Intrinsic Compensation - Research Paper Example

 Intrinsic Compensation Introduction Compensation is one of the vital tools used by the human resource managers in an organization to manage their employees. In the modern day context, it has become imperative for an organization to possess an appropriate compensation system which is closely related with the employees’ performances. It is worth mentioning that effective compensation system helps an organization to motivate and to retain skilled employees which further ensures higher productivity along with greater profitability for the organization. It is not very important that the compensation system of an organization is aligned with the goals and the objectives of the organization but it should mandatorily be designed according to the human resource strategy of an organization. It is often expensive for an organization to hire new and skilled employees. Moreover, the frequent recruitment and retrenchment of employees may also have a significant impact on the current employees and on the organizational energy and motivational level. Additionally, by ignoring the issue of compensation, it does not go away or get better with the passage of time but will require valuable time and money to fix the system (Salanova & Kirmanen, 2010). In the highly dynamic business environment, successful organizations are constantly engaged in regular planning and evaluation of their compensation and performance appraisal systems. Thus, compensation system is a critical factor that directly influences the performance of the employees and the organization. Accordingly, an organization should ensure that it has clear and visible compensation system that is being regularly communicated to its employees which further acts as a motivational factor for the organization (Salanova & Kirmanen, 2010). Intrinsic Compensation According to Hamel (2008), “intrinsic compensations are derived from the workplace itself and are valued internally by the employee. These include opportunities for personal growth, quality of work life, job satisfaction, challenges, personal and professional development opportunities, a sense of belongingness, freedom to act visionary leadership” (Hamel, 2008, pp. 3). In other words, intrinsic compensation can be defined as those activities which have an influence on the intellectual, emotional and physical wellbeing of organizational employees. In the present highly dynamic business environment, intrinsic compensation plays a crucial role in motivating and retaining skilled employees in an organization. Intrinsic compensation deals with the employees critical psychological states of mind that is attributed to employees’ job performance. Intrinsic rewards such as autonomy in decision making, often acts as a motivational factor that seeks enhanced contribution from the existing employees of an organization. The greater employee satisfaction strengthens their engagement in an organization and helps an organization to retain talent within the organization (Allen, 2008). Intrinsic Compensation as a Motivational Factor Intrinsic compensation is derived from the satisfaction that an employee gets from performing their assigned tasks competently. An employee who is engaged in meaningful work tasks based on self defined goals and social norms is often motivated to perform exceptionally well and further develops an inherent interest for the assigned tasks. According to motivational theory of Maslow’s Hierarchy of Needs, employees are highly motivated when their all the needs are effectively satisfied. In relation to this, when employees are satisfied they get the feeling of success from their work which in turn results in high employee motivation to perform their work in a better way (Salanova & Kirmanen, 2010). Furthermore, healthy work environment is another mode of intrinsic compensation which adds to high motivational level among the workforce. Healthy and cordial work environment often tends to create thriving atmosphere within an organization which ultimately leads to greater employee satisfaction. A satisfied employee at the workplace is motivated to contribute their best to the organization and also acts as a source of motivation for other workers. In addition to this, appropriate employee recognition for their outstanding performance also leads towards increased employee motivation. Employee recognition helps an organization to attract employee trust and loyalty. Moreover, trusted and loyal employees enjoy their work and endeavor to perform better for enhancing the productivity of the organization and thereby the revenue of the organization. The organization that has adopted greater flexibility and less stringent organizational culture has ultimately been successful in delivering highest employee satisfaction which in turn has led the organization to retain motivated and skilled employees. The productivity of the employees has also augmented satisfactorily (Incentive Performance Center, 2008) At the same time, an organization that values the involvement of employees in various decision making processes has substantially been able to induce motivation among the employees of the organization leading towards positive work attitude and high organizational performance (Kuye & Sulaimon, 2011). Advantages and Disadvantages of Intrinsic Compensation Advantages There are numerous advantages of intrinsic compensation. The most obvious advantages of intrinsic compensation are that it provides an organization with an opportunity to highlight desired actions and behaviors. The core idea behind the statement is that an organization by recognizing outstanding achievement and certain noteworthy performances, other employees will also try to imitate those performances and will be motivated to perform their tasks efficiently. Moreover, the culture of intrinsic compensation within an organization often encourages employee to focus on common organizational goals and objectives. In addition to this, intrinsic compensation is a cost effective compensation system as it does not involve any monetary transfer (Scribd Inc., 2012). Often the impact of intrinsic compensation system is immediate. A properly structured intrinsic compensation leads to achieve substantial employee trust and loyalty which is ultimately related with improved employee performance and greater organizational revenue. Another crucial advantage of intrinsic compensation deals with retention of skilled workforce within an organization. It is worth mentioning that satisfied employees develop inherent interest towards their work and are reluctant to leave their job. Contextually, an organization is benefitted with talented employees and it also saves considerable amount of money which would have been invested in recruitment and selection of new employees. Intrinsic compensation has in-depth and long-lasting impact on the employee motivation level. The highly motivated employees often benefit an organization by contributing their best to the organization (Silverman, 2004). Disadvantages Intrinsic compensation also has certain disadvantages associated with both the employees and the organization. One of the major drawbacks of intrinsic compensation involves disputes among the employees within the organization. It should be noted that an organization recognizing the contribution of one employee and not the other one may lead towards arising conflicts between the two employees. Consequently, such activities may distort the working environment and thereby the productivity and the revenue of an organization. Moreover, an organization’s intrinsic compensation system must be fair and transparent. Any misjudgment or failure to reward an employee intrinsically may result in increased employee distrust upon the organization and the management which may ultimately demoralize the employees to perform at their best (Silverman, 2004). Intrinsic compensation is related with emotional aspects of an employee. Any act of organization leading towards employee dissatisfaction particularly emotional dissatisfaction may have long-lasting impact on employees’ work behavior that may reduce the organizational productivity. Furthermore, human wants are unlimited and to satisfy all their needs is quite impossible for an organization. Contextually, an employee will never be fully satisfied, despite best intrinsic compensation system within the organization. Additionally, an organization may not be able to seek 100 percent contribution from its employees (Silverman, 2004). Comparison of Intrinsic Compensation with Extrinsic Compensation In the modern day business context, both intrinsic and extrinsic compensations are important tools of employee motivation. The first contemporary distinction between the intrinsic and extrinsic compensation is that the intrinsic compensation is related with employees’ engagement to work and pleasure derived from performing these works while extrinsic compensation is associated with providing financial incentives for the employees’ outstanding performances. Intrinsic compensation may include job satisfaction, achievement, praise and recognition among others. On the other hand, extrinsic compensation may encompass monetary rewards such as bonus, increased salaries and profit share among others (Silverman, 2004). Both intrinsic and extrinsic compensations are important tools for achieving greater employee motivation for ensuring higher productivity and increasing the revenue of an organization. However, extrinsic compensations are tangible and more visible while intrinsic compensations are intangible and less visible. It has also been recognized that extrinsic compensations have more direct impact on employee motivation than intrinsic compensation. Furthermore, intrinsic compensation often promotes team-work and improves business process better than extrinsic compensations. Notably, intrinsic compensation system has in-depth and long-standing impact on employees’ work attitude and behaviour while extrinsic compensation is solely related with personal interests and has relatively less impact upon shaping employees’ behavior (Silverman, 2004). Current Intrinsic Compensation Trends Currently, organizations are practicing intrinsic compensation system through various ways. The most appropriate and the cost effective intrinsic rewards that organizations are currently using may include the recognition of employees as valuable and useful contributors in the organization. Such recognitions often generate the feeling of self worth and furthermore the employees’ feel proud in contributing their valuable efforts for the prosperity of the organization. It is worth mentioning that in the present day context organizations are following the motto of ‘we need you and appreciate your efforts’ as an effective means of intrinsic compensation system (Scribd Inc., 2012). In order to achieve the objective of intrinsic compensation, organizations are also ensuring the availability of proper workplace environment. In relation to this, organizations tend to recognize their human resources with specialized knowledge as one of the most important factors of production. Additionally, organizations are observed to be offering most suitable workplace environment where trust, loyalty and love evolve from top level management to lowest level employees in order to promote cordial work atmosphere and achieve enhanced social interactions necessary for thriving business in an ever-changing business environment. More often successful organizations are also using the process of restructuring of job tasks and flexibility in job requirements through job rotation for providing employees more opportunity to perform challenging tasks for enhancing the interests of the employees towards the organizational work and for seeking greater job satisfaction from these employees. In addition to this, organizations are also currently involved in offering employees health benefits and insurance facilities as one of the measures of intrinsic compensation. There are other intrinsic compensations such as flexible work hours, interesting projects, extra vacation days and longer lunch breaks that the organizations are currently utilizing as intrinsic compensations components for ensuring greater employee satisfaction and enhanced organizational productivity (Scribd Inc., 2012). Types of Intrinsic Compensation Intrinsic compensation primarily includes achievement, responsibility, working condition, recognition and ‘work’ itself among others. Achievement: Achievements involve the accomplishment of certain activities where failures were incurred in the past. Recognition: Recognition includes certain acts of an organization related to praise supplied by one or more superiors. Responsibility: Satisfactions is often derived from giving certain degree of control over the work to be performed or assigning new responsibilities. Working Condition: The physical working environment often facilitates quality of work and greater job satisfaction. Work Itself: The actual work that needs to be performed is also related with job satisfaction. Source: (Castillo & Cano, 2004) Issues Related with Intrinsic Compensation In the present business environment, every organization is dealing with diverse workforce. Consequently, attracting and retaining highly skilled employees have become extremely essential especially during the recessionary period. Successful organizations are already aware that employees dedicated efforts when related with organization goals can only deliver desired results. Contextually, motivating employees for greater productivity and higher revenue has increasingly become an important issue. However, in the process of motivating employees through solely employing intrinsic compensation system can discourage a group of employees due to reason that certain biasness can be practiced within the process where the organization may provide compensation to certain section of employees while neglecting the other. At times, intrinsic compensation might be not be able to bring satisfaction to the employees as monetary rewards are not interlinked with the process which is quite imperative to retain employees at large. Perhaps, organizations are now aware that only financial incentives or extrinsic compensations are not likely to generate higher employee motivation. Hence, these organizations are now placing greater emphasis on intrinsic compensation for attaining higher degree of employee motivation (Silverman, 2004). Conclusion Compensations either intrinsic or extrinsic are vital tools for human resource managers for seeking greater employee motivation. It is necessary that all the organizations have clear and visible compensation systems. However, in the recent times, intrinsic compensation has gained valuable attention of many organizations. Intrinsic compensations are closely related with employees’ job satisfaction. Contextually, it has been recognized that satisfied employees are dedicated towards organizational goals and objectives and are eager to contribute their best to the organization. Moreover, properly framed intrinsic compensation system often leads to greater employee motivation. In addition to this, intrinsic compensations have many advantages that help an organization to seek dedicated efforts of its employees. On the other hand, intrinsic compensations may have serious impact on organizational productivity and revenue if it is not practiced efficiently. In relation to this, any undesirable distortion within intrinsic compensation system may result in creating conflicting situation. Currently, organizations are widely using intrinsic compensation measures to achieve greater employee motivation. Precisely, it can be stated that intrinsic compensation is a critical element in today’s highly dynamic business environment and needs critical attention for successfully implementing and reaping benefits from its implementation. References Allen, D. G. (2008). Retaining Talent. Retrieved from http://www.shrm.org/about/foundation/research/documents/retaining%20talent-%20final.pdf Castillo, J. X. & Cano, J. (2004). Factors explaining job satisfaction among faculty. Journal of Agricultural Education 45 (3), pp. 65-74. Hamel, M. C. (2008). Compensation guide: A manual on compensation practice & ­theory. The Ontario Network of Employment Skills Training Projects pp. 1-67. Incentive Performance Center. (2008). The time for employee recognition and rewards programs is now. Retrieved from http://www.incentivecentral.org/pdf/time-for-employee-recognition-and-rewards.pdf Kuye, O. L. & Sulaimon, A. H. A. (2011). Employee involvement in decision making and firm’s performance in the manufacturing sector in Nigeria. Serbian Journal of Management 6 (1), pp. 1-15. Salanova, A. & Kirmanen, S. (2010). Employee satisfaction and work motivation. Mikkeli University of Applied Science, pp. 1-78. Scribd Inc., (2012). Compensation management. Retrieved from http://www.scribd.com/doc/30445776/Compensation-Management-I Silverman, M. (2004). Non-financial recognition the most effective of rewards. Institute for Employment Studies pp. 1-15. Read More