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Monday, August 15, 2011

Essay on Impact of Compensation in an Organization

In 2005, an article discussed the topic of employee retention.  Based on a survey conducted by the IRS Employment Review on 94 business organizations, it found out that out of a total of 121,578 employees, 17,792 employees departed from their present employers.  Statistics shows that out of the total numbers who departed from their business organization, 68.8% of those resigned from their previous employers; 9.4% left their companies because of the expiration of their contract of employment; 8.3% left because of retirement, 5% were removed because of redundancy and 3.2 % were dismissed from employment. The study highlights the problem of employee turnover in any business organization. 

Though there are many reasons why employees chose to leave their workplace, one of the most common reasons for leaving is the issue of compensation.  According to Abraham Maslow’s hierarchy of needs, all employees have physiological and security needs at the base level.  However, the needs of the employees are not limited to food, clothing, and shelter and job security.  More than the physiological needs, the employers must be able to answer for the emotional, spiritual and relationship needs of the employees.  This means that employees also look for career advancement opportunities.  They want to participate in annual conferences and training programs to be able to grow as a person and to learn new things from their work.  They also seek love, self-esteem and self-actualization in their workplaces. 

Companies always tell their employees that they are valued and considered partners in their business.  Employees however do not simply want to be told that they are valuable.  They want the evidence to be shown to them.  Thus, “Show me the money!” is their response to companies telling them how valuable they are without showing them any evidence.  Having a competitive compensation and benefits package is a strong evidence to prove that the company values its employees. 

Employer-employee relationship is a dynamic relationship between the company which provides the job and the individual which contributes to the goal of the organization.  It stands to reason that they both need each other.  It may be argued that the employee needs the company more than the company needs its employees.  Some say that it is easy to look for new employees given the number of people who are unemployed in the labor market. 

However, companies which are successful in the business understand the importance of having a competent and skilled manpower.  They appreciate the impact of having effective employees in the workforce.  For this reason, they want to retain their existing workforce because it is too risky to look for new employees.  It may be true that there is an abundant number of job applicants waiting to be hired, but it is equally true that looking for competent, skilled and loyal employees is like looking for a needle in a haystack.  No matter how good the recruitment and the training processes are all these efforts will be put to waste if the company will not be able to retain its existing manpower.Thus, having a competitive compensation package is important since it attracts and retains competitive employees who can help contribute to the goals of the company.  

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Second, having a competitive compensation and benefit package motivate the employees to work hard for the company.  Incentive pay is now considered as an alternative company strategy that is effective in motivating employees.  According to a recent study conducted by the Employers Resource Council involving 139 companies and organizations in Northeast Ohio more companies, particularly manufacturing companies, are now turning to variable pay programs a bit more often than other business and that the use of bonuses and other forms of incentive pay by manufacturers is on the rise (Prizinsky, 2008, p.1).  The ERC added that “78% of all companies responding had an incentive or bonus plan in place. That figure rose to 82% among manufacturing companies, a percentage that has been increasing in the last few years, according to the human resources group.” (Prizinsky, p.1)

The third benefit is that giving the right compensation package to employees helps prevent dissatisfaction within the company.  Dissatisfaction often leads to low productivity and in most cases suits.  One of the companies that has gained notorious reputation of providing poor compensation and benefit package to its employees is Wal-Mart. 

Because of the concerted effort to minimize labor cost by controlling the wages and benefits, both monetary and non-monetary, of the employees, Wal-Mart has been frequently involved in litigations for non-payment of wages, overtime pay, unfair labor practices and discrimination.  Research shows that in the last few years, over 100 unfair labor practices have been filed against Wal-Mart throughout the country, with 43 charges filed in 2002 alone.  In the 2004, a class-action suit was filed by over 1.6 million current and past women employees against Wal-Mart seeking redress against the company for discriminating against its female employees (Myron Curry, 2004, p1).  If this suit progresses, Wal-Mart may later on be forced to settle this suit and pay these employees millions of dollars in damages.  These countless suits and litigations and the damages it has paid against its employees have severely affected the Wal-Mart’s reputation all over the world.

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