Salaries, Benefits And Incentive System

In traditional pay system, compensation is mostly fixed, i.e. base salary, double pay and benefits, etc. In other words, there is no relation between employees' performance and the pay they receive. Increment will be given during the year profit is made. Today, an emphasis on "Cost Minimization and Benefits Maximization" is creating a need for pay-for-performance. Current pay system is designed to reward the employees on two basis - fixed and variable. Fixed pay ties to employees' academic qualification, working experience and seniority. Variable pay ties to employees' contribution to the business goal, such as "Profit-Sharing Plan" and "Gain-Sharing Plan" , which is based on predetermined measure of group performance but not on individual efforts. Team incentive plans are used because jobs are interrelated. As part of compensation package, the proportion of benefits to the total compensation is much increasingly. In fact, benefits are now used as a merit pay. Flexible benefits plans let employees individualize their own benefits package. Employees have the right to choose what they want and that is why flexible benefits plan can be more effective to attract and retain employees.A corporate contributes shares of its own stock for employees (Employee Stock Ownership Plan "ESOP" ) and do encourage employees to develop a sense of ownership in and commitment to the firm. ESOP also strengthens the self-discipline and incentive system. Stock Option plays an important role in long-term incentive system. The main concern of Share Option is achieving a "better balance between the personal motives and financial incentives of executives and their fiduciary responsibility to shareholders" . The traditional executive incentives often do not build in any real risk for the executive, so the executives' and the shareholders' interests could diverge. It is, therefore, a growing emphasis on building more executive risk into the long-term incentive formula resulted.