Today, organizations attempt to keep their employees motivated and satisfied with their position and work that contributes to the higher productivity and effectiveness of work and, therefore, it contributes to the better organizational performance. In such a situation compensation methods and benefit programs may be crucial for employees and organizations, but it is important to understand the fact that compensation and financial stimuli are not the only factors that can have a positive impact on the organizational performance.
First of all, it should be said that compensation methods are primarily used to motivate employees work better. In this respect, it should be said that such motivation heavily relies on the idea of utility as the cornerstone of the utilitarianism. In other words, the motivation is defined by individual’s needs and interests, which are prior to all other factors that can motivate him/her. To put it more precisely, the utilitarian approach to the motivation stands on the ground that people are more likely to get motivated to do some actions, for instance, when they get some benefits from it and, on the contrary, the risk of losses or some harm that may be caused by these actions is an important factor that decreases considerably the motivation of an individual.
It should be pointed out that the utilitarian approach to the motivation heavily relies on the rationalism of an individual since, in terms of this theory, human actions are determined by their utility or profitability. This means that it is only a perspective of some benefits that can really motivate a person, but, on the other hand, such a utilitarian view implies that an individual should evaluate carefully all his/her action and motivation is also rationally justified and evaluated because it is on the basis of the racial judgment an individual can get either motivated or non-motivated to take an action. At first glance, such an approach seems to be logical and quite convincing, but, in actuality, it proves to be rather naïve because such a view on the motivation means that people are unable to spontaneous actions. In other words, the motivation is rather a rational act than a spontaneous or unplanned act.
In such a context, the use of financial compensation seems to be efficient. At the same time, different types of compensations may have different effects. For instance, skill-based pay implies that employees’ skills play the primary role in their benefits. Hence, they are motivated to train and improve their qualification, but, on the other hand, it does not ensure really effective and productive work because the quantity or productivity of work is not mirrored in benefit programs and compensations. The same trend may be traced in regard to the competence play. On the other hand, compensation and benefit programs cannot rely solely on the productivity of employees, the amount of products or services they create and provide for customers because it does not stimulate the professional development of employees.
In this respect, the variable pay seems to be the most balanced compensation and benefit program because it stimulates both professional development of employees along with high effectiveness and productivity of their work. As a result, employees are interested to work better and, what is more important, they are conscious of the fact that if they learn, train and improve their qualification they will have better career prospects and higher benefits.