When people work for a company, they expect to receive from the company something in return for their efforts. Employee remuneration refers the Compensation and reward given by companies to their employees.
The remuneration to employees can be broadly divided in two types. The first is the pay, which they can spend as they please. The second is the job facilities provided to them to improve their effectiveness and comfort on the job. These can be provides in physical form such as company car, or as payment of expenses like travel, lodging, dining and entertaining incurred while performing company work.]
Companies also provide to their employees “fringe benefits” which combines the features of pay as well as on the job facilities. Employeees also expect to derive job satisfaction from their work – this is the feeling of satisfaction and enjoyment they feel in the process of performing their work, and not something given in return for their work.
The amount of the remuneration as well as the form and way in which it is paid has major implication on employee performance and cost.
The pay can have two components. A fixed pay independent of the performance levels of individual or groups of employee, and a variable pay linked to the performance levels. Fixed amount is to satisfy need for income stability, and the variable component is to stimulate and reward greater effort.
The fixed pay may be paid in several different forms and under different names – like basic salary, dearness allowance, city compensatory allowance, and house rent allowance. Here it will be useful to clarify that although dearness allowance varies with the price index, it forms part of fixed component of employees earning as it is not linked to on the job performance.
The variable pay is also paid by companies under different names like incentive, commission, and bonus. To simplify our discussion here we will use the term incentive to include all types of variable components monetary compensation. The incentives can be of different types, and can be linked to the performance in different ways.