payment system

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A procedure for calculating employees' pay, in the vast majority of cases by relating earnings to some measure of work performed. There are many different forms of payment system but virtually all can be placed in either of two broad categories. Input-based payment systems link earnings to the time, experience, skills, or competencies which employees bring to their work. Output-based payment systems base earnings on the product of work, measured either in operational terms (e.g. units of output, achievement of goals, and customer satisfaction) or financially (e.g. sales, profitability, and value-added). Examples of input-based payment systems include hourly rates of pay, annual salaries, overtime premiums, call-out payments, service-related increments, career grades which link pay increases to qualifications, and skill-based pay. Examples of output-based payment systems include piecework, work-measured incentive schemes, appraisal-related pay, gain-sharing, and employee share ownership. Output-based payment systems can be further classified in terms of whose output or performance is measured: it might be that of an individual, as in traditional piecework, a workgroup (as in team-based pay), or an organization (as in profit-sharing). Potentially, an individual employee may be subject to several payment systems at once which link earnings to a range of input and output measures. For example, an employee may receive: an annual salary (based on the number of weeks and hours worked), an unsocial-hours payment for late-working, progression through a salary range based on seniority, an annual performance bonus based on success at achieving agreed work objectives, and the award of share options triggered by company profits reaching a set minimum figure. Recent trends in the use of payment systems in the UK have included a greater use of profit-sharing and individual performance-related pay and some experiment with skill-based pay, team-based pay, and quality incentives.

Subjects: Human Resource Management.

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