Employee Retention and Compensation Packages

The rate of job hopping and hopping from one company to another has increased as a result of differing incentives and compensation packages in different countries, and the situation is troubling since different organizations are poaching people by luring them with higher packages. The purpose of this study is to demonstrate how various remuneration packages impact employee job performance and retention in the context of global company. There was a significant relationship between the employee’s performance and retention and the compensation provided by those companies, analysis of various packages showed. During the study, I also studied varies bonus, allowance, and incentives and concluded that the company’s decision maker and management should review their compensation packages with the aim of prevention of high labor turnover and satisfy their employee’s satisfaction. Through this mode, the perception of inequitable compensation on employees will reduce, and the performance and productivity of employees will increase, and they will be able to retain them for an extended period. The management should have competitive compensation scheme which will attract and make the employees stay in the company and reduce the cost incurred in the turnover when the employees leave for better salaries.

Keywords

Compensation packages; Performance; merit pay system; Retention; Salary; Employee; Bonuses, Companywide Incentives;

Table of Contents

Abstract 2

Introduction 4

Literature Review 7

Definition of Compensation Package 7

Base-Salary 8

Overtime Pay 8

Bonus 9

Definition of benefits 9

Allowances 10

Financial Incentives 11

Non-Financial Compensation 11

Importance of Compensation and Benefit 12

Relationship between Compensation and employee Satisfaction and Retention 14

Employee Retention 15

Conclusion 18

References 19

Appendix 22

Introduction

The critical resources in the organization which determine the failure and success of the company are the employees. The failure of any business is defined by its ability to reward, retain, and attract employees’ appropriately. The employees competent and talent should be paid accordingly. Reason being that the organization compensation packages determine how the employees will willingly stay in the job. To have desired results in the company; appropriate rewarding ways need to be considered with the aim of giving and ensuring the retention and optimal performance of the employees (Mondy, 2010). This is because the rewarding system and function of compensation packages in the organization remain as the satisfying concepts for the readiness of employees to stay on a particular company.

Many studies in both developed and developing countries fail to focus their research on the issue of job retention and satisfaction by ignoring compensation package as the central player in this problem. Those organization which they goal is to grow should starve to achieve the vision of having happy and satisfied employees in their workforce. For any company to make this strategic objective; the critical fact would strongly depend on her ability and capability of having pleased and competent staff through retaining maintain, and attracting qualified and experienced employees (Perham, 2009). For a company which needs to grow and advances to national wide or global recognition; it requires human resources which will provide development and ensure the organization is capable of planning and development of its essential workforce. Thus they have no otherwise than to give better compensation packages and avoid the neglecting of its employees.

Other challenges which affect job stratification are lack of enabling working environment, inadequate infrastructure, inconsistent policy implementation, and allowances and salary disparity. In addition to the earlier outlined dissatisfaction factors, the following things also make employee retention hard, and they include workload, lack of personal evaluation reports, lack of goodwill from superiors on good mentoring packages, and strict administrative style in the organization.

Compensation packages features which make job satisfying to the employees include the following bonuses, salaries, allowances, incentives, recognition, and promotion. Those elements have a significant impact on the performance of the employees Popkin, 2016. However, to avoid controversy and wrong perception from the employees, there is the need for precise information to be communicated to the employees on the compensation system and job measurement which will bring the most wanted and needed performance from the employees.

The employee’s retention is an independent variable but influenced by variables like bonus, incentive, salary, and allowances, etc. However, the compensation packages have higher impact on employee retention in many companies. They reduce the rate of employees’ turnover and increase the rate of competent and best employees (Martocchio, n.d.). Adequate rewarding system and comprehensive compensation packages need to be reviewed and implemented in the workstation. This will improve employees’ satisfaction and the wiliness to remain in the organization. For the organization to understand the significance of better rewarding system, they should study the following: Analyze the benefit of incentives for employees’ performance and job retention, evaluate the importance of bonuses on employees retention, and examine the compensation packages effects on the retention and satisfaction of employees.

To reduce the rate of employee turnover due to issues related to the salary and compensation packages; the organization stakeholders and management should solve the problem by formulating and developing right compensation policies. These policies should then be studied on their administrative viability, and if they can have positive impact on the company performance, they should then be implemented. This should be a form of encouraging and recognizing talent and competent performance. Through that step, there should be a proportionate increase in the development and organization performance on national and world scale. Through this broad measure, the job mobility of skilled employees will drastically reduce, and the employees’ retention goal will have achieved.

The most critical approach to the problem is to have a unique organizational climate study of workers and formulate the factors which hinder or decelerate the realization of the firm vision and their relationship to job satisfaction (Adeniji, 2012). From globalization approach, competent employees are necessary for better organizational performance. Hence, it is crucial to examine the job retention and satisfaction and its relationship to corporate climate. This will help to stop the brain drain from the firm and hinder the earlier constant mobility of employees.

Excellent compensation packages improve job satisfaction. This job satisfaction has the impact on employee’s health. They have relevance on the mental and physical wellbeing of the staff. This retention becomes a legitimate goal in the pursuit of employees understanding of their human nature with their job. A viable compensation package has humanitarian utility and is also considered to have significant economic sense making it an imperative, compensation packages have an indirect and direct impact on employees intend to stay in a job from having satisfying nature.

Literature Review

Definition of Compensation Package

Compensation is the reward which an individual receives from any organization after an exchange of specific performed task. It is a human resource management function, and it motivates, attract and satisfy employees to produce a desired outcome in the company. It can just define as a double output-input exchange between the employer and the company employees. American compensation association defines it as non-cash or cash remuneration gives to the employee for any rendered services. Compensation can be the monetary reward which goes beyond the first financial reward (Mondy, 2010). These financial awards are separate from the first salary, for instance, the recognition, incentives, and bonuses. Compensation package can be an indirect or direct reward to the employees from the organization.

This reward causes the employee satisfaction and employee retention, thus serving to achieve the organization performance improvement. The direct compensation includes the wages, bonuses, salaries, and commission. While the indirect rewards are incentives, housing allowance, medical benefit, training opportunities, training opportunities, and annual leave allowances (Zingheim and Schuster, 2013). Compensation can be said to be the combination of four core element which includes: benefits financial incentives, pay, and non-financial compensation.

The compensation satisfaction depends on the hourly employee, employee position, and the manager. He compensation package must be evaluated at every level of the company. Thus every level of the organization must understand what motivates the employee on that stage to retain them. The employer should also consider the experience, training, and education to make the level competitive for the entire employee to have fair and equal compensation package for their education and knowledge knowhow (Heneman & Schwab, 2008).The organizations depend or rely on obtaining higher revenues, thus it will be significant if they retain and attract the best talent which can take them to those levels by giving them better benefit and enticing compensation packages. Compensation can classify into two components which described below.

Base-Salary

Salary also refers to wages or pay. It depends on the importance of the job position and the job description. The market data however considered when paying the employees. In most organization, the length of the employment and the employee position usually determines what the salary the employee will get (Kline and Hsieh, 2009). This is established under the current personnel policy and is payable at a monthly and annual rate to being employees. Base salary usually is set under the present personal system of the employees. It is a periodic reward to the employees from the employer and specified in the work contract (Namasivayam, Miao, & Zhao, 2011). On the broad view, base salary can be defined as a cost incurred for running organization operation by acquiring the human resource. Further based on the job structure and terms it can be paid yearly, monthly or weekly.

Overtime Pay

Guthrie (2016) define overtime pay as the cash compensation paid to workers for the work done in excess from the usual working hour on the agreed time by the individual employee. It can be further defined as the one-half rate and payment for premium time monetary compensation from time off (Sturman, 2012). Mostly overtime occurs when employees work more than 40hours per week. The payment usually paid at the rate of 1.5 per hour of the base wage.

Bonus

This is a reward in the form of cash compensation for excellent performance in a particular field. It can be a monetary form for achieving set job targets. Further, it can be in the kind of creative financial scheme or the way of cash (Armstrong, 2009). They are paid for a fixed period and not a regular. They are based on collective performance or linked to the individual efforts. The bonus compensation usually is specified in the contract, and the company can distribute the payment randomly.

Definition of benefits

Williams, McDaniel, and Ford (2017) define benefit as part of the compensation package reward which is provided to the employee as part or as whole payment for other time but not necessarily the one spent in the work. They are group membership compensation which provides security for the family members and the employees themselves. Some benefits mandated by the law which includes the following: unemployment compensation, social security, and workers compensation. They are also can term as non-compensation, and they include the pension, fringe benefit, health insurance, and welfare, etc. however they are a crucial part of the compensation package to the employees (“The Network Discusses: Overtime Pay, Retention Incentives, and Bonuses and Other Perks”, 2012). They are famous because some company does not give competitive compensation due to strict wage control. This benefit reward can term as an entitlement which the employees make under public assistance program, insurance policy, and employment agreement. They are a reflection of justice to their work, and thus they are useful and valuable in the long run. The benefits provide a competitive market health and flexible employment support brand and employee retention (Popkin, 2016). They can further include the retirement benefit, disability income protection, work-life balance (jury duty, sick leave, and vacation), allowances (housing, dental, transportation). The benefit can be further classified into two components as follows.

Allowances

The allowance is legally in the organization related services, and he works contract. They are additional financial rewards provided by the employer to the employees. For instance, allowances for service schemes or fixed particular jobs and entertainment allowance (Carraher, Mulvey, Scarpello, and Ash, 2010). They can also describe as reward contained in the employee’s salary package.

Work-life balance

It can be defined as enough time for both living and work thus making life to balance. These rewards juggle from efficient managing paid work and other influential people’s activities. This concept of work-life balance gives priority to the time taken by work over the family by work intensification and working long hours. This program helps the workers to integrate their life responsibilities and company work by considering time away from work. It includes the time and services accessed for specific needs like financial planning, drug counseling, and elder and child care (Khan, Aslam & Lodhi, 2011). The work life balance provides flexible work arrangement trough payment of non-paid time off and telecommuting. The purpose of work-life balance is to create a healthy working environment and to maintain supportive services which will enable the employees to balance between the personal responsibility and the work and thus making them productive and strengthening their loyalty with the employer.

Financial Incentives

Financial incentives are variable reward contained in the compensation packages. Example of financial incentives in the employee compensation packages includes the following gain-sharing, bonuses, award for performance, profit sharing, and commissions. They help to retain the employees in the organization if they provided to them. The organization which offers these financial incentives has a higher rate of employees’ retention. This reward motivates the employees and brings uniqueness and competitiveness in the company (Zingheim and Schuster, 2013). These financial incentives are usually achievable and described in the organization policies. They encourage the employees to reach their goals. This reward has a massive influence on employee’s performance. This compensation also is shown by the Expectant theory, economic theory, and equity theory. This approach summarizes the effects of financial incentives by show who worker worked hard by knowing that there is an increased reward for the best performer (Sturman, 2012). For an organization to retain the employees without increasing their salary, the most organization considers the financial incentives as the motivational tool because it gives the employees satisfaction with their job.

Non-Financial Compensation

This class can be said as the physical or psychological satisfaction which the employees receive from the job itself by having a conducive working environment. This includes having positive feedback and friendly co-workers. They further can be involved in the development opportunities and recognition program and training (Patton, 2009). This none-financial compensation usually may cost the organization some money in providing them, but they are worth it. This reward offers growth opportunities by making the employees to develop new skills and allow them in decision making.

Importance of Compensation and Benefit

For the organization to survive and compete favorably with other companies, they should have a team of motivated, informed, and involved staff. Thus to maintain the workers in the business, they should have a holistic, strategic, and integrated compensation package approach. The primary importance of benefit and compensation is to reward and motivate the employees. They can only be effective if they connect the reward to their performance, and the employees should see them as direct and credible to their efforts (Armstrong, 2009). For the organization to avoid the long-term failure, low productivity, and high turnover; they should invest more in motivating their workers.

Compensation has the objectives of motivating a high potential employee, retaining them, and attracting more. It cans influence the employees for future working performance and working correctly in their current position. This makes them focus on duties performed, and level held. However, those goals are constrain subjected to a legal requirement, maintenance of equity, and cost control, for instance, the salary and wage legislation (“The Network Discusses: Overtime Pay, Retention Incentives, and Bonuses and Other Perks”, 2012). The compensation package is a reward for work done to the organization, entitlement of exchange or return of service delivered. The employees are rewarded by the firm for work performed.

Compensation is crucial because it shows employees worthiness and value in the job market. This pay is indication of personal ability and skills to perform different duties in the industry. The perception should the treated with care in order not to break employee spirit of working hard. Compensation is as used as organization communication tool of showing the goal achievement and expectation. It shows progressive improvement, and it is relative to the employee’s performance (Carraher, Mulvey, Scarpello, & Ash, 2010). It shows employee’s progress and success; this measure is crucial to workers performance and on setting personal goals. The benefit and the compensation package are the general balances between the capital accumulation opportunities and the provided risks.

The organization cannot provide rapid benefits because they have increasingly continued to be expensive. Thus a flexible benefits plan is supposed to be structured. This method should have the ability to attract and retain competent and talented workers. Most workers rely on the benefit of retirement, medical subsidies, and vacations in securing a financial well-being. Thus by linking the compensation package to the seniority like holidays and pension, most will be reluctant to the proposed plan.

Namasivayam et al. (2011) note that compensation package helps to safeguard the employees and their families against the calamities of retirement, sickness and accident problems. Thus it should be designed in a way it provides the necessary backup. To reduce the workers stress and increase their potential and their interpersonal relationship with the employer, right components which have a direct impact on the worker’s life like leave benefit and temporal flexibility should be provided in the work-life balance. This improves responsibility and decision making to the employees and makes them have a positive performance (Martocchio, n.d.). This compensation package has the advantage of protecting employees from financial risks and provides backup in case the employees are disabled, sick, and even if they no longer able to work. The benefit of the compensation package is significant because it reduces the employees’ financial burden and brings relive and conformability to their life making them perform well in the place of work. This minimizes the organization turnover and improves the company productivity and increase the company growth.

Relationship between Compensation and employee Satisfaction and Retention

Nowadays the organizations are facing challenges due to shifting markets, increased competition, acquisition, merger, and employee demographics changes. For the firm to improve employee’s satisfaction, attract appropriate talent, and maximize the human capital return; they should develop competitive strategies and benefits plans. The intervention of the employee is an essential organizational component (Khan, Aslam & Lodhi, 2011). This benefit increases the compensation package amount and is a vital intervention component.

The organizational priorities and goals are communicated by the power of compensation package. It shows the success of the employees as the number one partner with the firm. The compensation plan is a sensitive subject and people should be passionate when determining the appropriate formula to use. The human resources in the organization are an essential aspect which needs to address with significant concerns. The financial element and the compensation package are crucial features in the company development progress.

Society for Human Resource Management (2009) conducted a survey, and according to its report, they found out the compensation package directly affects the employee’s job satisfaction. The compensation package held a direct link and the positive relationship to the achievement of the workers in the workstation. It is wise to offer the employees a competitive compensation package and reducing the employees’ expectations salary gap to the employers offer. The above report also outlines the compensation package as the top determination aspect of the job performance (Adeniji &Osibanjo, 2012). Thus compensation package is obvious and significant in influencing the employee’s performance. Even though the compensation package is the predictor of job satisfaction, there is a definite relationship between the job satisfaction and compensation. This is a high indication for showing the healthy relationship between the job satisfaction and compensation package.

Employee Retention

The employee satisfaction is highly regarded as the leading player factor in employee job retention. The employee satisfaction is associated with attitude in the internal company state. It is mainly due to the personal feeling of achievement which is either a qualitative or quantitative. Employee retention is directly affected by the employee satisfaction in the organization. This state is mainly due to a psychological process which considers various aspects such as incentives, benefit, and salary which contained in the compensation package (“The Network Discusses: Overtime Pay, Retention Incentives, and Bonuses and Other Perks”, 2012). If those elements satisfy them, they will have an easy time in retaining their job in the organization.

The employee retention is a cumulative aspect of job satisfaction. It compares what they desire in the job and what the position is providing on the table. What the workers feel has significant implication for the management, it is perceived important as fact which determines the job retention (Collins, Collins, McKinnies & Jensen, 2014). The following factors determine the job retention such as; job security, adequate salary, parental management, good working conditions, appropriate health care and training opportunities, supportive and positive environment, the opportunity for growth, supportive organization culture, recognition, friendly nature of co-workers, and relationship with his superior. Thus the employee job retention is a personal evaluation and the work context.

The compensation package plays the crucial role of in the organization by signaling the retaining of existing employees, employee worth, and attracting the potential job incumbent. Thus the most employee job retention initiative is the compensation package. Numerous studies have shown the importance of compensation package on the recognition and retention of employees in the organization (Khan, Aslam & Lodhi, 2011). The impact of the compensation package is practical on the human resource retention. Thus plans to adjust the salary paid and the comparison of other players in the industries is essential. This plan will prevent mobility from the organization to the other. Through this, they get the reason to remain in the company by feeling satisfied.

Research from various scholars has shown that organization which has a highly competitive system of providing good compensation package promote their commitment to the employee and thus this makes them remain attracted to the firm, and job retention resides in a higher rate. Further, those companies which provide a financial incentive to their employee were observed to have good organizational performance and effective human management practices. They held lower turnover rate and improved performance. They were able to have good employee job retention ability due to welcoming and competitive compensation package. Compensation system has dramatically influenced the employee’s retention. Instrumentality theory has shown the strategic use of competitive compensation package (Khan, Aslam & Lodhi, 2011). Compensation theory has conveniently back up the employees’ satisfaction perception; it has shown the relationship between the job retention and its link to the compensation tools. The employee motivation usually comes from the excepted outcome of rewards from the employer due to good performance. For the organization to have good job satisfy scheme, the outcomes must be attractive, and the reward should be positive valued. Through this, the company should achieve the job satisfaction and job retention goal. The organization compensation package should be within the employee’s expectation for them to retain the workers. The perceived probability of the desired outcome should successfully achieve reward and better performance of employees.

 Leah-Martin (2017) state that job satisfaction is the degree, by which the workers feel satisfied by the job. It is a relative term, but every employee can evaluate the job requirement, and gauge the input required and the reward expected. The fairness of exchange between work done and the compensation package is an element of showing the advancement, recognition, and opportunities. From the ratio of personal inputs like skills, effort, time, and knowledge and the job reward such as allowances, bonus, benefits, and incentives, the end effects show the employees satisfaction and employee retention scale.

To reduce turnover in an organization, right reward system with very well planned incentive (Khan, Aslam & Lodhi, 2011). This is because the first salary is not enough in attracting, retaining and satisfying employees. Other benefits are essential for the employees to have work-life balance. The satisfaction and retention of employees should go hand in hand with development and growth of the organization. The compensation package should ensure employee development, employee retention, employee satisfaction, and organization performance.

The study of the compensation package and its effect in the organization have shown that there is a significant correlation between the salary, allowances, bonus, benefit, bonus, and incentives and their impact was on the better prediction of outcome which is mainly performance depending with the quality of the predictors. The result held direct effect on job retention and satisfaction.

Conclusion

Compensation package influences the employee’s behavior in the workstation as shown from the discussion and explanations above; thus the salary alone is not sufficient for employee satisfaction and job retention; it can wholly satisfy, retain and attract employees. More is needed for the employees to have work-life balance (Leah-Martin, 2017). But more so the organization needs the structure which allows and offers an opportunity for employees to develop and grow professionally. This plan will increase job satisfaction and help in improve job retention. The compensation package should ensure it has achieved the goal of employee development, employee satisfaction, organizational performance, and employee retention.

The compensation package system should be competitive with the others in the industry as it linked to the turnover, employees’ satisfaction level, and retention of the job. Thus it is significant to have comprehensive compensation package which can improve the organization brand and image. This system should be able to motivate and encourage the employees to perform better and achieve their personal development and growth (Martocchio, n.d.). Through this, they will develop satisfaction attitude which will be good for the growth of the organization.

Excellent compensation planning is appropriate in reduce employees retention. It is vital to solving employees’ problems and improving their satisfaction’ proper compensation package plan is good for reducing organization turnover and increase workers’ productivity. Besides been a lengthy process, the end product is profitable; this plan help in recruiting employees, hiring the workers, retaining them, satisfying them, and developing them (Hinkin and Tracey, 2014). The competitive package should among the best in the industry; this will easy advertise the organization brand and attract the competent and talented employees. It will set its bar higher where other companies cannot be able to join; through this, the competition will be less, and the employees’ satisfaction and retention will have achieved. For the growth and development of the organization, it requires much able human resource more than capital. They can plan and execute the structured vision without facing problems by putting necessary precaution. This goal can only achieve by having qualified employees who are dedicated to their duties and are loyal to the firm.

References

Armstrong, M (2009). Strategic human resources management: A guide to action, UK: Kogan Page,

Adeniji A. A (2012). Organizational climate and job satisfaction among academic staff in some selected private universities in South-West Nigeria, Unpublished Ph.D. Thesis.

Carraher, S. M., Mulvey, P., Scarpello, V. & Ash, R. (2010). Pay satisfaction, cognitive complexity, and global solutions: Is a single structure appropriate for everyone? The Journal of Applied Management and Entrepreneurship, 9(2), 18-33.

Collins, K., Collins, S., McKinnies, R., & Jensen, S. (2014). Employee Satisfaction and Employee Retention. The Health Care Manager, 27(3), 245-251. http://dx.doi.org/10.1097/01.hcm.0000318755.24332.4b

Guthrie, J.P. (2016). Alternate pay practices and employee turnover: An organization economics perspective. Group & Organization Management, 25(4), 419-439.

Heneman, H.G. & Schwab, D. P. (2008). Pay satisfaction: Its multidimensional nature and measurement. International Journal of Psychology, 20, 129-141.

Khan, R., Aslam, H., & Lodhi, I. (2011). Compensation Management: A strategic conduit towards achieving employee retention and Job Satisfaction in Banking Sector of Pakistan. International Journal Of Human Resource Studies, 1(1), 89. http://dx.doi.org/10.5296/ijhrs.v1i1.809

Leah-Martin, V. (2017). Relative Compensation and Employee Satisfaction. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2896268

Martocchio, J. Strategic Compensation A human Resource approach.

Mondy, R.W. (2008). Human Resource Management (10th ed.). New Jersey: Pearson Prentice Hall.

Namasivayam, K., Miao, L., & Zhao, X. (2011). An investigation of the relationship between compensation practices and firm performance in the us hotel industry. International Journal of Hospitality Management, 26, 574-587.

Patton, C. (2009). Employee rewards: Beyond the traditional. University Business, 12(10), 23- 24.

Perham, J. (2009). The Changing Compensation Package. Compensation Review, 10(2), 46-48. http://dx.doi.org/10.1177/088636877801000206

Popkin, J. (2016, August). Cost of employee benefits in small and large businesses. Small Business Administration, Office of Advocacy. Retrieved March 3, 2010, from

Sturman, M.C. (2012). Using your pay system to improve employees’ performance: How you pay makes a difference. Cornell Hospitality Report, 6(13), 1-16.

Tracey, J.B. & Hinkin, T. R. (2014). The costs of emplo...