How Compensation Affects Employee Performance

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How Compensation Affects Employee Performance

Compensation is the reward given to employees in return for their services rendered and it is often the cornerstone of a productive workforce. The quality and performance of your company’s talent pool is usually directly dependent on how well you execute your compensation planning strategies.

The Impact of Compensation on Employee Performance

A compensation package does not necessarily mean rewarding in the monetary form. It also includes flexible benefits, medical care, work-life balance, as well as employee perks. Today’s employees not only work for the money, but also place equal emphasis on other aspects of compensation. A good compensation package ensures:

  • Retention – A compelling compensation plan helps to reduce the turnover rate of the company. Employees will be more incentivized to stay in their role and this saves potential expenses related to turnover.
  • Motivation – Compensation is the primary motivating factor for employees to continuously push themselves to strive for greater heights. It offers them a reason to work hard and keep driving towards achieving the next milestone.

On the other hand, employee performance and efficiency can be drastically affected if a good compensation package is absent. Here are a few reasons why:

  • Low job satisfaction – Employees will feel underappreciated and derive low satisfaction from their job. This may lead to discontent amongst coworkers and put a dent in workplace morale.
  • Low productivity – Poor compensation induces low productivity. There is less motivation for employees to strive for excellence
  • High turnover – If the reward versus effort ratio is low, employees are incentivized to cast their sights away from their current job. Employee churn incurs a hefty cost to the company (retraining, relocating and time wasted).

Systemize Your Compensation Planning Process Today

A well-crafted compensation plan is imperative to the success of the company. But many of today’s compensation processes rely on Excel spreadsheets that offer no room for optimization and streamlining. Using specialized compensation software to plan compensation allows compensation managers to use hard data to identify compensation strategies that provide the greatest return on investment.

HRsoft – The Compensation Management Software Leader
HRsoft is a leading provider of compensation management solutions for strategic HR departments. For more information on our compensation management software, COMPview™ click the link below!

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