Concept of Employee Remuneration

Definition of Employee Remuneration

Remuneration is the compensation that one receives in exchange for the work or services performed. Typically, this consists of monetary rewards, also referred to as wage or salary. It can also be defined as Reward for employment in the form of pay, salary, or wage, including allowances, benefits (such as company car, medical plan, pension plan, bonuses, cash incentives, and monetary value of the noncash incentives).

The remuneration package of an employee therefore includes; wages/salary, incentives, fringe benefits, perquisites and finally non-monetary benefits. Wage is the payment given to employee by the employer. It is the hourly-rate of pay while salary refers to monthly rate of pay. Salary includes allowances and also annual increment.

  • Salary payment is not uniform to all employees and depends upon nature of job, responsibilities, merits available, status, and seniority of the employee.
  • Incentives are addition to regular wage payment and depend on productivity, sales, profit, cost reduction efforts etc. The purpose behind incentives is to encourage/motivate employees to take more interest in the work and according to the results get the incentives.
  • Fringe benefits are monetary benefits provided to employees and includes: provident fund, gratuity, medical care, hospitalization payment, provision of uniforms to employees etc.

Importance of Compensation and Remuneration

Compensation decisions are strategic decisions and play a key role in achieving performance and sustainable competitive advantages for organizations. Its key objectives are to:

  • Attract employees who are qualified, experienced and interested in the assignments at hand;
  • Provide a consistent and reasonable relationship between the pay levels of employees at different levels; and
  • Become cost effective by reducing unnecessary expenses.
  • Reward people according to what the organization values and wants to pay for as well as reward them for the value they create;
  • Develop a performance culture;
  • Motivate people and obtain their commitment and engagement;
  • Help to attract and retain the high quality people the organization needs;
  • Create total reward processes that recognize the importance of both financial and non-financial rewards;
  • Develop a positive employment relationship and psychological contract;
  • Align reward practices with both business goals and employee values;
  • Operate transparently since employees understand how reward processes operate and how they are affected by them; and
  • To operate fairly as employees feel that they are treated justly in accordance with what is due to them because of their value to the organization.

Fair compensations also help in reducing conflicts in an organization because makes employees feel valued and enable them to create togetherness due to job satisfaction. In addition, it aids in organizational development since high productivity enable the organization to achieve its short and long term goals leading to continuity and sustainability.

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