The influence of compensation and benefits on organization efficiency

Compensation is a process of providing monetary value to employees for the work they
performed. Compensation can be used to hire skilled employees, reward the performance,
encourage company loyalty by reduce turnover. Compensation may include Basic Pay, Overtime,
Bonuses, Travel/Accommodation Allowance, Stock Options, Medical Allowance, Commissions,
and Profit Sharing.

MOTIVATION

-Compensation often impacts an employees motivation and job satisfaction, although it is not
the only factor. According to an article written by Mae Lon Ding of Personnel Systems
Associates, compensation systems positively impact a large percentage of workers'
performances. Many employees feel motivated to help their companies succeed if the employer
shares its profits with employees, such as with bonuses or profit-sharing plans. The greatest
impact of money on productivity and performance is in jobs where performance is directly
related to compensation. For example, the knowledge of receiving a bonus after achieving a
certain sales quota will likely motivate a salesperson to increase productivity.
-Research result of by Ghazanfar et al. (2011) showed that satisfaction with compensation has
strong and significant effect on work motivation. Flexible pay (incentives, overtime, bonuses)
and benefits has positive effect but insignificant on workers motivation. Research by Vecchio et
al. (2010) found that pay variable significantly affects on motivation instrinsic of salesperson in
California. Khan and Mufti (2012) show relationship between Effort, Performance and
Motivation is very weak, negative and insignificant. Relationship between Performance Outcome
and Motivation is in significant. Relationship between Outcome Valence (fixed pay, flexible pay,
benefits) and Motivation is a powerful, positive and significant. Igalens and Rousell (1999)
examine relationship between work motivation and compensation for working comfort. Results
show: 1) under uncertainty conditions, individual compensation can become a factor to increases
work motivation. 2) Flexible pay of specific workers can not motivate and increase job
satisfaction. 3) Benefits from specific workers can not motivate and increase job satisfaction.

MAKE THE HEALTH OF THE EMPLOYEE ALSO GOOD

- In a similar study, [8] found that the existence of a good compensation of

employees will make the health of employees also good. With the
maintenance of health, the employee will get maximum performance opportunities.
The number of working hours or employee present hours is able to obtain a
maximum work performance. As a result, the planning process can be obtained with
good production. They also noted that low compensation toward employees will
trigger the employee to try to get their own business or side job. With the side
business, it will disrupt the quality of employees' work and concentration. Low
concentrations of certain employees have a negative impact on quality and quality
of production of goods in the company. From these facts, it is clear that the
influence of compensation on employee productivity is very strong. If it given more
reasonable compensation to employees, the higher the productivity of employees.
Conversely, if it given lower compensation for employees, the lower the productivity
of the employee [7].

RETENTATION

-Retaining productive employees is critical to running a successful business. Retaining employees saves
companies money in training costs and helps maintain an efficient and knowledgeable workforce. Health
insurance and retirement packages are benefits that many employees desire from their employers.
Companies that offer these benefits have a much better chance of retaining workers than businesses that
fail to offer benefit packages. Other ways to retain employees is through regular promotions, which not
only provide an employee with a higher base salary, but also the ability to take on more responsibility in
the workplace.

- A recent study conducted by Hay points out that 20% employees plan to switch
their current positions in at least five years. Employee retention turnover has
become a more prominent aspect of organizational life. The implementation of
retention compensation strategies has seen significant growth over the last several
years. A study conducted by Frye (2004) show positive relationship between
compensation and organization performance. Frye (2004) reported that
compensation strategies play an important role in recruiting and retaining skilled
employees. Most of the firms used Performance-based compensation to reward
employees (Collins and Clark, 2003). Performance-based compensation positively
influences employees performance (Brown et al., 2003). A research study by
Huselid (1995) showed a significant relationship between compensations and
employee performance. An effective HRM strategy is to integrate performance and
compensation system that enhance employees will to work effectively and
efficiently (Wright, 2003). Teseema and Soeters (2006) indicate a significant
correlation between compensation and employees performance. It is important that
employer view compensation practices in a favorable light as compensation
practices heavily influence employee recruitment, turnover and productivity.
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