Compensation and Employee Motivation

A majority of human resources professionals appear to believe that employees are likely to over-report the importance of pay in employee surveys. However, research suggests the opposite is actually true. We review evidence showing the discrepancies between what people say and do with respect to pay. We then discuss why pay is likely to be such an important general motivator, as well as a variety of reasons why managers might underestimate its importance. We note that pay is not equally important in all situations or to all individuals, and identify circumstances under which pay is likely to be more (or less) important to employees.

Some employees are motivated by money. In fact, most are motivated by money; at least for their basic needs. Employee motivation through compensation can come in the form of raises, performance bonuses, commissions, profit sharing, or any number of "extra benefits" like, automobiles, vacations, or other tangible items purchased and used as rewards.

I noticed an interesting program in a hotel where I recently stayed. They have a sophisticated system for rewarding employees based on customer feedback. Throughout the hotel, they have placed customer feedback forms and boxes for depositing the forms. When customers comment on the performance of a hotel employee, the employee accumulates points that can be used to purchase rewards like trips, gifts, and other incentives.

What the Research Shows

Behavioral scientists, employee and management surveys, and my client experiences show compensation can be a strong driver of employee behavior under the right circumstances when properly designed.

  • In a survey of over 1500 compensation and productivity professionals by the American Compensation Association and the American Productivity Center various types of compensation or rewards systems that they utilized were rated as having a "Positive" or "Very Positive" impact on performance in 66% to 89% of the companies where the companies used specific techniques such as gain sharing, small group incentives, profit sharing, individual incentives, and lump sum bonuses (source: "People, Performance, and Pay").
  • In a national survey of 1200 randomly selected U.S. employees across many different types and sizes of companies 54% of employees rated direct financial compensation as "very important" or "extremely important" to motivation. When stratified by age group there was statistically insignificant difference by age group. Gen X and Gen Y were no different than Baby Boomers in this respect (source: "The Rewards of Work - What Employees Value")
  • In a national survey of 2500 employees, 84% of those who understood their organization's reward/performance link believe they can help make a difference. If they also believe that the company will share its success when the strategy is achieved, 91% say they are motivated to help the company succeed (source: Workplace Index)
  • In a study of 663 companies with performance reward compensation plans covering 1.3 million employees and a broad section of the workforce of each company (not just managers and salespeople) by the American Compensation Association, they found that at the median, organizations earned $2.34 for every dollar they spent on payouts; thus a close approximation of the net return on plan investment is 134% (source: "Organizational Performance and Rewards").

Theory of motivation

Under theories of motivation, Vroom's expectancy theory  clearly defines strong relationship between moderation and compensation. According to this theory, satisfying one's expectations and giving value (rewarding) for his efforts will result in motivation. generally employee in any organisation first expect monetary reward from his/her employer in respect of his/her work done in the job. More Detailed >>

EXPECTANCY THEORY FORMULA  {Motivation = valence x Expectancy (instrumentality) }

9 highest-paying tech companies in the US

The first technology company on the  highest-paying companies in the US list is Netflix . The average median total compensation offered by the California-based internet video service company is $180,000.

The second technology company on the Glassdoor's list is Mozilla at No. 8. Mozilla Corporation is a wholly-owned subsidiary of open-source group Mozilla Foundation. The average median total compensation at Mozilla is $147,556. The average median base salary at the organisation is $112,737.

Good Technology
Good Technology is the third technology company on highest-paying companies in the US' list. The company,  offers employees an average median total compensation of $147,500. The average median base salary at the organisation is $136,250.

The next technology company on the list is chipmaker Altera. The maker of programmable custom-designed semiconductors offers employees average median total compensation of $147,200. The average median base salary at Altera is $133,250.

The global leader in virtualization and cloud infrastructure VMWare is the next technology company on the list. The average median total compensation at the company is $145,000, while average median base salary is $121,500.

Cadence Design Systems
Cadence offers electronic design automation solutions. the company offers employees average median total compensation of $145,000, while average median base salary is $130,000.

At No. 13 on the Glassdoor's list of highest-paying companies in the US is the internet giant Google. The average median total compensation offered at the world's top search engine is $143,500, while the average median base salary is $116,000.

Next technology company on the Glassdoor's list is Synopsys. The second electronic design automation company on the list after Cadence, Synopsys offers average median total compensation of $143,000, while the average median base salary is $123,000.

Next company on the list is TrueCar Inc, an automotive pricing and information website for new and used car buyers and dealers. The company offers average median total compensation of $141,500, while the average median base salary is $100,000.

Failure in Compensation Design Leads to Failure to Motivate (behavioral change)

INDIA: Defence Minister A K Antony in a report to Parliament upper house disclosed that 637 scientists have resigned from the Defence Research and Development Organisation (DRDO) during the period of 2007-2011, most of them were younger scientists who resigned.  Better incentives, better increments and promotions  are few  main reasons behind the resignation of scientists from DRDO.

Source: TOI, 6-12-2012

Facts [+]
In the year 2012, Kingfisher airlines pilots rejected to attend the work due to the non-payment of the salaries by the airlines management for few months. But the fact was Kingfisher airlines went into losses due to various reasons like heavy competition from other airlines in India. 

Every employee working in the companies concerns about regular payment of salaries by the management and it is fact that regularly payment of salaries shows positive impact on motivation of employee. Hence there is direct linkage between compensation and motivation of employee.

Typical compensation design problems include
  • Failure to tie pay closely to achievement of objective and realistic performance measures
  • Failure to regularly measure and provide feedback on performance
  • Failure to design variances in pay related to performance that are large enough to be perceived by the employee as worth the effort
  • Over-reliance on salary as the only significant method of financial rewards

Companies in allegations on employees salary issues

Especially on crux matter of compensation system in the year 2012- September,  law suits were filed on  well known giant companies like Walmart Stores for not paying overtime to its workers and less payment of wages without following the United States federal laws. Apple incorporation's electronic components supplier Foxconn Electronics from China had faced same allegations on less payment of wages and also no payment for additional Working hours to its workers. Kingfisher airlines in India succumbed into losses by various reasons eventually failed to pay salaries to its employees for nearly a period of seven months which lead to strike by its employees. Due to no salary payment for months to its employees created severe financial crisis to one of its employee's family, which abetted his wife to commit suicide out of depression. Extremely disappointed Kingfisher airlines employees resorted to road demonstration against company, which ultimately lead to company's reputation down.

Recent example as Walmart claims to giant retail stores dipped in serious allegations accompanied by lawsuit filed for not paying overtime wages at least minimum wages in accordance with federal laws. Opposite to united states federal labour laws, Walmart stores insisting workers to appear for work early hours working during lunch breaks and leaving workplace at late hours.

Compensation and remuneration are  grammatically synonym but in the context of labor laws both have different meaning and purpose for which it is paid. Remuneration is paid for work done by a worker or employee whereas compensation is paid for loss suffered physically, mentally or disabled worker or employee.