Prof. Mrs Vera Ogeh Fiador, Associate Professor at the Department of Finance at the University of Ghana Business School has urged business owners to consider a performance-based compensation approach as as a way of eliminating costs.
Madam Vera believes the performance-based compensation strategy is a better replacement in dealing with costs than the usual retrenchment compensation strategy used.
Speaking at the Ghana National Chamber of Commerce and Industry Forum, Prof.Viador called on businesses to diversify their operations to other markets in order to improve their income whilst minimizing risks.
“Most businesses I think should work towards performance-based compensation as opposed to being open all out to retrenchment strategies that we employ.”
Vera Fiador
Professor Fiador in her address encouraged businesses to concentrate more on increasing revenues as costs for businesses cannot entirely be eliminated.
“So, to a large extent, we also need to improve upon revenue and because of the decline in the economy, revenue may be for us to diversifying outside our typical, you know, business zones so that we could leverage on the benefits in terms of improved income and at the same time minimizing the risks.
“Other strategies could include hedging. So like I said, you could get into forward contracts sometimes with your bank for those who are especially in the importing sector who may require a lot of forex to be able to put some certainty in terms of their forex exchange managements, etc.”
Vera Fiador
Prof. Fiador believes these strategies should work for businesses.
Performance-Based Vs Retrenchment Compensation Approaches
Performance-based pay is compensation that’s tied to employees’ contributions to a company. This form of compensation is great when both the company and employee perform well, making it a ‘double-edged sword’.
The basic idea behind performance-based compensation is that employees working for a company receive rewards based on their actual performance.
On the other hand, retrenchment requires that the employer pays a retrenchment benefit of between 2 weeks to 1 month salary per year of service, depending on the company’s financial position and the industry.
Retrenchment also means terminating an employee due to the surplus of labor or incapacity of employees to match the performance standards of the company.
This, means compensation of workers should be tied to their various capacity inputs to work.
This strategy is a good measure that businesses need to adopt to regulate the swift rate at which they downsize.
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