Companies follow a variety of pay practices to remunerate their employees. The aim is not simply compensation for work done, but also to act to motivate employees to work harder and improve their productivity.

Fringe benefits
These have become very common during the past couple of decades. Fringe benefits frequently include perks such as free or subsidised cafeterias, clothing allowances, car allowances, mobile phone allowances, housing allowances, free or subsidised holiday accommodation and numerous others.

As a rule, larger corporations generally have better fringe benefits than smaller ones, sometimes making it difficult for smaller businesses to attract qualified employees. This of course proves that fringe benefits work, as they help to attract and keep trained employees.

Performance pay
Another system often used by companies is to reward individuals for performing well. One-off lump sum payments, generally in the form of cash bonuses, are widely used in a range of industries. Rewarding employees with company shares or share options is also widespread in the corporate world.

The problem that can arise here is one of perception; if the individual or individuals who receive the performance pay are perceived not to be deserving of such rewards the system can actually backfire by demotivating other employees. An example is the recent unrest in the corporate world over cash bonuses, shares and share options given to CEOs of companies that are, in some cases, making losses.

Performance pay is easier to administer, as employees are rewarded according to production and not time worked, which is often the case with factory workers. In this case, a worker who produces more than a certain number of units per workday can earn a financial reward without other workers perceiving it as being unfair.

Skill-based allowances and remuneration
Some companies pay special allowances to employees with certain scarce skills or qualifications. Such schemes serve to attract employees with these qualifications or skills to the join these companies, while also encouraging existing employees to become better qualified.

An example is where a company pays a separate allowance to employees who can speak a second or third language.

Overtime payment
Overtime payments can take various forms, including cash payments and accumulating time off. The trick here is recognising what will provide the best motivation to employees to work harder and for longer hours. In most countries there are laws governing the minimum pay companies have to pay their employees when they work overtime.

Open salary information
There is currently a global move towards providing more transparency regarding pay packages, not only in the public sector, but also for senior positions in the private sector. Local councils in the UK regularly publish information about the remuneration packages of their top officials. This practice is now also largely followed in the private sector. The downside of this is that the high remuneration packages of CEOs have become largely entrenched in the system, making it difficult for an individual company to negotiate a lower pay package, while still attracting the most skilled senior managers.