Today’s workforce is significantly different from those of only a generation ago and requires much more initiative, creativity, engagement and judgment. Today’s jobs have changed so much that employee’s need a different kind of motivation. More so, the nature of our economy is changing and competition is becoming intense in every business industries. It emphasizes the need for management at identifying and selecting employees who have the knowledge, skills, and capabilities the organization requires to compete and fostering those employees with good development, compensation, benefits and reward systems.
The pay andbenefits can be instrumental in getting the right people, retaining and motivatingvaluable employees. It can boast the performance of employees, increase productivity, and competitive advantage that will contribute to attain the company’s strategic goals. For example, Mala Shah, a project Manager Tax of KMPG (Accountancy Firm based in UK). According to her profile the most rewarding element of working at KMPG is the fact that there are so many opportunities open particularly of training and learning.KMPG provides them internal courses, such as Project Management or Personal Effectiveness, which will really help her in her role. Also, it enhances her personal development perspective.Another example,Tanya Ly all as People Centre Manager also from KMPG, for her the benefits that distinguish KMPG is the inclusive reward scheme.“All the benefits are open to all employees so, from day one, everyone’s entitled to join the pension scheme and everyone gets included in the bonus scheme, so that means everybody’s equally rewarded and valued by the firm”. Is the cost of benefit effective in KMPGDoes the firm really benefitThe KMPG acknowledged in 2010 as one of the Best Big Companies to work for, by the Sunday Times survey. KMPG received several awards as successful accountancy and consultancy firm, such as Global Firm of the Year 2010, Living Wage Employer of the Year and awarded Four Big Ticks from Business Community.The achievements of KMPG are not simply by its executive management efforts but rather the willingness and full support of their people.
On the contrary, some employees underpinned the cost of benefits by considering their primary priorities in life according to age, lifestyle and gender. One factor is the role of money in people’s lives. Secondly, some have not understood the concept of benefits and simply ignored it.Most of these types of people are rather opting to convert the benefits into financial benefits.Based on the research ofPrudential Life Insurance that the young workers (generation Y) undervalue the life insurance as benefit.Because of their concept that paying today for a benefit paid out at their death is only for the dependents welfare. Another example in National Coordinating Committee of Multi Employee Plans, a lot of their younger members, asked them why they are required to have health insurance, when they know they never get sick.
The changing of diverse workforce is imminent and quite challenging for some employers. However,the quality of an organization is to large degree determined by the quality of the people it employs.People have always been essential to business, they are even more important these days. The reason is that as we engage deeper into a service and information economy, it is people rather than plant and equipment that constitute a higher portion of competitive advantage. For example, when fixed, tangible assets, such as plant, machinery, and equipment, contribute a lion’s share of company’s output; they could replace a new one andmore efficient without significant negative impact on overall performance. On the other hand, when a business is largely service and information oriented, the more the critical assets of the company are not tangible but rather intangible. These assets include the company’s culture, brand, leadership, people, customer service, and knowledge. Thus, human resources and the effective management of people is integral factor in organization’s success.
What is Employee Compensation?
According to Gary Dessler, author of Human Resource Management 12th edition, that Employee Compensation refers to all forms of pay going to employees and arising from their employment. For example, Non-Executive Director of Court of The Central Bank of England has a salary of ?15,000.00 + Benefits.Another example, Edinburgh Leisure the biggest provider of leisure services in Scotland capital, Director of Finance with a salary at ?60,000.00 + Benefits + Car Allowance.
On the other hand, authors Sarah Gilmore and Steve Williams of Human Resource Management used REWARD in preference to “PAY”.This is because employees increasingly expect more than pay for their efforts.Rewards influence the recruitment and retention of employees and can play an important role in determining the organization’s culture. Better pay and benefits attract better-quality candidates, giving the employer greater choice over whom to employ. Reward can be tailored to stimulate desirable behaviors and foster employee’s commitment, knowledge, and competence necessary for business success.For instance, Edinburgh Head of Financial Reporting receiving a salary of ?60,000 + mandated benefits and compensation for time not worked with car allowance. Other examples, Royal Bank of Scotland articulates the impact of strategic rewards as expressing what the organization values and being prepared to pay for what it gets from employees; it provides a sense of purpose and direction; integrating with business and HR strategy; valuing people, Open University hiring Chief Auditor offering a salary pay of ?69,852 + Benefits, Olympia Health Care, a renowned medical center in LA California manned with competent doctors and nurses, have the annual pay scale according to job specifications + Benefits and bonuses.
Ranking OrderAnnual Pay Scale + Benefits 1.) Office Manager$ 48,000 2.) Chief Nurse 47,500 3.) Bookkeeper 39,000 4.) Nurse 37,500 5.) Cook 36,000 6.) Nurse’s Aide 33,500 7.) Maid 30,500Two Main components of Employee Compensation
A.)Direct Financial Payments denote the base pay, salary and wage, and merit pay, incentives, commissions, and bonuses of employees. Also, it includes deferred pay, such as savings plan and stock purchase annuity. These benefits permits the employees to impart to an investment pool managed the employer- For example Rhoda is an international chemical company offers shareholding fund to new employee. Allied Banking Corporation – Philippines allows employee to avail the mutual savings plan.
Base Pay –
Salary and Wage
Merit Pay
Incentives
Commissions
Bonuses
Deferred Pay
Savings Plan
Stock Purchase Annuity
Two basic ways of Direct Financial payments to employees
Time-based pay is still the foundation of most employers’ pay plans. Blue-collar and clerical workers get hourly or daily wages, for instance, and others, like managers or Web designers, tend to be salaried and paid by the week month, or year. Another example, Glaxo a world leader in pharmaceutical research is aware that long term investment is needed for survival at the top, has a reward strategy of paying salaries at the upper quartile level to attract, develop, and retain quality research staff.
PAY for Performance. Piecework is an example. It ties compensation to the amount of production (or number of “pieces”) the worker turns out. For instance, we divide a worker’s target hourly wage by the standard number of units he or she is to produce in one hour. Then, for each unit he or she produces, the person earns the calculated rate per piece. Sales commissions are another example of performance-based compensation. Also, Textron uses rewards to support a strategy of employee flexibility through skills-based pay, while Whitebread Beer Company and Vauxhall both use rewards to encourage initiative and innovations.
B.) Indirect Financial Payment refers to financial benefits like employer-paid insurance and vacation. It also includes dental, and medical treatment, and disability insurance, retirement pensions, recreational facilities, car, training and development.These employee benefits are normally provided tax free, depending upon status.Some of these benefits like pensions are being offered to employees for reassurance of employed persons who may become disadvantaged through loss of employment.
The Legal Environment of HRM
HRM practices are governed by laws of the land, and those laws vary from country to country. Within countries, state or provincial and local regulations further influence specific practices.For example in UK, the Equality Act of 2006 emphasizing the mutual respect for both employees and employers. The Health and Safety at work act 1974. Temporary Employees and Part time workers or Prevention of Less Favorable Treatment under Regulations 2000. Minimum Wage and Overtime Eligibility. In US, various laws specify things like minimum wages, overtime rates, and benefits. For example, the 1931 Davis-Bacon Act allows the secretary of labor to set wage rates for laborers and mechanics employed by contractors. The 1938 Fair Labor Standard Act, contains minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor provisions that are familiar to most working people.
Objectives of International Compensation
When developing international compensation policies, a firm seeks to satisfy several objectives. First, the policy should be consistent with the overall strategy, structure and business needs of the multinational. Second, the policy must work to attract and retain staff in the areas where multinational has the greatest needs and opportunities. Thus, the policy must be competitive and recognize factors such as incentive for Foreign Service, tax equalization and reimbursement for reasonable costs. Third, the policy should facilitate the transfer of international employees in the most cost-effective manner for the firm. Fourth, the policy must give due consideration to equity and ease of administration.
The international employee will also have a number of objectives that need to be achieved from the firm’s compensation policy. First, the employee will expect the policy to offer financial protection in terms of benefits, social security and living costs in the foreign location. Second, the employee will expect a foreign assignment to offer opportunities for financial advancement through income and/or savings. Third, the employee will expect issues such as housing, education of children and recreation to be addressed in the policy. The employee will also have expectations in terms of career advancement and repatriation.
Why Do Organization Offer Employee BENEFITS
When an organization designs its overall compensation package, it has to look further than just an hourly wage or annual salary. It has to take into account another element, employee benefits.
Employee Benefits are no financial rewards designed to enrich employees’ lives. They have grown in importance and variety over the past several decades. One viewed as “fringes,” today’s benefit packages reflect a considered effort to provide something that each employee values.
The Philosophy of Reward Management
Reward management is based on a well articulated philosophy, a set of beliefs and guiding principles that are consistent with the values of the organization and help to enact them. These include beliefs in the need to achieve fairness, equity, consistency and transparency in operating the reward system. The philosophy of reward management recognizes that it must be strategic in the sense that it addresses longer-term issues relating to how people should be valued for what they do and what they receive. Reward management adopts a “total reward’ approach which emphasizes the importance of considering all aspects of reward as a coherent whole which is integrated with other HR initiatives designed to achieve the motivation, commitment, engagement and development of employees.
Although rewards, benefits and compensation can be instrumental in getting the right people, their basic function is retaining and maximizing the performance of employees once they have entered the organizations. Moreover, rewards by their nature are made to encourage desired behaviors.Desired behaviors must be linked to the firm’s strategy. Thus, reward systems also must be linked to the firm’s strategy.
How are Pay Levels Determined?
The pay levels determine through Compensation Administration. The goals of compensation administration are to design a cost-effective pay structure that will attract and retain competent employees and to provide an incentive for these individuals to exert high energy levels at work. Compensation administration also attempts to ensure that pay levels, once determined, will be perceived as fair by all employees. Fairness means that the established pay levels are adequate and consistent for the demands and requirements of the job. The primary determination of pay is the kind of job and employee performs. Different jobs require different kinds and levels of skills, knowledge, and abilities, and these factors vary in their value to the organization. The higher skills, knowledge, and abilities and the greater the authority and responsibility the higher the pay. Although skills, abilities, and the like directly affect pay levels, other factors may come into play. Pay levels may be influenced by the kind of business, the environment surrounding the job, geographic location, and employee performance levels of seniority. For example, private sector jobs typically provide higher rates of pay than comparable positions in public and not-for-profit jobs. Employees who work under hazardous conditions (say, bridge builders operating 200 feet in the air), work unusual hours (ex. the midnight shift), or work in geographic areas where the cost of living is higher (ex. Chicago rather than Parkersburg, West Virginia) are typically more highly compensated. Employees who have been with an organization for a long time may have had a salary increase each year.
Irrespective of the foregoing factors, one other factors is most critical – management’s compensation philosophy. Some organizations, for instance, don’t pay employees any more than they have to. In the absence of a union contract that stipulates wage levels, those organizations only have to pay minimum wage for most of their jobs. On the other hand, some organizations are committed to a compensation philosophy of paying their employees at or above area wage levels in order to emphasize that they want to attract and keep the best pool of talent.
Economic theories applicable to the case
Human capital theory – Workers have a set of skills developed by education and training that generates a stock of productive capital. The practical significance of this theory is that employees and employers each derive benefits from investment in creating human capital. The level of pay should supply both parties with a reasonable return on that investment. For example directors of finance have high raise being responsible in handling crucial part of the senior management team. Other examples, Head of Internal Audits offered Excellent Company benefits and Salary over the huge and complex responsibilities.Bank executives receiving a huge salary base on expertise, qualification, and competency. Thus, the higher responsibilities, the more compensation and benefits are being offered and received.For management perspective, it is proper to reward people differentially according to their contribution or the return of investment they generate.
Efficiency Wage Theory – Firms will pay more than the market rate because they believe that high levels of pay will contribute to increases in productivity by motivating superior performance, attracting better candidates, reducing labor turnover and persuading workers that they are being traded fairly. This theory is also known as “the economy of high wages’. The significance of this is that Organizations use efficiency wage theory, although it is not clearly express when they formulate pay policies that place them as market leaders or at least above the average.
LINKING PAY TO PERFORMANCE – THE RATIONALE
Sustained Motivation
Staff Retention, on the job commitment
Productivity levels are maintained
Cost Savings resulting from lower employee attrition rates
Organizational Objectives can be attained
Employee ‘buy-in’ to a performance-based culture
Organizational Climate of ‘winning’ is powerful reinforcement in the work place.
HOW DOES PAY INFLUENCE EMPLOYEES ATTITUDE AND BEHAVIOR
Reinforcement Theory –in Thorndike’s Law of Effect, a response followed by a reward is more likely to recur in the future. The importance of a person’s actual experience in receiving the reward is critical. If high performance is followed by a reward, high performance is likely to be reputed. The belief is that pay and performance are directly co-related, especially in buoyant market conditions.
Expectancy Theory – The perceived link between performance and pay will connect with reinforcement theory because an expectation has been created which is difficult for the employer today or withhold in the future.
Employee Satisfaction and Motivation
Factors that Influence Motivation and Drive Performance
From an employee’s perspective, within the work environment, the following appear too critical in keeping staff well-motivated.
Organizational Energy and the Working Environment
Empowerment
Enablement
Satisfaction through Meeting Individual Needs
Achieving Progress towards Longer-term Aspirations
Opportunities to Achieve & Job Satisfaction
Open Communication
The Expectation of Future Reward and the Total Compensation Package
Career Prospects, Personal Growth
Status
ReferencesLSC Managing Human Capital Course Manual
Management 2nd edition, Michael A. Hit J. Stewart Black Lyman W. Porter
Fundamentals of Management Essential Concepts and Applications 6th edition Robbins/Duecento
International Human Resource Management 5th edition Peter J. Dowling, Marion fasting & Allen D. Engle, Sr.
Armstrong’s Handbook of Human Resource Management Practice 11th edition
Human Resource Management 12th Ed. By Gary Dessler
Human Resource Management, Sarah Gilmore & Steve Williams
Law of Employment 14th edition by Norman Selwyn
www.lowpay.gov.uk (human resource management for the hospitality and tourism
www.rhodia.com/en/news_center
www.lloydsbankinggroup.com/media/pdfs/investors/2010/2010_LBG_Results.pdf
http://www.hsbcusa.com/careers/benefitsrewards
