Major Importance of Employee Compensation - Coursework Example

Employee Compensation   Employee Compensation as it relates to the Environment and Performance in Human Resource Management Introduction: The success of any business is related to employee motivation and hardworking, motivated employees can increase profitability and productivity of any company or organization. Some of the factors that relate to employee motivation could be identified with the help of motivational theories although employees could vary greatly in what they consider as important and what would motivate them. Some motivating factors would be related to material gain and compensation whereas some others are associated with the ease of working, workplace environment or even job satisfaction. Thus a general job satisfaction, work environment, compensation and payments or benefits, work load and schedule, recognition and responsibilities are some of the factors that would motivate employees to work better and improve general company performance. Employee Motivation, Compensation and Job Performance Employee motivation has been found to be closely related to compensation, work environment, and has significant influence on company productivity. People could not be forced to work and any coercion can only lead to conflict. Thus to improve company performance, employees will have to be adequately motivated and in this context we can discuss Maslow’s hierarchy of needs theory or Mc Clelland’s theory of achievement motivation. An understanding of the motivational dynamics is important for improved company performance although employee compensation seems to play a significant role within the environment and performance criteria. It would be interesting to discuss to what extent employee motivation could be increased or decreased with added compensation and how incentives, bonuses or pay levels could affect the motivational processes at the workplace. Job performance is see as a function of ability and motivation and some of the factors that have been identified as important in the motivational process include one’s own advancement in the field and in the job, type of work done and enjoyed by the employees that relate to job satisfaction as well as the company reputation or position of the company that could motivate individuals to keep up the competitive edge. Building up a sense of morale and corporate social responsibility lies at the bottom of increasing employee motivation although the direct factors that seem to affect motivation are in fact largely related to pay benefits and compensation in the form of recognition and material incentives. Company performance is in fact related to how much the employees are compensated and paid for their efforts and this is also largely related to the extent of motivational factors that work in favor of the employees or the company. Tuzovic and Bruhn (2005) argued that compensation systems are an important tool in fulfilling corporate goals as these systems help to link customer orientation with individual and organizational performance. There are some studies that prove the positive effects of using non financial compensation measures although linking pay to customer satisfaction may not always be the correct approach according to Tuzovic and Bruhn. Customer satisfaction could be related to customer retention and profitability of the company although the role of reward and compensation has to be identified in a positive way and for this the authors identify the necessity of a holistic reward and performance measurement model that could enable an organization to study the cause effect relationships that could link the rewards given to employees to the non financial performance measures. Tuzovic and Bruhn (2005) provide a framework for a reward system that could allow organizations to understand how a reward strategy could be derived. An integrated and multi-dimensional methodology for performance evaluation has been proposed. Although here the focus is on integration of customer orientation, employee compensation and performance management within the company the study highlights the fact that performance measures tend to determine rewards and have an ultimate bearing on employee and even customer satisfaction. Thus a new dimension in the dynamics of performance management would be considering customer retention and satisfaction in understanding or studying employee rewards and motivation. However employee compensation can be of several types and Frye (2004) examines the effects of equity-based compensation (EBC) given to employees on the performance of organizations and the determinants of equity based compensation. Firms tend to depend largely on equity based compensation and compensate employees according to profits of the firm and now increasingly firms prefer to give equity based compensation for their employees. A positive relationship is thus seen between firm profits and employee compensation and if this could be related to employee motivation in a way that employee rewards and compensation are related to corporate performance then profits, compensation, motivation and corporate performance are all closely related. Frye however claims that greater equity-based compensation could lead to lowered levels of accounting returns although higher motivation among employees could be noted. The link between compensation and performance is implicitly assumed by most company managers who consider that high pay levels could maintain and even enhance future performance. Pay levels are important to employees and also to companies and pay of employees is a large expense to any organization, thus understanding the relationship between pay and company success, employee satisfaction, motivation and performance is also equally important. Gardner et al (2004) determine how employee performance is affected by the motivational effects created by changing pay levels and they collected data through field study from different organizations to assess the effects of employee pay levels on performance and self esteem. The level of pay given by an organization to an employee would determine the value placed on employee contribution by the organization and higher levels of ay would indicate that the companies want to retain employees and thus would help in increasing self esteem of the employees positively. Employee organization based self esteem would be directly related to pay levels and can have significant effects on motivational levels as well and highly paid employees are better at job performance as well. Job performance and motivation are thus related to self esteem and compensation levels within any organization in general. Gardner et al (2004) claimed that pay levels ‘affect employee self-esteem, which in turn, affects employee performance’. A more concrete explanation of the role of human resource management within job performance prospects would show how human resource management could be related to knowledge management and Yahya and Goh (2002) have tried to establish the association between four areas of human resource management such as training, decision-making, performance appraisal, and compensation and reward with the five areas of knowledge management such as knowledge creation, knowledge acquisition, knowledge documentation, knowledge application and knowledge transfer bringing out a close link between HR practices and how this would affect performance of employees through knowledge management initiatives. Yahya and Goh (2002) stress on the fact that knowledge organizations or organizations based on knowledge management requires a different management approach based on application of motivational principles to employee performance and the management principles of these organizations would be quite different from that of non-knowledge organizations. Human resource management and motivational principles would have an important and significant yet different role within such organizations although as far as employee development is concerned the focus should be on achieving creativity, quality, leadership, and problem solving or decision making skills. Compensation and reward systems however should be based on several factors such as knowledge sharing, innovative thinking and even used for promoting group performance and performance appraisal should be the primary measures in employee knowledge management practices and performance and employee motivation seem to direct knowledge management efforts and activities of companies. Thus the principles of knowledge management followed by any company are largely based on how performance measures are taken and to what extent human resource management and motivational principles are followed in accordance with company objectives. Comm and Mathaisel (2003) consider that job satisfaction of employees would be equally important as customer satisfaction if organizational performance is considered as a measure of success of a company as both job satisfaction of employees and customer satisfaction on product of the company could have short term and long term effects in determining company success. One of the examples used here is employee satisfaction in the higher education environment and shows how faculty workload and salary or benefits of professionals within the academic environment can be used to improve academic quality within the higher education work environment. 182 faculty members completed questionnaires in a college and most of the faculty members indicated that they felt that they were not being compensated fairly and they also indicated that they did not get recognition for their contributions and many sought recognition and compensation outside their work environment through private achievements. This would raise questions on academic quality and commitment and shows the direct relationship between employee motivation and compensation. Commitment and self esteem tend to increase with proper compensation and adequate workload as this would be recognition of services and inadequate compensation is not as stark anywhere as in the academic sector. A study shows how changes within the management accounting systems would relate performance measures and incentives systems and changes in management accounting systems (MAS) have been studied by Fullerton and McWatters (2002) who used survey data from manufacturing executives from 253 US firms to study the relationship between just in time practices and performance measures and incentive systems used in a company. The use of non traditional performance measures could be related to product quality, vendor quality, and incentive systems of employee empowerment as performance is related to the quality of products given to customers and this would be in turn determined by incentives, rewards and compensation that are related to quality production and the practices followed within a company. Some of the factors identified in this study are compensation and reward program followed by a company and it relationship with product quality company objectives and the extent to which they are ready to use knowledge management practices to enhance the relationship between the organization and the employees. Closing in the gap between employee expectations and organizational expectations could be done by emphasizing on rewards and compensation and higher pay levels to increase self esteem and this is further enhanced by using knowledge management practices and motivational principles to improve both company performance and company employee retention capacities. In this context motivational theories could be discussed. The main motivational theories that could be taken up here are Maslow’s hierarchy of needs theory and Mc Clelland’s theory of achievement motivation that would be able to highlight the relationship between corporate principles and employee motivation. Maslow’s theory is the most famous among all motivation theories and shows how humans are subjected to a hierarchy of needs and all motivational drives are manifested according to this hierarchy and follow a pattern in fulfilment. Maslow indicated that the most basic needs of safety and security and safety as well as physiological needs will have to be fulfilled first followed by needs for self esteem knowledge and self actualisation (Maslow, 1987). In an organisation self esteem needs would be very important and employee motivation is directly related to whether employees are fairly compensated to fulfil security needs and if yes, then their next needs of self esteem and recognition would have to be met. According to McClelland (1976), the needs for authority, achievement and affiliations are the three basic needs that would drive motivational levels of individuals and even employees and would have direct effects on organisational performance. A few case studies could be given here. Mc Causland et al (2005) conducted an empirical study on employees to find out whether there are significant differences in job satisfaction between individuals receiving performance-related pay (PRP) and those on alternative compensation plans. The data was collected from the British Household Panel Survey (BHPS) to show whether individuals have a preferred compensation scheme. Their study indicated that job satisfaction among workers who are on performance related pay is lower than who receive alternate kinds of benefits and pay schemes. However performance related pay could be very effective for very highly paid workers and increase job satisfaction of such employees. This is explained by the fact that lower paid workers tend to see performance related pay as a sort of coercion or control from authorities whereas for higher paid employees PRP is seen as an incentive or an opportunity to prove themselves even better. Thus performance related pay or compensation could be perceived as threat or could also be viewed as supportive or encouraging reward schemes and this study proves that employees tend to have subjective perceptions on rewards and incentives given by companies. The study is however related to UK companies and the study suggests that performance related pay would be counter productive in certain cases, especially or low paid occupations and depend largely on how employees perceive the rewards showing a psychological element at work that can have negative impact on motivation and on job satisfaction. The compensation strategies used by organizations will thus have to used in accordance with the motivational principles and psychological effects of performance related pay to avoid any negative consequences of using incentives based on performance. In another study Paul and Anantharaman (2003) explore the intermediate processes between HRM practices and organizational performance that seem to be significantly related to motivational principles followed by a company. The case study used is that of the causal model that could link HRM with organizational performance in Indian software companies and examined the intervening processes that would determine how HRM practices actually help in increasing or decreasing performance levels of the employees or the company as a whole. Development and use of a causal model in this case could be considered as important in understanding the dynamics of organizational output and HRM principles followed. Paul and Anantharaman found from their study that there is no direct causal connection between HRM practice and organizational financial performance although there seems to be indirect relationship between HRM practice and the operational and financial performance of an organization. The authors indicated and concluded from their study that HR practices do tend to have some relationship with and influence on organizational performance and thus could be an indication of employee motivation and productivity. They write , ‘HRM practices such as training, job design, compensation and incentives directly affect the operational performance parameters, .. employee retention, employee productivity, product quality, speed of delivery and operating cost’ Paul and Anantharaman (2003, p.1265). Conclusion: In conclusion, the main points that have been highlighted in the process of the discussion could be given in points below: Employee motivation depends largely on the compensation and rewards received from the company The company reputation and work environment adds to the self-esteem of the employees and this in turn affects company performance Company performance is directly related to job performance of employees which could be examined with the help of motivational theories Knowledge management principles should be used in association with human resource management principles to bring about positive changes within a company Rewards and compensation should form the priority in any HR management agenda as incentives and pay scale seem to have a direct effect on performance measures of the company Product quality and customer satisfaction are affected by whether the company has a clear and effective employee retention policy as improving employee motivation would have long term benefits for the company in terms of performance and productivity Performance appraisal processes are equally important for any organisation as regular performance appraisal gives a reality check and helps in re examining the company incentives or bonus schemes to see whether employees are adequately compensated Equity based compensation is considered as effective as employees tend to get direct shares of profits by the company and this can increase motivation self esteem and can imbibe pride and a sense of belongingness with the company It is important to establish a performance appraisal and a reward system assessment framework so that the maximum advantage could be derived from employee efforts Achieving the right balance between customer orientation, employee expectations and company performance should be the primary goal of any company Application of motivational theories to organisational frameworks could also show the integration of organisational structures with employee management issues The role of corporate social responsibility and boosting employee morale would be important in any socially responsible and knowledge management corporate framework Bibliography Comm C.L.; Mathaisel D.F.X. 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