Introduction
A compensation system refers to a systematic method employed to provide the workforce with rewards in exchange for work done. It plays a significant role of assisting an organization in motivating, attracting, and retaining the greatest talents. When establishing compensation systems for firms, management must factor in various elements. A critical step is deciding on a compensation system that aligns with employees’ behavior towards work, nature of work done and the size of the company. That way, a better payment system can be decided on. The paper is a case study to find out the best compensation system that can be utilized by Lite Safe compensation manager to ensure workers improve productivity. ABT consultant will review the case study to find out possible causes of employees’ unproductivity at Lite Safe. Then, upon consideration of certain factors that influence the choice of compensation system, such as managers’ span of control, the best compensation system will be chosen.
Case Study
The current payment system used by the company is time-based. The time-based payment system is based on a period of work and takes no account of individual performance (Adeoye and omosanya, 2018). The approach can be concluded to have failed due to the uncourteous nature of employees and their lack of morale, leading to slow work. There are various approaches to compensation systems; however, the new economics of personnel (NEP) has drawn substantial interest across Europe and UK (Femie and Metcalf, 1998). Based on a cost-benefit model, NEP payment choice is opposed to the traditional approach to individual issues because there are no absolute principles governing personal practices and policies (Femie and Metcalf, 1998). It states that monitoring efforts may be strenuous and result in performance-related pay if a technical change is skilled-biased.
In line with NEP, various factors play a part in the payment system that a firm decides to use. Primarily, it is the manager’s span of control; through informal supervision techniques, managers get to know their employees’ behaviors and motivation levels
(Mishra, et al.,2021). Therefore, managers can conduct close supervision and acquire needed information to evaluate the behaviors of their workforces when the span of control is low. One way to acquire detailed information concerning what workers are doing is through a low span of control(Femie and Metcalf, 1998). After making the observation, the corporation can utilize time-based pay since employees’ behavior is well known, and no point in evaluating their performance since they are guaranteed to deliver.
Another factor NEP projected is the organization’s size and place of work. Monitoring employees’ efforts easily is a challenge to larger companies, and thus they use formal incentive schemes. Due to the hierarchical nature of larger firms, fixed-cost incentive systems can be easily spread over a large workforce(Suff et al., 2007). If intensive effort supervision and behavior can be managed, as in the case of a smaller corporation, then time rates are suitable.
Similarly, the technology of production impacts the choice of system of payments through features such as nature of the job, individual or team production, technical change, and work intensity. Repetitive works allow wider use of performance-related pay in contrast to those with a broad range of activities that utilize basic pay. PRP can be employed where the actual performance of an individual is assessed (Suff et al., 2007). Similarly, if it is anticipated that the introduction of performance pay will boost workers’ morale, pay incentives are considered.
The firm’s main concerns are the workers’ discourteous nature and inability to deliver on time. It should consider using performance-related pay for the following reasons. First, the output measurement cost can be measured; to measure the workers’ speed, the number of broken auto glass replaced will be considered. To measure courteousness, several customer complaints are reviewed. A second factor is the cost of monitoring effort; they are many workers, and it could be challenging to measure input. Thirdly, since it is a large organization, monitoring may be difficult. Therefore, performance-based pay is the best method the corporation should utilize if it plans to boost workers’ morale. The employees should also be encouraged to be individual (Intrinsic) motivated.
Performance-Related Pay (PRP) and Productivity
Several firms across the US and UK provide compensation packages associated with performance to motivate the workforce and increase their work performance. Performance pay is awarded based on judgment concerning a staff member’s performance through appraisal systems (Marsden and Richardson, 1994). The impact of PRP on employee productivity is associated with design, type of scheme, and individual motivation, which is of the most impact (Lucifora, 2022). Performance and motivation deal with employees’ behavior making motivation a critical aspect of performance. In compensation system evaluation, workers’ performance must be appropriately evaluated by establishing the management objectives.
Employee Motivation Theories Supporting PRP
Motivation is positive state of emotion that results from appraisal of employees’ job skills and experiences.Two aspects are drawn; the emotional attatchment workforce have to their work and employer’s deliberate review of employees’ work (Shkoler and Kimura,2020). In line with Pancasila et al.,(2020), a workforce that feel motivated have a sense of work contentment and will be dedicated to work which will eventually result in improving work productivity. Therefore motivation becomes a critical factor that must be sustained by an organization that wants to thrive.
Many employee motivation theories support performance-related pay. For instance, Vroom’s expectancy theory, among the prominent theories of motivation, states that individuals are more likely to make decisions they perceive will bring the best individual gain (Lokman et al.,2022). It is based on three variables; Expectancy, instrumentality, and valence (Lloyd and Mertens, 2018). The emotional orientation individuals hold concerning results (rewards) is valence. The workforce’s depth wants extrinsic rewards such as promotion, money, benefits, and time-offs. A company manager must find out what the workforce value.
Regarding expectancy, workers have various confidence levels and expectations concerning what they can do. Management must find out the kind of resources, training, and supervision needed by the workforce (Pancasila et al.,2020). Instrumentality is employees’ perception as to whether they will get desired things, even if it is those promised by the manager. Worker’s efforts must translate into better performances as measured by the performance appraisal, management needs to reward performance, and employees must value rewards (Lokman et al.,2022). Workforce beliefs related to Instrumentality, Valence, and Expectancy interrelate psychologically in creating a motivational force such that the workforce behaves in a manner causing pleasure and avoids pain.
Principal –Agent theory is another theory of motivation that focuses on payment by which the firm motivates employees to behave in a manner that interests the organization. The firm consistently provides a reward to its workers, which aligns with their interests (Bernhold Nd Wiesweg, 2021). For example, the compensation manager at Lite Safe should align the company’s PRP with workforce beliefs related to expectancy, valence, and instrumentality. It will boost their workers’ motivation so they can deliver on time and be courteous to their clients(Bernhold Nd Wiesweg, 2021). The two theories of motivation support the need for Lite safe Compensation managers to adopt PRP to improve performance.
Limitations of PRP
It is worth noting that having highly motivated employees does not necessarily translate to improved performance. The highest motivation level does not lead to the greatest performance, more so when the nature of the task is hard (Tudor and Petre, 2021). Lite-safe workers can be motivated but still fail to perform. This is due to a variety of factors which include; poor management, inadequate training, and inadequate equipment, to mention a few (Marsden et al., 2006). The workers may be motivated, but poor management issues like unclear set goals, unresolved workplace conflicts, absence of stimulating activities, and lack of employees being included and connected to the firm’s goals could still result in low productivity of employees.
Additionally, when performance-related pay is introduced as a part of other changes in management practice without a critical re-organization of work processes and tasks, it becomes complicated to identify the impacts of performance-related incentives on labor productivity. Notably, this is evident when compared to other workplace innovations involving new work practices of an organization, such as teamwork and workforce involvement committees. Similarly, introducing monetary rewards can negatively impact a worker’s intrinsic motivation(Suff et al., 2007). Even though performance-related pay is linked to high performance, the design and type of the incentive scheme should be considered, including the type of organization adopting that kind of scheme, without which it will be an ineffective method.
Conclusion
From the discussion, the appropriate compensation package that the compensation manager at Lite Safe should use is performance-related pay for increased workers’ motivation and enhanced productivity. This has been based on several factors; first, the output measurement cost can be measured. A second factor is the cost of monitoring effort; they are many workers, and it could be challenging to measure input. Thirdly, since it is a large organization, monitoring may be complex, and lastly, the nature of the work (replacing broken auto glasses) is repetitive, allowing broader use of PRP. The employees should also be encouraged to be individually (Intrinsic) motivated. This can be attributed to the fact that extrinsic motivation factors may fail due to poor management and inadequate training to cope with the changes.
Reference List
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