Salary Levels of Company Executives - Essay Example

Literature Review: Salary Levels of Company Executives Table of Contents Literature Review 3 Salary Packages 6 Salary Packages and Job Satisfaction 7Salaries and Job Performance 7 Salary Determination 8 Fair Wage Constitution 8 Reference List 10 Literature Review In beginning of the twentieth century, the government of United States of America started undertaking important steps in determination of compensation for employees with a view to bring about significant changes within different aspects associated with worker’s pay and their remuneration. The beginning was marked with introduction of several changes within Labour Standards Acts, 1938, that had been dictating the equal work and equal pay measures over decades. Recession has been quite frequent for about 2 decades after 1938, but soon after that phase, economies around the world saw a booming trend and governments in different nations began to play a larger role in American workers pay determination and remuneration. The American government soon ratified the Act Executive order 11246, Title 7 of equal pay within the Civil Rights Act of 1963 (Noe, et al., 2003). In this context, one can cite the case of Nigeria, where Decree of 1987 provided for details of workmen compensation wherein all businesses and companies had to give a workman’s compensations coverage that was designed for the benefit of employees even in case of any injury or incapacity to work while being on the job. The Decree was modified and followed by the Reform Act in 2003, which made it mandatory for companies to have a life insurance policy for each employee, working in favour of employees. Such insurance was to account for a minimum of 3 times the total gross emolument of the employee compensation (Bernadin, 2007). Compensation has a significant effect on success of any organization. This comes through with the treatment of employees as a capital investment. The company should focus towards improvement of their skills and productivity along with the comprehensive human element in the workplace. The prime objective of the compensation design program was to divide the entire compensation format into two basic groups, which were the direct compensation group and the indirect compensation group. Direct compensation is related to direct wages and salaries, while indirect compensation relates to benefits that are enjoyed by workers from the company. It was devised by Cascio (2003) that integration of the two formats contributes towards attainment of organizational goals through employee motivation and content. The term compensation might have quite a few meanings through its diverse attempts to conceptualisation; however, it is usage of the concept that holds more importance. According to views presented by Armstrong and Brown, (2001) it can be ascertained to be the equitable and adequate remuneration provided to an employee for their achievement of organizational objectives. Contrarily, compensation has been defined as an aim oriented term, which is able to bring about improvement in employee motivation and organizational effectiveness. The arguments also look towards a link between performance in the workplace and role of compensation therein. Another viewpoint in the area is that salaries or compensations are holistic deals that should be mutually beneficial for the employer as well as the employee. The salary provided by a company also implies the policy and procedural structures of the concern, where some employees are paid higher than others owing to higher performance (Hewitt, 2009; Pearce, 2009). Here, it is also implied that strategies of human resource management try to compensate in a fair manner and maintain equity and consistency in doing so, depending on their organizational value. Researchers have also presented another viewpoint for employee performance. According to McConnell (2003), job performance is measurable and quantifiable and dependent on employee behaviour and attitude towards work. Hence, it is expected that any job should comprise of not only requirements of the job, but also be measurable and quantifiable. Job performance here should be a consequence of such behaviour and this should be the actual approach towards evaluation of performances for the purpose of gaining some form of empirical evidence for performance and hence, get assistance in calculating employee pay. Rewarding an employee for high performance at work within companies has to consider perception among their employees so as to decide upon an equitable and a fair compensation mechanism. The efficiency of determination of such salary and compensation packages is drawn from employee’s motivation to perform higher and better, such that productivity is increased and consequently, perceptions about equitable payments also rise commensurately (Judge and Ilies, 2004). One of the equity theories that provide sufficient evidence and explanation of the concept of fairness and equity in employee compensation and its impact on employee performance and job satisfaction is the Motivational Theory by Adams (Brown, 2003). Equity theory states that perception of employees regarding their contribution towards the organization and returns received are compared with the contribution-return ratio of other employees within the company in order to determine their perception about equity and its fairness. It also suggests that employees who are content with the equity status within their companies can be expected to perform better and be more motivated so as to support company goals. Nevertheless, employee perception of inequity shall work otherwise motivating them to work against organizational wishes like, absenteeism and late entry, while contributing towards low employee morale and reduced commitment towards organizational objectives, which collectively led to poor levels of employee performances. Such actions are justified as events and attempts of employees to bring back some sort of equity within the company. The equity theory is based on a several assumptions that might not hold well, yet it is believed that if a company desire higher job performance, it should appropriately reward for higher performance (Morgan and Rao, 2002). Salary Packages The practice of compensating employees for their work shows huge variation across different organizations as well as jobs. Most research conducted in this area has argued that compensation or salaries should be so designed that it contains a good mix of direct and indirect compensation (Namasivayam, Milao and Zhao, 2001). A typical compensation package is expected to have a base pay, overtime pay, bonus structures, commission mechanisms, stock options, merit pay, housing allowance, insurances, leaves, retirement policies, medical benefits, profit sharing and travel allowances. Additionally benefits to employees shall be a critical part of employee compensation, which encompasses compensation in non-monetary forms such as, health care, pensions, social security schemes, vacations, and worker’s severance pay. These compensation packages are more often than not, designed for gaining worker motivation by most companies (Bernadin, 2007). In this relation, skill based pay for work in order to facilitate higher performance has a set of risks that are associated with high compensation schemes. This again is linked to an organization’s productivity, where deserving skills should be respectfully rewarded within the company. If not, lack of pay may lead to fall in employee motivation, which in turn shall be responsible for rusting of employee skills due to non-usage. Here, when an employee reaches the topmost levels of pay structure within a company, he might encounter the threat of getting frustrated and leaving the company altogether because of zero scope of improvement or motivation. As a result, skill based pay alone cannot be self-sufficient in the pay structure design and methodology of companies. Salary Packages and Job Satisfaction There has been an obvious link assured by many studies between the compensation packages and the level of employee satisfaction with jobs. Such job satisfaction is nothing, but the reaction of employees towards their workplace experiences. Such satisfaction ensures a positive connotation regarding emotional state of the company’s workplace and working conditions within which employees operate. It is also suggested that satisfaction at the workplace is perception of an employee and each employee might have a different story to tell because of dissimilar elements involved and their relevance to them and their needs. Job satisfaction is a function of four different variables, which include growth opportunities, financial benefits, working conditions and the job role itself. Thus, job satisfaction is overall reaction of the employee towards all these four variables combined together. In researches that have focused solely upon studying the financial benefit factor, a high degree of relation between job satisfaction and an employee’s satisfaction at workplace has been found (Brown, 2003). There is a positive relation between pay satisfaction and job satisfaction among employees and it also has a spill over effect on the worker’s attitude towards job tasks. Studies have also argued that equitable compensations shall in turn improve employee job satisfaction. Salaries and Job Performance It has been established through a number of studies that salary packages that are fair, equitable and successful in rendering an employee satisfied with the job, also push these employees to work more and harder towards their existing job roles. This implies that there is a very strong connection between employee pay and employee motivation to work. In other words, job satisfaction among employees is positively linked to their job performances (Oshagbemi, 2000). Salary Determination For the purpose of retention and happiness of employees and attainment of desired organizational objectives, companies are expected to design and determine their pay structure in a manner that attracts qualified staff without having to run the risk of overpaying them. For determination of salaries for entry level and clerical candidates, it must be ensured that these individuals are paid the minimum, but should not fall into the lowest level possible. For lateral shifts within organization, one should make sure that the pay structure is more or less the same for employees. While entertaining requests for higher pay scale, it should be kept in mind that such hikes need to be more inclined towards employee qualification, rather than the position held by him or her. In the event of promotions, the employee must be paid at least minimum of the hike made for the new position and wage range. It is customary to provide at least a 5% hike in most of the companies across the globe. Such policies might bring in equity among the job holders internally, but do not necessarily eliminate possibility of disparities occurring in the pay structure for employees, who join an organization from other companies. The best practice in such situations would be to make sure that equity is maintained within the organization to highest possible levels. Fair Wage Constitution Determination of fair wages is quite a simple process for the manager of an agricultural concern, where he can simply perform an informal survey and based on the averages derived, he can set fair wages for employees within the company. It is important to note here is that the agricultural manager does not judge employees by their job titles, but rather by their set of skills. Hence, for the purpose of ascertainment of fair wages, skill set or skill based pay becomes one of the most important criteria. Skill based pay is a compensation approach where salaries and wage rates are based on qualification of the candidate and not title of the job for which he or she applies. Equity in skill based pay is attained through classification of skill sets followed by determination of pay levels for the job. In determination of salaries among executives, job evaluations is another popular method that can offer a more rational and systematic approach towards maintenance of internal equity. In addition to this, it is also important to assess company’s financial ability to pay, the market sentiments for pay structure, the standards of pay within the industry and the criticality of role within the job position. Such estimations also account for costs involved in the recruitment and hiring process and benefits that accrue to the employee upon recruitment. Reference List Armstrong, M. and Brown, D., 2001. Pay: The new dimensions. London: CIPD. Bernadin, H. J., 2007. Human resource management: An exponential approach. 4th ed. NewYork: McGraw-Hill Irwin. Brown, D., 2003. Reward strategies. Journal of Personnel Management, 1, pp. 17-29. Cascio, W., 2003. Managing Human Resources: Productivity, Quality of Life, Profits. New York: McGrawHill. Hewitt, A., 2009. Managing performance with incentive pay. Journal of Personnel Management, 7(1), pp. 20-31. Judge, T. A. and Ilies, R., 2004. Is positiveness in organizations always desirable? Academic Management Exercise, 18(4), pp. 151-155. McConnell, C. R., 2003. The managers approach for employee performance problems. Health Care Management, 22(1), pp. 63-69. Morgan, D. and Rao, J., 2002. Aligning service strategy through super-measure management. Academic Management Exercise, 16(4), pp. 121-131. Namasivayam, K., Miao, L. and Zhao, X., 2006. An investigation of the relationship between compensation practices and firm performance in the US hotel industry. International Journal of Hospitality Management, 26, pp. 574-587. Noe, R. A., Hollenbeck, J. R., Gerhart, B., and Wright, P., 2003. Human resource management: Gaining a Competitive Advantage. New York: McGrawHill/Irwin. Oshagbemi, T., 2000. Correlates of pay satisfaction in higher education. The International Journal of Education Managegement, 14(1), pp. 31-39. Pearce, L., 2010. Managerial compensation based on organization performance. Journal of Industrial Relations, 52, pp. 3-28. Read More