Determinate factors in compensation system development Essay Example

factors to consider in an international compensation system, such as the cost of living, knowledge of foreign laws and customs, exchange rates, inflation's impact on compensation, housing costs, family benefits, children's education expenses,resettlement allowances,income taxes,social services readjustment to home base,and variations in payment methods. It emphasizes the importance of providing expatriates with a disposable income equivalent to what they would earn at home based on management guidelines. To account for price differences, allowances may be given for housing, food, and other consumer goods. Furthermore, attractive incentives can be offered to motivate expatriates to accept international assignments by increasing their base salary or providing a lump sum payment upon completion of the assignment. Additionally, more appealing incentives should be provided for less desirable locations to ensure individuals are willing to undertake foreign assignments. Ultimately, it is crucial that the benefits received by expatriates outweigh any costs or discomfort associated with these assignments.Compensation schemes aim to address competitive pressures, motivate employees beyond minimum standards, and reduce labor costs when feasible. The design of compensation packages that enhance employee value has always been influenced by various theorists such as Maslow, Herzberg, Vroom, Porter and Lawler, and Adams. In his article "A theory of Human Motivation," Maslow presents a hierarchy of needs encompassing physiological, safety, love, respect, and self-actualization categories. These needs progress as individuals develop with the first three being lack needs and the last two being growth needs. However, George and Jones argue that Maslow's Hierarchy can be divided into lower order and higher order sections/clusters with movement between levels only possible once a lower need is fully satisfied. It is important to consider that contextual variables

may cause other needs to become more significant for individuals over time.Herzberg et al. (1967) developed the Hygiene-Motivation theory, also known as the Two Factor theory, based on research conducted in the 1950s with engineers and accountants. According to Herzberg (1968, pg.56), it is incorrect to assume that positive elements in work experiences are simply the opposite of negative elements. For example, a clean kitchen does not guarantee good health; whereas a dirty kitchen may lead to poor health. Job satisfaction is not directly opposed to job dissatisfaction; rather, it is the absence of job dissatisfaction. Similarly, job dissatisfaction is the absence of job satisfaction.

Herzberg categorized factors for job satisfaction and performance into two sets: Hygiene factors and Motivating factors. Inadequate hygiene factors tend to result in employee dissatisfaction, while sufficient motivating factors lead to employee satisfaction. These hygiene factors serve as preventive measures rather than stimulating worker output or productivity. They include company policy and administration, supervision, interpersonal relationships, working conditions, salary, status, and security.

On the other hand, motivating factors are growth-oriented and involve achievement recognition for accomplishment, responsibility in the work itself,and opportunities for growth or advancement.According to Herzberg (1967), among these motivating factors mentioned earlier,the last three specifically play a crucial role in bringing about lasting changes in attitudes.Both Maslow's Hierarchy of Needs and Herzberg's Two Factor Theory are effective in understanding employee motivation. Maslow differentiates between lower and higher demands, while Herzberg categorizes them as hygiene factors and motive factors. Other theories on motivation, such as equity, comparison, and the factors contributing to compensation system goals, present challenges in establishing fair wages and motivation strategies. Vroom's anticipation theory considers valency, instrumentality,

and anticipation to highlight the relationship between rewards and behavior. These motivational factors impact compensation systems. Adam's equity theory prioritizes fairness in employee compensation structures. Employee perception of how they are treated by their organization is crucial because perceived unfairness can lead to decreased productivity, increased absenteeism, and higher turnover rates. Porter and Lawler build upon Vroom's anticipation theory and Adam's equity theory by referring to them as process theories of motivation. These theories revolve around the connection between effort, performance, and rewards for individuals - serving as a foundation for most reward systems. When designing a compensation system, it is important to incorporate both rewards and consequences based on predetermined performance standardsEncouraging employees to increase their efforts can be accomplished by offering opportunities for promotion and future salary increases. This helps foster commitment and loyalty towards the organization. However, it is important to note that some rewards or salary increases may be given without evaluating the employee's work, such as promotions solely based on age or experience. It is crucial to ensure these rewards are not excessive as they can lead to complacency and a lack of motivation. The system should clearly differentiate between high performers and low performers, while also incorporating challenging elements to drive employees towards exceptional outcomes.

For organizations to thrive in a fiercely competitive market, they must strive for a competitive advantage. This text highlights the significance of tangible and intangible assets in attaining this advantage. While technology serves as a tangible asset that can provide an edge, intangible assets like organizational reputation also make significant contributions. Becoming an "Employer of Choice" plays an essential role in achieving this goal since

it relies on having a motivated workforce that positively impacts productivity and reputation. To accomplish this, two factors need consideration: increasing organizational productivity and enhancing employee satisfaction.Figure 3 illustrates this concept visually.
Motivation, as highlighted by Halepota (2005), is a significant factor that impacts productivity. Higher motivation levels lead to increased productivity. In the construction industry, Hassan believes that Herzberg's theory incorporates both Maslow's hierarchy of needs and anticipation theory, which are relevant in enhancing individual employees' productivity.

Management plays a crucial role in fostering employee satisfaction and confidence, thus influencing overall productivity. Satisfied employees are more likely to produce high-quality output, resulting in increased productivity. Therefore, there is a close connection between employee satisfaction and organizational productivity.

Several factors contribute to this link such as external compensation, pay structure, individual motivations, strategic alignment, and various considerations. Many organizations believe that implementing incentive programs and offering higher wages are sufficient for motivating employees and improving their satisfaction. Consequently, companies must decide whether to base their compensation system on internal factors like the company's budget or external factors like market trends.

The design of a compensation system should align with the company's overall strategic goals and cultural values while being integrated with other human resource management policies. It is important to note that different employees have unique motivations regarding compensation; some may be motivated by recognition and money while others prefer intellectual or vocational challenges.When designing a compensation system, operations managers need to consider various factors such as internal and external compensation, pay structure, individual motivations, strategic alignment, and other considerations. The fairness of the program within the company and its comparison to what other local and global companies are

paying for similar work is determined by external equity. Additionally, the program must consider whether wages will be fixed or variable based on performance and company profits. The standard and rate of variable wage may vary across countries. Compensation can also be linked to employee merit or seniority, job value or individual skills and knowledge. There is an option between providing uniform pay for all employees or implementing different plans. Employees may receive below-market, market-level, or above-market compensation. Lastly, the program should decide whether to motivate employees through monetary rewards like wages and stock options or non-monetary rewards such as engaging work and job security.The primary approach to designing an international reward package is called the 'balance sheet approach'. According to Reynolds (1986), as cited in Dowling and Schuler (1990), the aim of an international compensation system is to equalize the purchasing power of employees at comparable job levels living abroad and in their home country. Additionally, it should provide incentives to compensate for differences between assignment locations.

Multinational corporations (MNCs) should also consider variations in wage systems across different countries. In Europe and North America, salary systems typically depend on the type of work and required skills, sometimes including a merit component. On the other hand, wage levels in Japan are traditionally determined by age, seniority, bonuses for group or company performance.

Furthermore, there are differences in incentive compensation strategies among various countries. These include individual and group bonuses/commissions, profit sharing and stock options, as well as merit-based pay.

It's important for organizations to be aware that certain countries have specific benefits requirements that may not be offered in their home country. For example, employers in France

are legally obligated to provide each employee with 25 days of vacation.Even though an American employee working for an American company in France may not have the legal right to the same vacation time, the company can choose to implement this policy in order to prevent morale issues among expatriates. Giammalvo (2005) suggests that HR departments should establish clear terms and conditions for payment disputes among employees from different countries, which will help reduce conflicts and negative emotions within the team. Conversely, Schmitt & Sadowski (2003) argue that not standardizing wages for international HR managers may result in higher costs and complications. Therefore, global organizations need to carefully consider the complexity of international compensation systems. It is crucial for these organizations to comprehend the various types of employees in international companies and the challenges associated with effectively implementing such systems.