p.p1 {margin: 0.0px 0.0px 16.0px 0.0px; font: 14.0px ‘Times New Roman’; -webkit-text-stroke: #000000}
p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; font: 14.0px ‘Times New Roman’; -webkit-text-stroke: #000000}
p.p3 {margin: 0.0px 0.0px 0.0px 0.0px; font: 14.0px ‘Times New Roman’; -webkit-text-stroke: #000000; min-height: 16.0px}
span.s1 {font-kerning: none}

Rubery (1997) stated “wages are not simply the outcome of distributional conflict but instead serve variously to signal changes in supply and demand, to cement social coherence and the acceptance of the economic and social order, or to provide a motivating tool for management.” This shows the significance to learn about compensation and its multiple functions that involve employees, employers, governments, worker’s families, and also social challenges. Across the world, performance based pay works when done right. There are number of different delivery plans wide across and understanding them gives a better knowledge to overcome the complexities in pay. Moreover, there are complexities in variation, pay systems, and rates when we view the performance-pay structure itself and also the social conventions, trade unions involvement, and society norms. The governments involvement in pay systems creates a further complexity to understand, although it clears some complexities in practice. 
According to Bryson and Forth (2006), labour is the real efforts put in by employee’s for making services or goods. In worker’s view, pay is the compensation for labour. The pay may not only consists of financial income received after or in advance for the efforts provided, but also non-financial payments which are frequently considered by employees as more valuable compared to their financial equivalents, like health insurance and other fringe benefits. The payment differs widely across workers and may also have deferred payments like holiday pay and pensions. (Dale-Olsen, 2006) 
Though there are complications as such, employees are awarded pay for their efforts to compensate and it is plainly characterised as result of a simple, economic, private settlement between employees and employers. However, pay is complex to both employees and employers due to a minimum of three causes. (Bryson and Forth, 2006) First, the suitable compromise for reward and effort is ruled and influenced by powerful social customs and conventions. For example, “fair day’s work for a fair day’s pay” in relation to its constituents is a strong tradition. When the survival requirements of workers and their families in general seem to be not equivalent to the market-set wages, the governments are forced to take part in wage setting process. Second, many a times, employers are assessed and critiqued for the amount they pay their employees, and employees for the pay they receive. This is another factor to consider the significance of social conventions. For example, cutting down on labour expenses might lead to more positivity in stock market prices, in contrast, their conduct with the employees in a socially responsible manner might achieve appraisal as a fine employer. Pay is an important determinant for employee as their social standing is based on their wages and also on the way it is rewarded like weekly, hourly or annually. Brown et al. (2005) suggests that, there is a great correlation between workers welfare in relation to their pay compared to their colleagues. Also, pay affects workers directly on their ability to eat and wear and the way they can take loans, and indirectly in the manner in which they are seen by the society. Third, occasionally, the wage setting process is intertwined with other factors when desired by employees or employers. For example, employers might collectively decide to do something, like, when there is scarce work-force, they keep away to ‘take wages out of competition’ as they can collectively bargain to set same rates in specific industries, jobs or communities. Also, the trade unions or different modes of collective activity can influence employees to come in cooperation to set wages with one or more employers. (Bryson and Forth, 2006)
Performance related pay
Performance related pay system is one major explanation to understand the complexity in the society between pay systems, rates, and variation. Traditional incentive systems, merit pay plans and variable pay configurations are the three major types of pay-for-performance systems at the individual level. Traditional incentive systems comprise piece-rate plans and sales commissions. An employee is rewarded a particular pay for each item created or each service given in a price-rate incentive plans. In case of merit pay plan, worker’s base pay is increased with amounts for previous work behaviour and outcomes as compensation for individuals. However, in variable pay plan, the rewards that boost base pay are not permanent and should be earned again to be presented anew as this is a performance-related compensation. For example, lump-sum rewards are given for attaining specific objectives. (Durham and Bartol, 2009)
According to Weitzman and Kruse (1990), piecework is viewed in terms of  persuading higher effort so that the marginal cost of manufacturing an additional unit of output is matched with the marginal value of it. Using this system for the employers is hard when worker’s efforts are expensive and not viable to monitor. Bryson and Forth (2006) state that “traditionally the purpose of Payments-by-results systems of pay has been to encourage workers to increase effort and output….In practice….there has been a tendency for payments-by-results systems to become more an instrument of management control designed to ensure consistency of output.” When management find it difficult to supervise the workers, piecework and other different systems of performance pay act as an procedure for managerial control (Gallie et al. 1998). 
From the literature of Durham and Bartol (2009), pay and performance are linked by three pay systems (gainsharing, profit sharing, and stock options) at the organisational level. The United States have noticed an upward trend in the shared forms of compensation that have inculcated higher employee participation in decision making (Dube and Freeman, 2006). In Britain One-quarter had profit-related pay schemes and one-fifth had employee share-ownership schemes in 2004, also, one-third of workplaces apply individual payments-by-results, one-quarter applied group-based payments-by-results and 16 per cent applied subjective merit pay (Bryson and Freeman, 2006). These figures uplift the importance to understand performance pay systems. 

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Effects apart from the direct effects of pay on performance also need to be looked upon. Indirect effects are arising from effects on retention and attraction systems in firms. For example, the status of rewards effects attraction to companies. Pay systems that offer fixed pay rather than variable pay, and which offers compensations to individual performance rather than group performance might be more attractive to individuals. The general level of pay is also a aspect stimulating retention and hence pay for performance can have a positive effect on retention. (Durham and Bartol, 2009)
Bryson and Forth (2006) also criticise that the connection between productivity and performance and variable pay is unsure and uncertain. The cost of the variable pay for the employers might offset its potential benefits (Levine and Tyson, 1990). There is also a scope of demotivation to the employees (Brown and Nolan, 1988). Also, the act to include employees in the decision making process of shared remuneration might not be optimal (Jones, 1987).

Promotion as a compensation might motivate efforts in huge firms as the spots for promotion are narrow. This looks similar to a tournament where ‘winner takes all”. Tournament theory explains the wage imbalance within firms and a plausible reason for high salaries of CEO’s. Nevertheless, between employees there is an unwillingness to help each other in tournament function. (Bryson and Forth, 2006).
Durham and Bartol (2009) stated “It does not make sense for an employer to offer to pay employees more unless the employer will actually get more in the bargain. When, therefore, might it be unwise (or even counterproductive) to offer incentives?” It becomes difficult to influence efforts of the employees with the principle of pay for performance in possible exceptions like when employees are learning, when the employer can monitor, when other motivators are sufficient or compensatory and when the company is unionised (ibid.). For instance, according to Agency theory, the financial incentives are not required when employers can monitor and give feedback and direction (Jensen and Meckling, 1976).
Marsden (2004), has argued that the major effect of implementation of pay related performance across British public services was to open the door for renegotiation of performance norms in the 1990’s. When a new scheme is well planned along with managers well equipped to run it, there will be some employees who dislike the scheme and criteria and perceive themselves worse off, and also there will be some who like the idea and act positively to the new system and concept. There is a positive attitude in the latter to change their performance and modify themselves to improve. However, in the former, this attitude is missing and managers motivate them through new performance compensation systems by means of appraisal and goal setting. (Marsden, 2004) 

The Role of State
From review of the literature of Rubery (1997), redistribution of wages is something that has come to fore as a function of wage. Restructuring of systems like tax, social wage, and redistribution between profits and wages has resulted in the redistribution via the improvement of multi- earner households along with no-earner households. The state plays a regulatory role in the distribution of wages as it controls the pay levels and pay changes in the economy. Systems such as legislation on equal pay, policy on income, and policy on minimum wages are set up, that influence directly and moreover, systems such as law influencing unions and collective bargaining ability, and welfare-to-work policies that effect indirectly. Wage, non-wage labour expenses and also earned income are affected by the systems associated to taxation, employer’s social security contributions and pensions. (Bryson and Forth, 2006)
The initiation of minimum wages policy out of all the schemes has pulled the most observation. The major reason for this is the addressing of poverty reduction in households and the assurance of a “fair day’s work for a fair day’s pay.” These systems are set to address the imbalance in the society between market-set wages and market-desired wages. Even though the marginal product of the worker’s indicate the market-set wages, worker’s families nutritional and material needs are lacking in terms of society’s estimates. Research from different countries accolades the reduction and flattening of the wage distribution by the process of minimum wage. (ibid.) 
A criticism faced by wage supplements is that the employees can be stuck in long-term dependence on State and also regarding the aspects of equity, for instance, the person qualified for the supplement gets rewarded more than the person who doesn’t get qualified even though their productivity is similar (Blundell and Hoynes, 2004; Bryson and Forth, 2006; Bryson, 1998). However, the state has implemented actions to further address the issue of unequal wage dispersion like the initiation of the Equal Pay and Sex Discrimination Acts on 1975. With these acts, the State plays a crucial hand in shattering social customs that govern pay for generations which have led to a less pay for women compared to men for the same amounts of work. The governments reduced the gender pay gap, though completely not closing it. For instance, Norway has no gender pay gap for part-time work due to the strong anti-discriminatory schemes and systems that support women in the labour market (Hardoy and Schøne, 2006). The governments have also directed the manner in which the employers paid their employees like stimulating the advancement of performance-based pay through profit sharing pay, share ownership policy with tax breaks (Bryson, 2006). Thus, the influence of States’ involvement and schemes in pay levels, changes in pay, systems of pay, all reveal the significance of State in wage diffusion.

As we understood, compensation is necessarily not only the money paid but includes other non-financial components like safety, insurance, social status etc.
Exploring the further reasons of complexity of pay apart from those we studied in the beginning of the article, we noted there are many systems of pay related to performance. Each of these processes, identify and relate the elements that are very significant to the organisation’s prosperity and hence prioritises worker’s effort and directs on those elements. The different types of systems, their interactions with the employers’ and employees’ and their impacts on the society, its social conventions have all led to the complex structure of compensation.
Although there are lot of attributes to performance based pay, there are also negative aspects attached to it. Nevertheless, the managers try to motivate them though newer and more efficient compensation systems that may or may not be related to financial increments. The State’s intervention evidenced a compression in wage distribution across and it also plays a crucial role in addressing some social problems like gender pay gap. Even though the governments face some criticism related to policy decisions related to pay, they constantly work to reduce the inequalities in pay and  address the wage distribution. At the deepest level, the complexity of compensation arises when the disparity between the ultimate motives of employer and employee is extensive. These motives vary as the employee intends to look for his personal benefits and well-being, whereas an employer is in pursuit of profit making. So this simple disparity causes a huge ripple-effect which prevents the potential growth of the organisation in the long run. 


I'm Joan!

Would you like to get a custom essay? How about receiving a customized one?

Check it out