1. Assignment - 2
Compensation Management (HRM- 412)
Section: 2
Submitted By : Submitted To :
Rafid Hassan Tamanna Parvin Eva
ID : 2011-1-10-357 Senior Lecturer
East West University Department of Business
Administration.
East West University
Date of submission: 16 / 2 / 2015

2. The impact of an equitable and attractive
compensation package

3. 1
Compensation refers to all forms of financial returns and tangible services and benefits
employees receive as part of an employment relationship. Compensation can include monetary
and non-monetary components. Compensation often includes an employee’s base salary and
additional benefits, such as health insurance, retirement plans and performance bonuses.
“Benefits” are such things as insurance, paid vacation and sick days, pension plans, and
employee discounts. The compensation packages a business offers to employees affects the
company’s recruitment rate, retention rate and employee satisfaction. A business owner or
organization should understand the importance of compensation and the prevailing laws to
remain competitive in the market. An organization's compensation practices can have far-
reaching effects on its competitive advantage. According to Richard Henderson -
“To develop a competitive advantage in a global economy, the compensation program of
the organization must support totally the strategic plans and actions of the organization.”
F.W. Taylor believed that employees would only be motivated by receiving as much money as
possible (Taylor, 1911). This is a limited idea. As a result of Taylor’s theories on money as
motivator and ideas by other writers, the debate about financial rewards as motivational factors
continues. If rewards are allocated incorrectly on non-performance factors such as seniority,
status and job title employee motivation and effort could be reduced. Managers need to
recognize that the perceived value of the direct and indirect compensation, depends on
employees on perspective on equity. Equity suggests that once an individual has chosen an
action that is expected to satisfy his or her needs, the individual assesses the equity or fairness of
the outcome (Adams, 1965).Job Satisfaction is simply how people feel about their jobs. It is the
extent to which people like (satisfaction) or dislike (dissatisfaction) their jobs, it can also be a
reflection of good treatment and an indicator of emotional well-being. Spector refers to job
satisfaction in terms of how people feel about their jobs and different aspects of their jobs. [3].
Schermerhorn defines job satisfaction as an affective or emotional response towards various
aspects of an employee’s work. Ellickson and Logsdon support this view by defining job
satisfaction as the extent to which employees like their work.. Abraham Maslow suggested that
human need a from a five-level hierarchy ranging from physiological needs, safety, belongingess
and love, esteem to self-actualization. Based on Maslow’s theory, job satisfaction has been
approached by some researchers from the perspective of need fulfillment (Kuhlen, 1963; Worf,
1970; Conrad et al, 1985).Compensation, work environment and other factors influence

4. 2
employee satisfaction. By balancing pay with other programs, such as career development
opportunities, flexible work schedules and attractive surroundings, organization can improve job
satisfaction for its employees in a cost effective manner. This typically results in improved
morale, Both compensation and job satisfaction impact employee morale. Typically, the
supervisor’s leadership style as well as the employee’s skill level and decision-making authority
also affect an employee’s attitude toward his job. For example, when people work for an
autocratic leader who makes all the decisions without consulting his staff, even if the
compensation is high, job satisfaction and morale tend to be low. When people don’t feel
empowered to contribute to the overall planning, organization and direction of the company, they
typically don’t commit to the long-term success of the business, reduced absenteeism When the
workplace represents high levels of stress, unsafe conditions or uncertainty, even high levels of
compensation may not compensate for the toll it takes on an employee’s personal life.
Maintaining a healthy balance between work and home ensures that employees can come to
work and manage job tasks with minimal distractions. Worker absenteeism costs the economy
significant number of money every year in lost productivity, fewer conflicts on the job and
increased productivity. But Increased compensation alone doesn’t always lead to increased job
satisfaction.(Armstrong, M., Strategic human resources management: A guide to action,
UK: KoganPage,2003). In fact, sometimes a small increase can actually have a negative
effect.With the development of modern enterprise management, motivating employees becomes t
he Buzz word. In fact , employees with great working enthusiasm can contribute to the firm a lot
because the potential of them will be aroused if they are willing to finish their as their own
business. A considerable amount of enterprises employees agree that the work is just for earn
money, so when the when employees get the salary they lose the ambition of working hard.
In this case salary is not the most important factor in motivating employees.
Throughequitable compensation, more responsibility andmeeting employees’ needs, and propos
e reasons why salary cannot be the most important factor inmotivating. According to Maslow
“ people need something important than themselves to revere and devote to” (Maslow 1988)
Salary is the most important factor in motivating employees is believed among group of
managers. This kind of opinion is common among them because there are a few employees who
work only for money indeed. They need money to feed their family , support their children’s
education, their future and to fulfill their need in life. So , salary cannot be the most important

5. 3
factor to enhance employee enthusiasm. Money is one of the factors to employ workers. A
favorable salary might attract good employees. However it is not attractive enough to those
people who do not need money very much, and employee will feel it is going without saying if
they are enjoying high salary for a long time or have got favorable salary, and then workers will
lose the ambition to work hard. That is to say , favorable salary can only retain employees but
cannot increase work enthusiasm. Herzberg suggested that factors including salary must be
adequate in motivating workers. However better than then adequate salary will not necessarily
result in high degree of workers satisfaction. Instead a high degree of worker satisfaction is most
easily achieved by offering additional benefits such as responsibility.
Money cannot solve every problem. Equitable compensation could be an important factor to
motivate employees. Compensation will set up a concept to be more hard working and to earn
more money. In this case fairness must be the basic principle. The equity theory of motivation
suggest that – compensation should be equitable or in proportion to each employees contribution
or they may lose their working enthusiasm (Madura 2008). Compensation will cause
psychological suggestion for competition. In competitive situation workers will feel more
pressure and will work hard to exert their best performance. If the employees feel that they are
undercompensated than the market , they might refuse to exert their best performance for the
sake of organization. According to Madura the important part of compensation is making the
employees feel that they are confirmed and they will feel that they deserves the pay. Merit
system is more effective than the alternative across the board system.
Satisfying employee needs is another important motivator . The needs not only contain material
requirements but also mental requirements. The psychological requirements are allowances for
food , shelter , transportations ,security , safety issues, health issues , insurances etc. These will
play the role of measure of justice which eradicate the gender pay gap , major source of financial
security . It also satisfy the employee by giving the entitlement for being an employee of an
particular organization. Organization must have to remember when they employee starts to think
they are one of the part of the organization , when they have the sense of ownership , only then
the organization can expect higher return and they can reach the desired goal. Another important
factor for organization to motivate the employees is fulfill the social requirements of the
employee contingent. Social interactions and others’ acceptance is the key factors in this case.

6. 4
Human psychology suggests that – people likes to get praised or appreciated. They like to take
control with the full power . Esteem requirements such as respect , prestige and recognition are
the key factors here. Self actualization maximizes the potentiality of the employees. When the
employee feel that they are being “ Valued” the possibility of gaining competitive advantage of
that particular organization is likely to be higher than others. Fulfilling the psychological
requirements enhance the productivity of the employee, and they will be more focused and
concentrate on their job properly.
This picture showing the relation between compensation package and employee performance.
Here we can see that all compensation packages are linked to employee performance and
performance linked to organizations employee retention.
People likes to being in control , so do the employees. They want to be the part of the
organization in which they are working. If the organization involves them not only in their
station work but also in the decision making process it will employees job satisfaction and
employee responsibility.(McGregor's, Theory Zin Madura 2008).Having more chances to
decide to let employees feel that they control their own work. This variety of master
consciousness let employees intention to complete the work. Giving employee enough freedom

7. 5
is likely to unleash the potential of the employee and help them to be more creative. It also allow
them to express their opinion and responsive to others opinion.
There are lot of debates and no appropriate implications that whether compensation package is
enough for increasing job satisfaction and employee performance or not. It is obvious that
compensation and fringe benefits increase employee enthusiasm and helps them to perform
better which brings positive output for the organization. But it is still undefined that
compensation package how much affecting the job satisfaction with increasing demand of the
employees. In conclusion, Managers must ensure that rewards distributed to employees are
dynamic and constantly re-evaluated to ensure their transparency and fairness to all employees
so as to continue to have their dedication, commitment and loyalty, which is the major drive for
keeping contented and satisfied employees, thus avoiding turnover but ensuring retention of
vibrant employees.

8. 6
REFERENCES:
1. Armstrong, M., Strategic human resources management: A guide to action, UK: KoganPage,
2003.
2. Falola H. O., Ibidunni A. S, Olokundun A. M., Incentives packages and employees’ attitudes
to work: a study of selected government parastatals in Ogun State, South-West, Nigeria,
International Journal of Research in Business and Social Science IJRBS, 2014, 3(1), p. 2147-
4478.
3. Osibanjo A.O., Abiodun A.J., Fadugba, A.O., Executive perception of the impact of flexitime
on organisational performamce: evidence from the Nigeria Private Sector, International Journal
of Applied Behavioural Economics, IJABE, 2012, 1(3), p. 16-27.
4. Oshagbemi T., Gender Differences in the job satisfaction of university teachers, Women in
Management Review, 2000, 15, p. 331-343. 5. Adeniji A. A., Organizational climate and job
satisfaction among academic staff in some selected private universities in South-West Nigeria,
2011, Unpublished Ph.D. Thesis.
5.McGregor's, Theory Z in Madura 2008
6.Kuhlen, 1963; Worf, 1970; Conrad et al, 1985
7. Taylor 1911 , Maslow 1988 , Adams 1965
8. Richard Henderson 1994
9.smallbusiness.chron.com
10.www.encyclopedia.com
11.www.iosrjournals.org
12.work.chron.com/influence-compensation-vs-job-satisfaction-9719.html