urs or better-than-average benefits might keep employees in a job that they would otherwise leave. CompensationThe classic pay philosophy is to provide wages that will attract and retain qualified employees. Being aware of the wage rates in an organizations external market place is critical to its success. If an organizations wage scale becomes too low, the company may lose employees to companies that pay a higher rate. Many companies emphasize total compensation, stating that the total compensation paid by their company is equal to or better than other companies in the market although their salaries may not be.Variable pay is employee compensation that varies with the organization's business performance. With variable pay systems the interests of the organization are closely linked to the interests of the individual employee. Variable compensation plans are rapidly growing in popularity. It is more costly to the organization that is performing well; yet the organization that is performing well is better able to afford the expense. A variable pay system works well when the organization's business performance is equal to or better than the industry average. However, if an organization is performing poorly while the industry is doing well overall, then your employees' total compensation (variable plus fixed pay) will be less than other companies in the industry, which could lead to poor morale and/or increased turnover.Profit sharing plans, like variable pay plans in general, are growing in popularity. Profit sharing plans are funded by the organization's profits based on a specified formula. The profit sharing pool is then allocated to employees, usually as a percentage of their base salary. Currently approximately 40% of companies offer profit sharing plans. A typical profit sharing award is 5% to 6% of employees' base salary.Lump sum merit awards provide financial recognition for an individual's job performance in lieu of merit-b...
