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Compensation Impact on Organizational Effectiveness

Pay satisfaction results in positive work attitude and behavior among employees. This has positive impact on organizational effectiveness and performance.

Maximize the potential of compensation impact on organizational effectiveness by giving fair and just pay.

None can deny the fact that most people seek employment and expect fair compensation for the work they have done.

There are very few people - possibly none - who are willing and readily do work for free. Those involved in charitable activities are possibly the exceptions.

According to Barber and Bretz (2000), "pay is one of the most important job attributes to job seekers."

Employees are interested to know their commencing pay and the pay structure indicating the minimum and maximum pay range. They also want to know the formula for calculating pay increases whether given annually or on the occurrence of certain events such as upon promotion or when additional responsibilities are given. Benefits which are non-cash compensation are also important to employees.

Profit-Oriented Organizations
Maslow's Theory of Needs indicates how compensation impact on organizational effectiveness may apply. Pay allows people to satisfy their needs at the lower levels.

Fairness in compensation systems is important. Employees must not only feel that they are compensated fairly but that they - as well as others - must perceive that the compensation is fair in the circumstances.

Money is one of the things that can motivate workers. However, it has its limit in maintaining employee motivation.

Money - that is, compensation - has different effect on different people. Even if this is so, every employee will perform the necessary required work for as long as he or she is fairly compensated.

Motivated people perform well. In this way they have impact on the productivity, and thus, profitability, of organizations.

Charitable Organizations
You may want to know the compensation impact on organizational effectiveness in charitable organizations.

You can say that people who involve themselves in charitable works have different motivation in life. They are motivated more by the good resulting from their contribution than by monetary gains. They feel happy that they have participated for the general good and want to continue as long as they possibly can.

Their good feeling and joy in giving help freely is a form of "compensation." These people will feel that they have not used their time, energy and talent in vain.

However, charitable organizations have full-time employees. Surely, pay is an important motivation for them.

Compensation and Job Satisfaction
There are surveys that indicate compensation affects job satisfaction. It has impact on employee attitude and behavior.

Some of the effects of job dissatisfaction are:
1. Work quality is lower
2. Employees tend to be late, and
3. The level of absenteeism and turnover is higher.

These have negative effects on organizational performance. An organization can lose its capability but only to the degree that negative attitude and behavior are shared by the majority of employees. Delivery of products or services of the required quality and number on time will suffer a setback.

Rampant absenteeism and high turnover, for example, can spell disaster for organizations.

You may have noticed that there are other factors involved. Take for example, the real possibility that fairness in compensation is perceived differently by different people. There are also external forces that influence employees' understanding of what constitutes fairness. Employee unions can sway members' thinking.

Union officials who negotiated a poor pay for members can have negative impact on employees satisfaction with their pay.

Employees who are satisfied with their union's action tend to be satisfied with their pay. They tend to perform better. However, if the union's performance and the negotiated pay is not satisfactory, employees tend to perform poorly. Some surveys had been conducted on this.

You can conclude that compensation impact on organizational effectiveness is playing a role here.

Employee performance has a corresponding effect on the organization's performance.

It is important to remember that different outcomes may result in different organizations.


Strategic Compensation
Since compensation impact on organizational effectiveness is a reality, it is only logical that you optimize its potential by giving your people fair and just compensation for works well done or to motivate employees to perform better.

Many factors come into play including union membership, understanding and perception of "fair and just" compensation, present conditions, and so on.

A fair compensation framework has the potential of leading to pay satisfaction among employees. Since pay is one of the important attributes of work, employees will perform well for a fair pay.

This, in turn, impact on organizational performance. If you manage to do this, you may have achieved some degree of compensation impact on organizational effectiveness.

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