The Strategic Use of Compensation and Benefits in the Workplace, Essay Example

The implementation of compensation and benefits programs in the workplace is important due to the implications that such programs can have on employee incentive, performance, and satisfaction.  These factors present the basic criteria that employers must account for in the development of polices related to benefits programs.  These programs, and the strategies used by employers in order to implement them, present a source of debate in regards to how they should be developed.  The concern that many employers have is in regards to the costs, challenges, and consequences of implementing these programs.  The effects that are the result of these underlying factors can have important implications for the overall productivity and loyalty of the company’s workforce.  This can, in turn, have an impact on the ability of a company to profit or to maintain an effective workforce.    For this reason, it is important to analyze the various ways in which these programs are understood.

In “The Reward Strategy and Performance Measurement (Evidence from Malaysian Insurance Companies)” by Ong Tze San and Yip Mei Theen, the authors present an analysis of the implications of implementing policies geared towards rewards based systems in the workplace.  The paper “The Impact of Positive Reinforcement on Employees’ Performance in Organizations” by Leong Teen Wei and Rashad Yazdanifard, on the other hand, demonstrates the results of utilizing policies that are based in positive reinforcement in order to incentivize employees.  The essay “5 High-Level Issues to Consider in Shaping Your Organization’s Employee Benefit Offerings” by Michelle Capezza discusses the most important issues that face employers who are developing employee benefits programs.  Finally, “The Psychological Costs Of Pay-Per-Performance: Implications for the Strategic Compensation of Employees” by Ian Larkin, et al. argues that the use of strategic management techniques in regards to employee compensation is an essential source of motivation and attraction for a company and its ability to fill positions with high quality workers.

The article by San and Theen demonstrates the importance of implementing rewards in order to increase the employee productivity and satisfaction.  This can help to effectively provide the employees with the incentive necessary to maximize their potentials.  According to the authors, “Rewards is one of the important elements to motivate employees for contributing their best effort” (211).  By providing these type of incentives, employees can not only present their workers with the ability to earn more money, but they can also help them by implementing effective strategies to develop their desire to do well.  This is further demonstrated in the understanding that the output of work that people at a business are willing to do directly reflects the rewards or incentives that are presented to them.  The authors indicate that “people do not automatically come to work, continue to work, or work hard for an organization” (211).  For this reason, it is important to develop strategies that provide workers with these opportunities.

Another important reason to implement benefits in the workplace is the establishment of principles that can help the employees to focus their efforts towards a particular goal or outcome.  The paper argues that “a reward strategy can point out the significant areas of an organization, and guiding its future orientation” (212).  For this reason, implementing strategies that help to provide workers with ways of determing the overall benefits of performance can further help to boost their incentives.  Total rewards are essentially “everything that the employee perceives to be of value in their employment relationship” (212).  The authors demonstrate the importance of presenting strategies that provide employees with the capability to put forth an extra level of effort in order to obtain some benefit.

This can, furthermore, help employers in developing effective strategies for the future implementation of policies.  The essay indicates that employees who work in organizations that have implemented these strategies can “have clear understanding about the connections between their efforts, productivity, and performance results, and between company results and their reward opportunities” (212).  This practice, therefore, allows for an accurate measurement of an employee’s overall performance.  Performance measurement allows a company to “evaluate the results of resources utilization, as well as improvement in the organization performance” (213).  In implementing benefits programs, companies can also benefit through the analysis of the data they receive.  This can help the company obtain a more efficient advantage in regards to the implementation of these strategies.

These incentives provide the opportunity for employers to enhance the overall performance of their employees. Reward incentives, therefore, allow companies to “enhance motivation, commitment, increase job engagement and develop discretionary behavior” in their employees (213).  This indicates another important motive in regards to the needs of the employers in providing benefits to their employees.  The study determines that “The reward is most likely to boost the effort and consistency in an agent’s performance, but not the direction as this typically guided by the superior or the ultimate company or the decision maker” (218).  While a rewards program can help to increase productivity in the short term they are ineffective in providing employees with any incentives towards loyalty. This is an important limitation in regards to the implementation of benefits programs.

The arguments that were developed by Wei focus on the need to utilize positive reinforcement policies in order to effect behavior.  Wei argues that the “application of reinforcement theory” can help to enhance employee performance in a company (9). This theory, developed by B.F. Skinner, presents the idea that a reinforcing stimulus can establish specific behaviors within humans. While negative stimulus can prevent a specific action, a positive stimulus will promote that action. The use of positive reinforcement techniques can, therefore, “elicit and to strengthen new behaviors by adding rewards and incentives instead of eliminating benefits” (9).  These stimuli can help to develop an atmosphere in which employers develop positive and healthy attitudes for their employees. The use of positive reinforcement strategies can, therefore, help companies to successfully implement benefits programs in alternative ways.

Wei demonstrates the difference between internal and external rewards. The paper argues that an intrinsic reward can be “something intangible such as praise and acknowledgement” while an extrinsic reward might represent something like “salary, promotion, freedom in office and job security” (9). These methods can be used in order to promote a specific desired behavior in employees. By providing incentives for positive behavior, employees can develop specific desired behaviors in their employees. Punishment, on the other hand, according to the authors, can be used to do things like “remove unwanted or undesired actions [or] decrease the intensity of behaviors” (10).  Punishments can, therefore, be applied in order to limit undesired behaviors in employees.  By utilizing these methods, Wei argues that the behaviors of employees can be effected in specific ways.

For this reason, it is important to implement practices that promote the desired behaviors through positive reinforcement strategies.  The paper presents evidence to suggest that “positive reinforcement, both intrinsically and extrinsically is positively linked with the performance of employees” (10).  By providing these types of benefits, employees can be made to not only work harder, but can also become more loyal in the long term.  It, therefore, seems evident that methods that “incorporate salary, performance-based incentives and fringe benefits” work to encourage employees to do their best to ensure the success of the companies that they work for (10).  By providing incentives for employees to work harder, these practices can help to develop desired behaviors in employees.  For this reason, it is important to understand which policies effect which specific behaviors.

The underlying issue in understanding these correlations is in the application of techniques that can promote lasting results.  One issue that the authors bring up is that monetary based incentives only really encourage “short term positive behavior” (10).  These incentives might provide the necessary incentive for employees to do their job somewhat faster or to show up on time, but are ineffective in establishing loyalty.  For this reason, it is important to present other modes of reinforcement in order to “sustain a long term positive performance in organizations” (10).  This presents the need to implement strategies that are based in coherent analysis of these underlying factors.  For this reason, the study ultimately comes to the conclusion that “the combination of positive reinforcement and negative reinforcement is most effective in modifying behaviors” (11).  This allows employers to implement strategies that can best meet their expectations.

The paper by Capezza demonstrates underlying concerns in regards to the development of benefits programs.  Capezza makes the argument that providing benefits to employees that will meet their personal expectations “will become increasingly more challenging” (1). This is due to drastic changes that have been occurring in the workplace, due to factors such as increased competition for competent workers, increases in mobility, and the range of differing perspectives resulting from the rapid diversification of the workforce.  Capezza further indicates that, along with these changes, the traditional system of benefits being provided by employers has “greatly evolved” (1).  These changes have been primarily due to the establishment of various laws that effect the implementation of these programs.

Laws affecting retirement and contribution plans as well as specific privacy, security, and health rights, however, have made it more difficult for employers to provide these incentives.  Due to these developments, it seems that “employers will continue to face incredible challenges to maintain their benefits and compensation programs” (2). These challenges present difficulties in regards to the implementation of benefits programs.  The availability of sources for benefits programs are directly determined by the application of these legal incentives. Being able to provide these benefits, however, helps companies to “allow employees to focus on the business at hand and ease their concerns regarding their retirement, health, and welfare” (2). This, in turn, helps companies to maintain satisfaction and retention among their workforce.  Employers will also benefit from their workers having more of a focus on the job.

Capezza demonstrates the importance of developing programs that can meet the demands of five important issues that face employers. One of the major issues facing employers and their ability to provide these benefits is what the author terms a “retirement crisis” (2).  This crisis is the result of the fact that many who are now reaching retirement age have not saved enough money in order to do so.  For this reason, employers that provide competitive retirement plans will be better equipped to “attract and retain the important human capital needed for an organization to grow and thrive” (2).  The development of these types of programs creates incentive for employees to remain at a specific job.  This can, in the long run, help the overall stability of the company in providing these benefits to their employees.  It can also help companies develop more a more professional staff.

Another important issue that presents a challenge to employers is the health of their workers.   Capezza argues that the implementation of wellness programs by employers can help to “save health plan costs, improve health, and reduce absenteeism” (4).  The implementation of these types of programs is important in regards to the needs of the employees themselves.  It can essentially present them with the opportunity to develop a sense of stability in their own lives.  Furthermore, the idea of a “participatory wellness program” (4) allows employees to receive benefits for taking part in healthy activities such as exercising, the cessation of smoking or drinking, and seminars related to health risk education (5).  This not only develops healthy lifestyles for employees but also decreases the cost of insurance and other forms of benefits programs.  These incentives can help to promote loyalty by providing employees with these basic necessities.

The issue of the increasingly diverse working population in regards to age is also important.  The use of programs that are able to “appeal to a multigenerational workplace” (6) is also an important consideration. In this sense, it is important to account for the growing number of generations that are working with one another in the modern world. While older generations might enjoy having the independence of being able to choose between various benefits programs, newer ones have been shown to desire programs that provide “security and less decision-making on their part” (6).  This demonstrates the need to account for the increasingly disparate ideas regarding what benefits should entail among the working population.  Companies must, therefore, provide for the “different expectations of their multigenerational workers, as well as the impact that they will have on the attractiveness of an employee benefits program” (6).  This demonstrates the importance of tailoring programs to the specific needs of those they are intended for.

Another important issue that the article discusses is that employers seek to “increase the amount of managerial and administrative tasks that are outsourced” (7).  Employers essentially hire a third-party agency to take care of any benefits programs that they need.  This is due to the desire of employers to focus more on their own businesses than being concerned about the implementation of benefits programs (7).  Through the implementation of effective strategies, however, employers can attain better insight in regards to the implementation of these policies.  For this reason, it is important for companies to “evaluate new technologies that emerge” such as software tools, cloud-based storage capabilities, and data collection (8).  These tools are an effective means of developing better benefits packages.  This can help to provide important insight into the needs of their employees.

Finally, the article indicates that the issue of providing employees with benefits should be more of a priority for companies.  Rather than making benefits a secondary consideration, they should be presented as a vital aspect of the employment process.  “Thorough due diligence of employee benefits programs and compensation issues early in a transaction is necessary so that potential liabilities and pitfalls can be identified and dealt with” (8).  In understanding these issues early on, various costs and other negative consequences can be avoided altogether.  This can help companies to avoid not only inefficient or unnecessary programs, but also any issues involving the employees not fully understanding the various aspects of their benefits programs.  In ensuring that these programs are understood at the start of the employment process, the options that employees have can be better understood, avoiding complication.

The paper by Larkin et al demonstrates the importance of implementing strategies that account for the various social, personal, and psychological aspects of the employees experience at the company. This presents the importance of implementing benefits packages in regards to the overall dynamics of the company. Larkin, et al argues that “Compensation is a critical component of organizational strategy” (1194).  The way that compensation packages are derived are, therefore, of fundamental importance as well.  These packages essentially determine the underlying capabilities of the program to deal with the specific needs of the employee.  For this reason, the paper analyzes the “effectiveness of different compensation regimes” (1196).  These different strategies present important implications in regards to the outcome of the programs.  The various regimes can, therefore, differ on various points including efficiency, costs, and overall strategy.

The argument presented by Larkin et al is that firms will often utilize the most efficient or effective means of providing benefits to their employees.  The authors argue that, even though companies might, in some cases, deviate from the most efficient systems, “in general the prevalence of systems and decisions is highly correlated with efficiency and effectiveness” (1196).  It is, therefore, important to understand that “firms will use the compensation program that maximizes profits based on its unique costs and benefits” (1197).  In doing so, companies can better prepare themselves for the future development and implementation of their programs.  For this reason, it is important to account for the specific context of the company, its goals, and the resources that it has available in developing effective strategies for implementing benefits programs.

Despite the fact that the simplest way to provide benefits programs to employees is through “base pay on some observed output of the worker” this is not necessarily the most effective method.  For this reason, the article indicates that “firms can also base pay on subjective measures not tied to observed output” (1198).  This can help them to develop more efficient and effective means of providing compensation to employees.  For this reason, the authors indicate that issues such as employee confidence, social identity, and individual psychological factors should be taken into account.  This is important due to the fact that, although they can often cost more money to implement, these programs “present clear psychological benefits” (1203).  These benefits can help to boost performance through developing confidence and increasing social roles.

For this reason, the authors indicate that it is important to develop strategies that maximize the focus on these aspects of the working environment.  Implementing these types of strategies “removes discrepancies in income among immediate coworkers that might be perceived as sources for inequity or unfairness” (1204).  By doing so, a more cohesive workforce can be established through the effective application of benefits programs that are focused on these particular issues.  This will help the companies to not only maximize the effectiveness of their working population, but can also help them to develop a more personal company environment as well.  The article concludes that “Organizations use different compensation strategies and have discriminatory power in choosing their reward and pay policies” (1210).  This is an important consideration in regards to how exactly these programs should be implemented by employers.

There are various factors involved in the strategic use of compensation and benefits in the workplace.  These factors include the establishment of methods to deal with diversity in the workplace, the creation of programs that are geared towards the specific circumstances of the employees, and the establishment of protocols that allow for the development and implementation of new and more effective strategies in the future.  These strategies must correspond to the underlying needs of the company itself due to the particular context of their business model.  In prioritizing the challenges that are faced by employees in their everyday lives, employers can help to more effectively develop programs that can help to establish policies that can provide the best opportunities for their workers.  In this way, companies can not only provide for the future of their employees, but can also work to develop effective strategies that help their own business to be more efficient and useful.

References

Capezza, M. (2014). 5 High-Level Issues to Consider in Shaping Your Organization’s Employee Benefit Offerings. Labor and Employment: Epstein, Becker, Green. 1-10.

Larkin, I. Pierce, L. & Gino, F. (2012). The Psychological Costs of Pay-Per-Performance: Implications For the Strategic Compensation of Employees. Strategic Management Journal, 33, 1194–1214.

San, O.T. & Theme, Y.M. (2012). The Reward Strategy and Performance Measurement (Evidence from Malaysian Insurance Companies). International Journal of Business, Humanities and Technology Vol. 2 No. 1. 211-223.

Wei, L.T. & Yazdanifard, R. (2014). The impact of Positive Reinforcement on Employees’ Performance in Organizations. American Journal of Industrial and Business Management, 4, 9-12.