Compensation and Human TheoryA close look at all the theories of human motivation reveals a common driving principle: people do what they are rewarded for doing. This has been termed “the greatest management principle in the world.” Reinforcement, expectancy, and goal setting describe how to motivate people. Hence they are also called the “process theories.” Rewards are both intrinsic—that is feeling good about an accomplishment—and extrinsic—that is being recognized for an accomplishment. Compensation is part of the mix of rewards for employees.David McClelland’s early studies showed that receiving a bonus or salary increase had a short-term positive effect. Withholding a bonus or salary increase had a long-term negative effect. Pay satisfaction is comprised of four elements: the level of pay and benefits, the extent to which workers perceive their earnings are fair or deserved, comparisons with other people’s pay, and noneconomic satisfactions such as intrinsic satisfaction with the content of one’s work. Compensation is a topic near and dear to every employee. Companies are learning that sharing the economic gains of reaching targets helps employees stay motivated to reach increasingly difficult goals. For example, PepsiCo has instituted a program called “SharePower” that makes all employees—not just a select group of senior executives—who work at least 1,500 hours per year and who are employed by Pepsi for 1 year or longer, eligible for stock. Since its introduction, stories abound at Pepsi about how employees have gone the extra mile to serve customers. When HR professionals help employees see that a particularly demanding project or exercise will result in economic payback for the employee, the employee is likely to work harder. With a clear line of sight between work and reward, employees may cope better with increased demands.Financial incentives, in order to be effective, must be clearly linked with desired outcomes. For example, in one banking call center, management rewarded employees who had shorter time per call averages because they were able to take more calls. The employees strove to have shorter online times each day. Unfortunately, they often did not complete customer requests and customers had to call several times to get a request completed or problem solved. Call volumes in the center went up dramatically, and customer satisfaction with the call center service went down. The plan was changed once management determined they had created the problem. Benefits and services are a major ingredient in employee compensation. Estimates are that on average, benefits as a part of payroll are 41%. The overall benefits plan of a company is also an important element in employee retention. Each plan is designed for the specific company and its unique situation, although there are many similarities within industries. As part of the corporate downsizings, many companies outsource their benefit and services management. One of the more successful, PayChex, offers a full range of services and options including insurance and 401k plans. This is a way for small- and medium-sized businesses to compete with the larger companies who have
had benefits for a long time. Retirement benefits have changed significantly since the 1970s, when a company pension was the reward for many years of employment. Today with 401k plans, SEP plans, and a variety of “portable pensions,” individuals are really responsible for their own retirement fund. Ongoing questions about the long-term viability of social security have many worried. Through the tax code, the government is offering larger tax benefits for saving for retirement. As baby boomers begin to retire from full-time employment, there is an opportunity for companies to have new part-time resources available. With the shortage of skilled labor, this change is already beginning to happen.
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