Compensation Effect on
Employees Satisfaction

The compensation effect on employees satisfaction determines the extent that your organization can accomplish its corporate targets including those financial in nature.

An effective compensation system will lead to higher employee satisfaction which, in turn, results in greater employee motivation.

It is in the interest of the organization if every executive know the strategies to make the compensation system effective to ensure that employees are more motivated and more engaged in their jobs.

As a manager, you know that compensation consists of cash and non-cash compensation. Some refer to non-cash compensation as benefits. These can include medical expenses, insurance coverage, air tickets, vacation leave, and so on.

The cash compensation consists of items such as salary, wages, allowances and bonus, contractual or based on performance.

Paying employees salaries that they perceive as fair can make them more satisfied and motivated. This is a demonstration of the compensation effect on employees performance. Maslow had put this lower in his hierarchy of needs.

Failure to connect what you pay to employees prevents them from clearly seeing the connection between what they do and how much they are paid.

Tara Duggan of Demand Media stated that balancing pay with other programs would result in "improved morale, reduced absenteeism, fewer conflicts on the job and increased productivity".

Compensation effect on employees'  motivation has its limit

There is a limit to the effects of monetary rewards on motivation.

It has been found that an increase in salary is at the top of what motivates employees, However, pay can only motivate people for a certain period of time. It is argued that this is usually up to the time when they expect to get the next pay increase. This is the anniversary date of their joining the organization or their promotion.

Further, high pay does not necessarily make employees more motivated.

Under Maslow's Hierarchy of Needs Theory, money is not found at the highest level of needs. According to Herzberg, money, that is, salary, is a "hygiene factor."

In order to at least maintain the satisfaction and motivation of people to an acceptable level, regular pay increases are necessary. But there are times when you cannot do this. This depends very much on the ability to pay and whether the employee merits any pay increase.

Use other ways to motivate employees
What happens when you do not have the additional money to pay higher salaries? What other ways can you use to ensure that your employees remained satisfied and, thus, motivated?

One way is to offer your employees the best combination of benefits. Ensure that their retirement benefits are intact. Surveys found that one of the effects of this approach is higher employee satisfaction.

Some organizations are already offering what they call 'cafeteria benefits where employees have the option to choose the benefits that they prefer. Click HERE for more info on benefits

Using cafeteria benefits approach may reduce staff complaints on benefits offered. But some argue that this method is not without problems. If things do not work well with respect to the benefits they have chosen, employees may still blame management.

Determinants of employee satisfaction
Compensation is an important determinant of employees' satisfaction. Employees who have job satisfaction more often than not have the motivation to perform their jobs well. Well, short of being perceived as manipulating people.

Make plan to ensure organization's compensation effect on employee satisfaction is continuous in nature. Make this as one of your HR goals.

The importance of compensation is fairly clear from the results of research conducted by SHRM, released in 2014, whereby sixty percent of respondent employees rated compensation as "very important". A big number considered that pay is "important."

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