Why Employees Should Be Compensated for Good Work

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Table of Contents

Introduction
Effectiveness of Monetary Rewards
Conclusion
Reference List

Introduction

There is extensive research on the impact of effective compensation strategies on employees’ motivation and performance. Researchers have considered a variety of options including monetary compensation as well as non-material awards. It has been acknowledged that rewarding employees for good work has a positive effect on their performance as well as performance of the entire company.

Those who have been compensated for their work are more motivated and are ready to work harder and achieve goals in a more effective way. However, companies seem to ignore such findings and tend to pay only fixed salaries without taking into account employees’ performance, commitment and effort.

This is especially true during financial constraints and the period of recession. Nonetheless, employees should be compensated for good work as this makes them more motivated to perform better, which, in its turn, contributes to the overall performance of the company.

Effectiveness of Monetary Rewards

Arguments of the Supporters of the Statement

As has been mentioned above, data of numerous researches suggest that monetary reward plays an important role in development of employees’ motivation. Rynes, Gerhart and Minette (2004) stress that monetary compensation play central role in employees’ development. The researchers point out a number of reasons for the core role of payment.

Hence, the researchers refer to Maslow’s ‘low-order’ needs and emphasize that obtaining extra payment enables employees to buy various things they need (e.g. food, devices, vehicles, etc.) (Rynes, Gerhart & Minette, 2004).

Clearly, salary is one of the major points employees take into account when applying for a job. Therefore, it is but natural that extra money they can get is a potent tool to make employees motivated and committed.

Apart from this, employees tend to see monetary compensation as certain appreciation of their effort and performance. Employees understand that executives see and appreciate their extra effort and show that this is the way to move forward (Rynes, Gerhart & Minette, 2004).

There is certain degree of satisfaction and the feeling of being empowered. Employees also have the feeling of fairness which is also very important for their motivation (Rynes, Gerhart & Minette, 2004). Employees try to perform in the same way (or even better) to maintain the same empowerment.

Furthermore, employees’ compensation becomes a “status- and accomplishment-based” signal (Rynes, Gerhart & Minette, 2004, p. 385). In other words, employees who get compensations feel their status within the company changes for the better. Again, they feel more empowered.

Apart from the status within the company, they can also feel the change of the status in their neighborhood as they can afford some things other neighbors cannot buy. The changed status often contributes to the employee’s motivation as he/she want to achieve even more. Such employees’ performance often increases.

Arguments of the Opponents and Their Weakness

Nonetheless, some people claim that monetary rewards do not pay such an important role in the development of employees’ motivation. Some researchers support this idea to certain extent.

For instance, Idemobi, Onyeizugbe and Akpunonu (2011) implemented a survey of employees’ motivation in the public sector of Nigeria. According to this research, (Idemobi, Onyeizugbe & Akpunonu, 2011) there is no significant correlation between the monetary compensation and employees’ motivation.

Though there were some payments, employees did not reveal better motivation and did not start working better. Nonetheless, the researchers note that the result do not suggest that compensation is ineffective, they stress that the compensation strategies used were ineffective (Idemobi, Onyeizugbe & Akpunonu, 2011). Therefore, monetary compensations are potent tool when used properly.

Remarkably, Arnolds and Venter (2007) note that employees often need different types of compensation. Thus, blue-collar employees tend to value such compensation as paid holidays more than any other form of motivational reward.

At the same time, frontline employees appreciate better retirement plans more (Arnolds and Venter, 2007). Admittedly, it is crucial to take into account these peculiarities of employees’ expectation when developing compensation strategies. This will enable the company motivate the employees to remain committed.

It is necessary to note that companies which do not compensate the employees for their work often under-perform. In the first place, it is important to state that companies often tend to reward executives rather than the rest of the employees (Heisler, 2009). More so, companies often cut compensation payments for employees in the period of financial constraints.

At the same time, executives also get slightly less, but it does not affect their well-being significantly. Heisler (2009) stresses that even though the company saves some money, the employees’ performance decreases. People are reluctant to work harder as they do not feel their work is appreciated and they do not feel empowered.

Edwards (2010) also stresses that compensation is vital for effective performance of any organization. The researcher focuses on public and private sector and claims that employees in the public sector have larger compensations and they are more secured.

For instance, a private sector employee gets $8.02 of benefits (per hour worked) and a public sector employee earns $13.65 (Edwards, 2010, p. 90). Notably, motivation of employees working in the public sector is often higher due to the benefits they can get.

Non-Material Awards

However, it is also important to note that non-material reward is also possible, though it should be used carefully. It is necessary to remember that it should be complimentary. Frey (2007) claims that non-material rewards are very effective.

The researcher provides a number of examples of the use of such tools. Some types of non-material rewards can be a variety of awards, empowerment and promotion (Frey, 2007). Thus, awards make employees feel their effort has paid off. Employees can also feel more empowered as their status within the company has changed.

Empowerment can become an effective type of non-material reward. Employees can be appointed to certain leading roles in some projects. This empowerment makes employees more confident. Again, the employee sees that his/her effort has been appreciated (Frey, 2007). Clearly, employees are committed to work hard and prove they are worth their reward. This often motivates other employees to be rewarded in the same way.

As far as promotion is concerned, it is often associated with the raise of the salary. However, sometimes promotion can be implemented without salary increase (Frey, 2007).

The salary increase can occur a month (or several months) after the promotion. Nonetheless, the employee who gets promotion becomes more confident and is eager to work hard as he/she is motivated to reveal his/her potential. Such employees are often motivated by the potential increase of the salary.

At this point, it is necessary to emphasize that sometimes employees are reluctant to work harder when they get non-material compensation only. Khan and Mufti (2012) provide particular examples to prove that material compensation has a more significant impact on employees’ performance.

The researchers note that employees do not make extra effort when they get non-material compensation only (Khan & Mufti, 2012). More so, people are reluctant to go the extra mile when executives only promise to raise the salary or provide some monetary compensation. Employees are motivated to work when they get extra payments.

Admittedly, it is important to note that the research has certain limitations as it focuses on a particular region (i.e. Pakistan). Moreover, the region is characterized by severe financial constraints and people need money more than any award. However, this particular research suggests that people in many regions can act in the same way under certain circumstances.

Conclusion

To sum up, the effectiveness of monetary compensation has been proved by the extensive research. Notably, though there are different types of compensation of employees’ work, material compensation has a larger impact on employees. Employees often become motivated by non-material rewards, but the effect of such type of motivation is short-lived.

Employees who get monetary compensations feel their work has been appreciated and valued. These workers feel more confident and empowered. Their eagerness to work harder can also be explained by the change of their status within the company and in their neighborhood.

However, it is important remember that compensation strategies need thorough consideration as different employees strive for different types of compensation. Thus, executives should understand the importance of using appropriate monetary compensation strategies to ensure effective performance of employees as well as the entire company.

Reference List

Arnolds, C.A., & Venter, D.J.L. (2007). The strategic importance of motivational rewards for lower-level employees in the manufacturing and retailing industries. SA Journal of Industrial Psychology, 33(3), 15-23.

Edwards, C. (2010). Public sector unions and the rising costs of employee compensation. Cato Journal, 30(1), 87-115.

Frey, B.S. (2007). Awards as compensation. European Management Review, 4, 6-14.

Heisler, W.J. (2009). The economic crisis, employees, and executives: Who wins? Who loses? The Open Ethics Journal, 3, 71-75.

Idemobi, E., Onyeizugbe, C.U., & Akpunonu, E.O. (2011). Compensation management as tool for improving organizational performance in the public sectors: A study of the civil service of Anambra state of Nigeria. Sacha Journal of Policy and Strategic Studies, 1(1), 109-120.

Khan, W., & Mufti, O. (2012). Effect of compensation on motivating employees in public and private banks of Peshawar (BOK and UBL). Journal of Basic and Applied Scientific Research, 2(5), 4616-4623.

Rynes, S.L., Gerhart, B., Minette, K.A. (2004). The importance of pay in employee motivation: Discrepancies between what people say and what they do. Human Resource Management, 43(4), 381-394.

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