay rates for its employees and compete with others in the industry effectively.

Besides, compensation based on employment description is highly practiced by the organization. Employees’ payment system of the organization is primarily determined by the level of employment. In other words, the position within the employment hierarchy determines the level of payment (Jeppson, Smith & Stone, 2009).

For instance, employees in senior management positions normally have increased compensation. Besides, pay increase would only be affected by the promotion from junior position to higher levels of management. However, in Google, other factors such as education level, skills and innovative capabilities are considered. In other words, even though minimum requirements for employment in various positions are put in place, employees with increased education levels are likely to receive higher compensation.

Experience in a particular area also determines higher remunerations. Employees with increased experience in certain job specification are likely to be offered a higher pay compared with employees of similar employment qualification (Graebner & Seaweard, 2004). In some cases, salary history is used to gauge the current pay that could result in pay increase. However, factors such as individual’s unique skills, interpersonal orientation, and place of work should play a critical role in determining compensation rates in Google.

Whether Compensation Policies Result in Motivation

Studies indicate positive correlation between compensation and motivation of employees towards a higher performance (Jeppson et al., 2009). As such, Google offers increased remunerations to augment employees’ performances, which in turn result in optimal job satisfaction.

Essentially, a good compensation framework should put into consideration a number of factors preferably being able to acknowledge the firm’s goals and desired outcomes. In addition, compensation plans should not only be limited to direct financial gains such as equitability in financial rewards, merits and performance bonuses but should be expanded to non-financial benefits such as social security settlements, worker’s compensation, jury duty, vacations and education services, which should be applied equally to all levels of management (Hale & Bailey, 1998).

Comparisons of US Payment Policies and Practices with Other Countries

Compensation policies and practices in US vary greatly with the payment standards in other countries across the globe. The outstanding difference in these policies is the Compensation Bargain Policy (CBP) found in the US remuneration system that gives medical cover to employees who sustain injuries in the course of their employment duties (Minow, 2012). Even though such compensation benefits are practiced in many countries, the US CBP gives employees more power to bargain for their benefits in case of fault by the employer.

Studies indicate that private firms in US employ market-based salary structures, which is in contrast to the traditional and broadband structures that are used across the globe (Yeganeh & Su, 2011). In addition, a common trend in the variations of salary structures in the US markets is consistent with international practices. Similar compensation practices are also applied to remunerate employees working out of the United States. However, most of the compensation practices and polices applied in US are based on the international standards (Graebner & Seaweard, 2004). In other words, apart from few existing differences, the US payment policies are similar to the global standards.

Conclusion

A market-based compensation system is widely practiced across the globe. Generally, firms utilize the reward program to attract, retain and develop employees. Besides, market-based compensation is critical in retaining the firm’s top rated employees as well as monitoring the market trends. However, fairness in compensation is one of the characteristics that make market-based compensation practices be attractive and widely applied by most firms.

References

Graebner, D. R., & Seaweard, K. A. (2004). Bringing it all inside: Job evaluation and market pricing at JC Penney. Work span, 47(8), 30-35.

Hale, J., & Bailey, G. (1998). Seven dimensions of successful reward plans. Compensation and Benefits Review, 30(4), 71-77.

Jeppson, C. T., Smith, W. W., & Stone, R. S. (2009). CEO compensation and firm performance: Is there any relationship? Journal of Business & Economics Research, 7(11), 81-93.

Minow, A. S. (2012). Reasonable compensation. California CPA, 80(7), 11-13.

Murphy, K. J. & Zabojnik, J. (2004). CEO pay and appointments: A market-based explanation for recent trends. The American Economic Review, 94(2), 192-196.

Yeganeh, H., & Su, Z. (2011).The effects of cultural orientations on preferred compensation policies. International Journal Of Human Resource Management, 22(12), 2609-2628.

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