Compensation 1
Running header: COMPENSATION
Employee Compensation: What Motivates?
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Employee Compensation
“Compensation is an important factor affecting how and why people choose to work at one organization versus others,” according to Mathis and Jackson (2006, p. 364). A person who is working as a teacher and fulfilling a passion has the opportunity to work in Saudi Arabia as a construction worker with higher pay than the teaching position. What should this person do to decide whether the pay increase fully compensates the person and his or her needs and desires? Employers must understand the various types of compensation to provide substantive programs and policies that attract new talent to the firm while retaining existing employees, such as base pay (wages), health/medical insurance, and other incentives.
What is Compensation?
In the examination of rewards, HR management and other management must understand rewards “can be both intrinsic and extrinsic” (Mathis and Jackson, 2006, p. 364). Psychological forms of reward, such as praise in the completion of overall job tasks, are known as intrinsic rewards, while extrinsic rewards are tangible (can be seen, felt, or used) and can be monetary or non-monetary in nature. Employees work for pay, which is direct compensation, while management provides indirect compensation to employees for simply working for the firm. Employee benefits, such as health insurance, are examples of indirect compensation, while direct compensation is composed of base pay and variable pay for services rendered to the company.
Human Resource (HR) management defines compensation structures, such as wages based on experience or work performed, and other management follows such guidelines in the reward of employee behavior and employee performance. One problem with certain compensation structures is the reward of positive employee behavior and achievements and the punishment of employees who do not consistently meet performance and behavior requirements. Two types of compensation approaches include the traditional compensation approach and the total rewards approach. While traditional compensation provides base pay to employees, the total rewards approach uses other methods of direct compensation in addition to base pay (variable pay and stock options). Under the traditional approach, only executives received bonuses and other perks of employment, while the total rewards approach provides “annual/long-term incentives” for “executives, managers, and employees” (p. 368). The traditional approach did not provide motivation for most employees, who saw executives being rewarded for the overall achievements of the organization. More companies are moving toward the total rewards approach in identifying different criteria to motivate employees and aid management in retaining internal talent.
Employee Behavior and Compensation
In understanding the various compensation methods used by organizations, management can identify how such compensation motivates employees and defines specific employee behaviors. Employees are more receptive to the use of monetary compensation by the organization in recognition of innovative ideas, individual performance, and team performance. Management recognizes employee performance and team performance with either an increase or decrease in the amount of a bonus; bonus amounts increase with positive performance results and decrease with negative performance results. Employees react by modifying their behavior to achieve bonuses during the next pay cycle and also performing additional tasks.
Another method of achieving positive employee behavior is with the use of reward systems, as management understands that punitive systems (such as punishment for undesirable behavior) doe not cause employees to change current patterns of behavior and performance (Cameron and Pierce, 2002, p. 3). Employers must ensure that the possibility of reward or providing a reward for desired behavior is not the only reason for creating such reward systems, as employees respond to such reward systems as an expected compensation and not as a method of improving current performance and eliminating undesired behavior.
Employees desire achievement and respond favorably when management provides compensation that addresses the needs of employees in the organization, regardless of the work level an employee performs for the organization. Employers provide educational opportunities and tuition reimbursement and these opportunities allow employees to move higher in the organization, this benefitting the organization and the employee. Employees want to improve themselves while achieving basic-level needs (physiological, safety, and social needs) and employers can respond to such desires by providing compensation programs that meet both basic needs and higher-level desires such as esteem-building compensation. When employee needs are met by management, employee ideals and behaviors will align with organizational goals, according to Fink (1992).
In response to compensation on employee behavior, the teacher might find interest in the increased wages but become dissatisfied when working in another country and performing job tasks he or she may not find desirable. Another reason for declining the job offer is the lack of benefits provided by the company working in Saudi Arabia, as this may cause the teacher to view the job as a threat to his or her safety. Without health benefits and life insurance, the teacher’s life could be adversely affected without the promise of compensation to offset possible disability.
Compensation and Behavior in Review
Employers use different types of compensation to attract new talent to the firm, retain current employees while identifying needs that drive employee behaviors, and compensate employees leaving the organization. Such compensation as base pay and variable pay are offered as a response to employee productivity and performance, while other compensation is paid because an employee works for the organization. Employers must examine how compensation can be used to change current negative employee behavior while reinforcing the continuance of positive employee behavior. Without the use of different methods to address the influence employer compensation has on employee behavior, employers would not attract new employees to increase competitive advantage and retain current employees.
References
Cameron, J., & Pierce, W. D. (2002). Rewards and Intrinsic Motivation: Resolving the Controversy. Westport, CT: Bergin & Garvey. Retrieved January 3, 2009, from Questia database:
Fink, S. L. (1992). High Commitment Workplaces. New York: Quorum Books. Retrieved January 3, 2009, from Questia database:
Mathis, R.L., & Jackson, J.H. (2006). Human Resource Management (11th Ed.). Mason, OH: South-Western.