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This article provides a synthesis of the 3P approach to compensation management with a comprehensive explanation on how these approaches can affect an employee's performance at work. Through the theoretical lenses, the study looked into the 3P compensation system based on the fundamentals of paying for position, person and performance along with advantages and disadvantages of each. Subsequently, it identified different factors that are considered critical to the development of an organization's compensation policies on the basis of this 3P approach. In addition, this paper proposed some recommendations conducive to the emergence of high performing organization by reducing the shortcomings of this approach in aligning the compensation policies with its management practices and business strategies.
Keywords: compensation management, 3P compensation management, employee performance, job-based pay, skill-based pay, pay for performance, incentives, merit pay, merit bonus
INTRODUCTION
Compensation is the financial yield and benefits that employees receive in the form of salary, wages, incentives and rewards as a return of their membership within the organization in order to increase their performance at work (Holt, 1993). Brown (2003) defines compensation as a return in exchange between employees and employers out of the entitlement for being an employee of the organization, or as a reward for a job well done. Compensation Management is an essential function of Human Resource Management that enhances the productivity of an organization and carries out the design, implementation and maintenance of compensation system in order to increase organizational, team and individual performance (Armstrong, 2005). From all these definitions, it is evident that some components of compensation are membership-based whereas few other parts are linked with performance.
Employees are considered critical to the success of an organization as they commit their knowledge, skills, abilities, experiences and innovation to their employers (Rodriguezet al., 2002). Academics have been striving for establishing a functioning definition of excellent employees. Excellent employees are those individuals who can put well-directed effort to improve the productivity and worth of the organization they work for (Møller, 1994). Another concept describes excellent employees as the ones who show high "in-role" performance and high "extra-role" performance (Williams and Anderson, 1991). "In-role" performances are about fulfilling job description related duties with high standards whereas "extra-role" acts take place when they go beyond their regular...