Posted at 03.10.2018
Compensation is a way of determining sufficient and equitable remuneration to an employee for his/her contribution to the business (Gupta, 2006). The idea of compensation can be traced far back to the early 19th century when Fredick. W. Taylor, brought the concept that employees should receive a fair daily wage in accordance with their contribution to the business (Beach, 1980). According to Beach (1980) organization should establishment and implement sound policies and practices of employee compensation. Although in practice it implies that most organizations have established policies on employee compensation yet most employees are in satisfied. This is supported by a report conducted by Assy (2009) which showed that 74. 7 % of the employees weren't content with their jobs and the main factor contributing toward this was inadequate compensation. Another study conducted by Kimbori (2009) showed that 128 out of 138 respondents were finding their compensation package to be inadequate.
A study by Kiuns (2008) also showed that 75% of the employee felt that certain of the major causes of employee turnover in organizations was inadequate compensation.
This essay is configured to look for the factors that donate to the satisfactory compensations to employees. Topics such as Motivation, Job satisfaction, as well as Types of Compensation will be consecutively portrayed in the structure of the essay these above topics will be simultaneously be analyzed at length to find the clear understanding to what satisfactory compensation is and how it pertains to the motivation of employees in Tanzanian context. Finally, conclusion of the essay provides the aggregate summary of the whole essay.
As defined earlier compensation is a way of locating the best way to remunerate an employee's contribution to the operations in the business. Compensation is a phenomenon that has a numerous importance to any organization. One of the explanations why it is known as so important is because human beings are a part of an organization. The nature of humans involves the need to be recognized and considered for what they did in conditions of contributions and achievements within an arena. The compensation an organization puts out for its employees can allow the fulfillment of this satisfaction. Therefore organizations always aim at deciding appropriate and equitable payments to their employees because of their contribution to the success of the business. When we examine methods of compensation that can actually be applied in the workplace, we can normally go through the following:
There are many schemes that have been employed for the compensation of people in the organizations; literature has divided the compensation system into three main categories namely: Time-wage system, Piece Wage System and Balance or Debt Method. Others have simply categorized these procedures into; piece rates, wages, salaries, profit related pay, Profit share: as well as Bonus schemes which include, Sales bonus: Performance bonus: Christmas bonus: below is the explanation of the different methods that are used for the compensation of employees in the organization.
Under this system, wages are paid on basis of time allocated to the job regardless of the work done. The machine of work may be considered a day, week, or month. The system is suitable in the following circumstances:
Where units of output are non-measurable
When employees have little control over the number of output
When delays in work are frequent and beyond the control of the employee
When quality of work is especially important
When supervision is good and supervisors really know what takes its "fair day's work"
When competitive conditions and cost control do not require din advance the precise knowledge of labour costs per unit of output
Where machinery and materials used are incredibly superior and expensive
Work is of an extremely varied nature and standards of performance can't be established
Employees and trade unions strongly oppose incentive payment
When employees are new and learning the job
When collective efforts of several persons are essential for completing the job
Piece Wage System
In this method the remuneration is based on the amount of work done or output of an employee. One unit of output is recognized as one piece and a particular rate of wage is paid per piece. The system is suitable in the following circumstances:
When work done by a person worker can be measured accurately. E. g. production of standardized goods in a factory
When the number of output depends directly after the skill and effort of the worker
Where the flow of work is regular and interruptions are minimum, i. e. repetitive jobs
Where quality and workmanship aren't very important
In large scale production involving heavy overheads and broad supervision
When competitive conditions and cost control require that labour cost per unit is fixed in order
When ways of production are standardized and the work is of a repetitive nature
Balance or Debt Method
This method involves the mixture of Time and Piece Wage Systems.
The worker is guaranteed a time rate with an alternative piece rate
If the wages calculated at piece rate exceed the time rate, the worker gets credit
On the other hand, if the time wages exceed piece wages, the worker is paid time wage and the deficit is carried forward as a debt to be recovered in future.
Another way of taking a look at the compensation method involves taking into consideration the following:
This is the most simplest of all payment methods. Here the employees are being paid for every item that they actually produce in their organization. This actually has a way of causing workers to produce as fast as they can because this will increase the sum of money that they can get. The more the production a lot more they may be certain to getting in conditions of cash. The payments are created when the work is completed. There is a draw back to this method. The latter is the fact that, there should be significant amounts of supervision from the employer to ensure that the goods that are produced very fast are also at a higher standard or quality.
Wages are payment that are created based on the hours that the employees spend working in the organization. For example a worker may be paid 2000Tshs an hour. You can find some security in being paid a wage and those who earn wages is going to be in a position to work overtime to increase incomes. I really do not note that being a waged worker is a problem, as lower levels of Maslow's hierarchy are quite often satisfied with a decent wage, but what does matter is the amount of the wage. For most large businesses there is certainly one large group of manual or production personnel who are paid hourly and a group of administrative and marketing workers who are paid a salary, and this difference in ways of payment can cause resentment preventing the break down of barriers within businesses. A 'them and us attitude' can be reinforced by the artificially created separation of waged and salaried employees, when in fact the only real difference may be one group wear suits to work the other does not.
Salaries are payments that are created on an gross annual rate. The incomes of salaries are received in monthly period directly into the accounts of the employees in question. Salaries are a good business way of making certain the employees work is awarded at the time when she or he has fully completed the task in the specific period. They therefore make a good business sense in the actual fact that they ensure they are simply paid monthly in arrears, this means that employees need to wait up to a month to obtain the income they have worked for. This also means that there surely is improved cash flow for the business and improved bank balances. Also it is simpler and safer to pay money with a bank transfer than in cash. Salaried workers are not normally paid overtime but may receive other financial benefits. This non-payment of overtime does not mean that they don't work more than their contracted hours, they often times do, but it does mean that employers might not exactly be prone to purchase this extra work.
Profit related pay.
There are those payments that links part of an employee's income to the profits of an company. Normally the individuals who obtain or are compensated using the profit related pay have salaries which are very small than expected and for that reason it ensures that the profit is high to be able to get yourself a higher overall income collection. This process also reduces the issue of tax being taken from the salary of the employee. Hence this technique is good for not only the business enterprise but also the average person.
There a wide range of aspects that fall into the category of bonus schemes. These schemes are suitable to the diversity of the employees who are engaged in various jobs that they are doing. These schemes are the following;
Sales bonus: That is normally paid in case a sales target has been reached. For sales representatives this may constitute a significant part of the salary.
Performance bonus: This can be paid to an individual or on an organization or factory wide basis, and is often payed for reaching targets of output and quality. This technique of payment is an important part of Human Resource Management.
Christmas bonus: Often called a 13 month's salary, payed for loyalty to the business. In some countries such as Germany practically all companies can pay a Christmas bonus.
Profit share: Some businesses will pay a share of profits to employees. The total amount that they receive will normally rely upon salary and amount of service, so rewarding the ones that had been with the company longest, more.
Other kinds of financial motivation include company cars, pension schemes, sickness benefits, subsidized meals and travel, and staff discounts. They are often grouped together under the heading fringe benefits. A few of these fringe benefits can be thought to be essential in encouraging the right people for certain types of vacancies. For instance a business car is a necessity in financial service businesses for anyone involved in sales, and senior management in many companies would expect both an up market car and private healthcare.
Motivation can be explained as a psychological process that exerts higher level of effort to attain organizational goals conditioning by the efforts for some individuals (Prasad, 2001). The term motivation can be traced to the Latin word "movere" which means to "move". Today everyone, practitioners and scholars have their own definition of motivation, but usually one or more of the next words are included: desires, motives, wishes, needs, effort, goals, aims, drives, wants and incentives. To be able to understand the idea of motivation, we must examine three main terms before defining motivation and these include motive, motivating and the word itself motivation.
Motive can be described as restlessness, a lack, a yen or a force. Once in a grip of motive the organism does something to reduce the restlessness, to cure the lack, to alleviate a yen or even to mitigate the force. From the above description we can differentiate the word needs, wants and demand.
A need can be explained as a desire which includes both physiological and psychological for something. It can even be said as basic human requirement. It includes education, shelter, sex, food and clothes.
Wants are needs that happen to be directed towards specific thing. Example a person is hungry but to meet this need the individual wants to eat chicken and French fries. Therefore here the necessity is not any kind of food but specific food that is chicken and French fries.
Demand can be defined as wants for specific product backed by ability and willingness to cover it. Example a person wants to travel by air to Arusha but if he/she has the ability to purchase the airfare and also if he/she is willing to cover it is recognized as demand. (Davis, k and Newstrom, J 2004).
There are three types of motives such as: Primary motives, general motives and secondary motives. These motives are explained below.
This is also called physiological, biological or unlearned motive. To get a motive to be included in this category it must be unlearned and physiological based. Examples of this type of motive include: hunger, thirst, and sleep, avoidance of pain, sex and maternal concern.
Usually such group of motive does not need to exist but it appears necessary as there are number of motives which lie between primary and secondary category. For any motive to be included under this category it must be unlearned and not physiologically based. Example include: Affection motive (Love and affection is a very complex form of general motive)
These are closely linked with the training concept. A motive must be learned to become located under this category. Example includes: need for achievement, dependence on power, dependence on affiliation, need for security and need for status.
Motivating. This is a term which means that one individual; in the organization context a manager induces another say employee, to engage doing his thing (work behavior) by ensuring that a channel to meet the motives becomes available and accessible to the individual. This satisfies both individual and the organization.
One of the normal definitions of motivation is really as follows: Motivation is a psychological process that exerts higher level of effort to reach organizational goals conditioning by the efforts ability to meet some individual. (Prasad 2005, p145)
The figure below shows the partnership between motives, motivating and motivation
Needs in the individuals
Engagement in work behavior
Activating needs and providing need satisfaction environment
Source: (Robins, S 2004).
Based on this is of motivation we can derive its nature highly relevant to organizational behavior. Following characteristics of motivation clarify its nature.
1) Predicated on Motives. Motivation is based on individual's motives that happen to be internal to the individual. These motives are in form of feelings that the average person lacks something. To be able to overcome this feeling of lackness he/she tries to behave in a manner which helps in overcoming this feeling. (Gupta, C. B, 2006)
2) Suffering from motivating. Motivation is affected by ways individual is motivated. The act of motivating assists with satisfying the necessity and activate the latent need in the average person. (Gupta, C. B, 2006)
3) Goal- directed Behaviour. An objective directed behaviour is the one which satisfies the complexities for which behaviour takes place. Motivation has profound influence on human behaviour in the organization context. . (Gupta, C. B, 2006)
4) Related to satisfaction. Satisfaction refers to the contentment experience of a person which he/she derived from the need fulfillment. Satisfaction is a rsulting consequence rewards and punishments associated with past experience. It offers the methods to analyse outcomes already experienced by the individuals. . (Gupta, C. B, 2006)
5) Person Motivated in Totality. A person is motivated in totality rather than in part. Each individual within an organization is a self - contained unit and his/her needs are interrelated. This impacts his/her behaviour in various ways. Feeling of needs and their satisfaction is a continuous process. (Gupta, C. B, 2006)
6) Complex process. Motivation is very complex. This is as a result of needs are also highly complex. (Gupta, C. B, 2006)
Self -Determination Theory (SDT) which was conducted by Edward L. Deci and Richard Ryan generally gives us to kind of motivation.
a) Intrinsic Motivation
This is a type of motivation that comes from personal satisfaction of work itself, for instance one volunteer's for a community work such as cleaning the surroundings by draining the clogged drains and assortment of garbage. Here the motivation for performing does not come from explicit rewards but linked to the job since the involvement is voluntary. (Robins, S 2004).
b) Extrinsic Motivation
This kind of motivation is mostly tangible and visible by others. They may be distributed by other people (or agents). In a workplace extrinsic motivation includes pay, benefits and promotion. Usually a person works hard within an organization so that he/she is promoted or given an improved pay. (Robins, S 2004).
Motivation causes goal- directed behaviour. Needs is the bottom for a motivation which is a kind of mental feeling within an individual that he/she needs something. This lack of something creates tension in the mind of individual. Since the tension is not a perfect mind-set the individuals tries to overcome this by engaging himself in a behaviour through which he satisfies his needs.
If the environment is favorable goal directed behaviour brings about goal- fulfilling and the average person succeeds in fulfilling his needs thereby overcoming his tension.
Goal - directed behaviour
Source: (Gupta, C. B, 2006)
If the surroundings is unfavorable the needs of individuals is not fulfilled and therefore brings about frustrations. Frustrations can be defined as the accumulation of tension due to non fulfillment of needs. (Prasad 2005, p149) At this stage the individual will attempt to modify his behaviour to overcome the factors responsible for non fulfillment of his/her needs. This means using defensive mechanism like (i) Aggression such as displacement, negativism, and fixation. (ii) Withdrawal which includes fantasy, regression, repression and flight. (iii) Compromise which include identification, rationalisation, reaction and projection.
Non -Fulfillment of needs
Source: (Robins, S 2004).
Motivation has a direct relationship with performance. If people do not feel inclined to engage themselves in work behaviour they'll devote necessary effort to perform well.
However individual performance also is determined by other factors beside level of motivation. How motivation works together with other factors in shown in the figure below.
Role of perception
Sense of competence
Source: (Robins, S 2004)
Below are some theories that could put an insight to the aspect of motivation:
Maslow's hierarchy of needs has proved to be a valuable guide to managerial personnel regarding employees' individual needs. It confirms that in addition to their financial needs, employees are motivated by their social, esteem, and self-actualisation needs, that they expect to be duly considered by management.
The ERG theory resembles the hierarchy of needs theory inasmuch as it partly recognises the tendency for individuals' really wants to progress upwards as they satisfy lower-level needs. It differs from the hierarchy of needs theory however, in two respects. First, it permits more than one category of must operate at exactly the same time. Secondly, the ERG theory recognises frustration, i. e. in case a person continually fails in his or her attempts to fulfill one category of needs, say growth needs, the previous need category i. e. relatedness needs can re-emerge and dominate the person's behaviour. For instance, an employee who does not make it to a managerial job may still redirect efforts towards co-operation with others, i. e. a relatedness need. In this way, it is less rigid than Maslow's theory, which is a uni-directional step-like progression.
Three need theory
Another motivation theory based on needs is the three needs theory proposed by David McClelland and his colleagues. Their needs classification includes achievement, power, and affiliation, that happen to be explained the following:
Achievement needs i. e. the desire to excel, to make an effort to succeed, to attain relative to a pre-set standard.
Power needs i. e. the desire to make others do what you would like these to do, which they would otherwise not have done.
Affiliation needs i. e. the desire for friendship, also to cultivate good interpersonal relationship with people.
The equity theory, propagated by Adams, states that the existence of feelings of inequity will motivate a person employee to lessen that inequity. That is, the employee's feelings that in comparison to his / her peers, they're putting more effort into the job than he or she is earning in terms of satisfaction, salary, and benefits, will motivate her or him to work harder to be able to reduce if not eliminate the existing inequity.
The issues of motivation have for along period of time been from the concept of motivation. The original theorists such as Fredrick Taylor had put out that the personnel in an organization can be more active and hence more motivated if indeed they were payed for their work.
The behavioral theorists however attended with another approach. They have got highlighted that money is not really a motivator. Till today though it is argued that money does motivate individual, but when the reward to individuals is given as an added bonus on say profit made and so on, then the employees become highly motivated to do their work.
Others say that there should be an appropriate scheme such as those that are related to profit bonuses etc that will motivate employees.
Therefore organizations should carefully observe their compensation schemes to try ensure that they certainly motivate their employees with this in mind, you need to know that there are specific compensation schemes that is wonderful for a specific individual, company, sector, industry etc.
There are other industries that might not exactly be damaged by the aspect of monetary compensation inn general while there are other industries that will completely be based upon the monetary compensation as a key to their employee motivation.
Job satisfaction identifies describes how content an individual is with his or her job. The happier people are within their job, a lot more satisfied these are reported to be. Job satisfaction is different then motivation, although it is obviously linked. There has been a huge linkage that most scholars are suffering from between your concepts of job satisfaction and exactly how compensation is one of the many aspects that donate to this satisfaction.
One of the initial theories how to ensure that employees are satisfied and remain in the organizations is that of Fredrick Herzberg's motivator- hygiene theory, Herzberg's theory proposes that each worker has two sets of needs or requirements: motivator needs and hygiene needs (George & Jones, 1999). Motivator needs are from the actual work itself and how challenging it is. Job facets such as interesting work, autonomy face to face, and responsibility gratify motivator needs. Hygiene needs are associated with the physical and psychological context in which the work is conducted. Job facets including the physical working conditions (for example, the temperature and pleasantness of the surroundings), the nature of supervision, pay, and job security fulfill hygiene needs. (Mohamed, 2009).
The facet style of job satisfaction focuses on work situation factors by breaking a job into its component elements and looking at how staff are content with each element. A worker's overall job satisfaction is attained by summing up his/her satisfaction with each job element/work element.
The facet style of job satisfaction outlines the work elements as ability utilization, achievement, activity, advancement, authority, company policies and practices, compensation, co-workers, creativity, independence, moral values, recognition, responsibility, security, social service, social status, human relations supervision, technical supervision, variety and working conditions (David, 2008).
This model states that for workers' to determine their levels of job satisfaction, they compare their jobs to some 'ideal job' and this 'ideal job' could be what one thinks the work should be like, what one expects the job to end up like, what one wants from the work or what one's former job was like when workers expectation about their 'ideal jobs' are high so when these expectations are not met then employees will be dissatisfied and the contrary is true (David, 2008).
The theory suggests that each worker has a typical characteristic degree of job satisfaction, called the steady state equilibrium level. Different situational factors/events at work may move an employee temporarily from this steady state, but the worker will eventually return to his/her equilibrium level. Example, promotion may raise the worker's job satisfaction but eventually the worker will go back to equilibrium level (David, 2008).
If you pay peanuts you get monkeys, this is one of Herzberg's favourite sayings, and although many commentators focused on his motivation factors, he was often at pains to stress the value of hygiene factors. Herzberg stressed that pay and other types of financial remuneration are fundamental ways of ensuring the satisfaction of staff and therefore we should consider, how personnel can be motivated, by the several types of financial provided by employers. Therefore the aspect of compensation to employees is of significance to the wellness of organizations. The benefits associated with compensating employees adequately are the following, enough employee compensation allows the employees to be motivated thereby increasing their productivity. In a very good compensation package is also important to retain employees in the organization thus avoiding cost in training and developing new employees. Studies have indicated that appropriate employee compensation is related to employee motivation, job satisfactions as well as employee retention. The partnership between satisfactory employee compensation, employee motivation, employee job satisfaction and employee retention have an optimistic relationship has been scaled to be positive and therefore vital to be for the banking industry to realize the role of adequate employee compensation as it would directly lead to employee motivation, employee job satisfaction and employee retention in the business.