Employee motivation, compensation issues: Case study

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1. Question one: employee motivation issues

When Lisa inadvertently discovered that the deserted confidential documents which contains the compensation, merit raises, performance rating and bonus information shows that the pay rate setting and bonus pay determination is not fair within the department in term of newly hired employees enjoying a higher pay than the more experienced staffs within departments. Therefore she believed that the company does not threat every employee with fairness and she felt betrayed and demoralized and she made a decision to look for job chance outside the company.

There are some motivation theories that could be applied here to provide a fine explanation why Lisa would react so negatively. First of all, let us define the term motivation, according to Joan Gratto Liebler and Charles R. McConnell (2004) it is the degree of readiness or the desire within an individual to pursue some goals. And the function of motivating is essentially a matter of leading the workers to understand and accept the organizational goals and make them contribute largely to the fulfillment of these shared goals. In the case study, though it is not known that why company goals are shared among the staffs, we assume that the goals are to generate more profit and strive for the best service and product experience to the customers, but the problem here is: why Lisa would be demoralized and de-motivated after her knowing that someone else may probably earning more than what she has which does not in return deduct one ringgit from her pay? Is such inequity that makes her demoralized? And answer is positive and we are listing the reasons in point form as following with reference to some famous motivation theory:

1.1 Equity theory

The equity theory is proposed by Adams (1965) who proposed that people are calculators but in a somewhat different way than proposed by the theory of Vroom, he suggested that individuals look at their world in term of comparative inputs and outcomes. And they would measure their investments and return as well as making comparison between his or hers with those of other people (Landy & Conte 2010, p. 374). The theory claims that there could be several scenarios: when his or her output/input rate is same as other people, there would not be any tension; when such rate is higher than others, he or she would be motivated to work harder because he or she feels it is an overpayment; but when it is a perceived underpayment the employees would be de-motivated and demoralized resulting in a series of negative influences and reactions such as quitting the job and contribute underperformance.

In the case of Lisa, what she had reacted is perfect match up with this equity theory, because she felt that some employees with incompetency were overpaid based on their work performance and therefore her output/input rate was lower than those of these incompetent or fresh staffs. And as a result, with a perceived underpayment, it is reasonable that she would become demoralized and seeking another job opportunity outside the company.

1.2 Maslow’s Hierarchy of Needs

Abraham Maslow (1908 – 1970) along with Frederick Herzberg (1923-) introduced the Neo-Human Relations School in the 1950’s, which focused on the psychological needs of employees. In the Maslow’s Hierarchy of Needs model, he proposed that there are five levels of human needs which should be met from down to the top. And he claimed that only the current need level that is not yet fully satisfied would motivate people to move forward (tutor2u.net 2011). The lower needs are physiological needs and safety needs while the medium level needs are belonging needs and esteem need, and the highest level need is self actualization needs which we would not talk about in this case discussion.

In the case of Lisa, we can say that the current need that motivates her to move forward is the belonging needs because she worked hard as part of the group within the company, and once she noticed that the pay was unequal within the department and could also be within the company, she felt being betrayed and therefore the satisfaction of the belonging needs become failed because she no longer felt that she was loved by the group and treated well by the department. Therefore, we can understand all the negative reactions from her.

2. Question two: compensation issues

Beyond the motivation issues which rationalize the negative behaviors that Lisa had demonstrated after knowing that pay rate setting and bonus pay determination is not fair within the department in term of newly hired employees enjoying a higher pay than the more experienced staffs within departments as well as other unfairness in term of compensation determination, there could be some reasons behind such unfairness which could be related with the work related or business related reasons in the pay model within the company. First of all, let us decide the term of compensation: Compensation is the total amount of the monetary and non-monetary pay and benefits provided to an employee by an employer in return for work performed as required (Heathfield 2009). Every industry or corporations develop their compensation models based on three components .The basic components of pay model are: (a) Compensation objectives; (b) The strategic policies that form the foundation of compensation system; (c) The techniques of compensation (citehr.com 2011). With different in these three components, every company could finally come up with different appropriate pay model that fits the company’s compensation and employee motivation and retention needs. Below are some possible some reasons behind such unfairness which could be related with the work related or business related reasons in the pay model within the company.

2.1 Employee retention: to reduced employee turnover rate

Employee retention refers to the ability of an organization to retain its employees (Bagley 2008). The organization must investigate ways to retain its knowledge base and keeping the employees who are about the leave is one of the company’s objectives to pay the unperformed employees with higher pay. Therefore, it could be the company’s intention to pay more than what these employees deserve just to ensure that the company’s employee turnover rate could be controlled to an acceptable rate. And obviously, a control turnover rate would have many advantages to the company because a higher turnover rate would certainly impact the morality of other employees which in return reduces the performance other the rest of the employees being demoralized.

2.2 Strategic policies to attract new and young talented staffs

Strategic objectives involve 4 major elements of the profile of the business, each of which is a key part of the future strategic profile or vision, they are: (a) Products, (b) Customer groups, (c) Market segments and (d) Geographic market (Robert 1997, p. 234). Therefore, because the compensation policies are enacted in accordance with the strategic policies, some strategic policies would require that more pay is allocated to the new specific employees. For example, if the company would like to enter into a new market, there is a high possibility that the company could not meet this strategic human resource needs internally because the market is new to the company, the company needs to have specific talents that are professional in the new market segments. As a result, the company would probably like to have some fresh talents who are with growing potential in the area, and therefore, the company would like to pay higher pay to those suitable and selected new staffs.

3. Question three: reactions and solutions in the view of the compensation director

3.1 Pay increase for Lisa

One solution proposed is to increase the pay for Lisa individually, I would explain to Lisa that the company has its intentions by differentiating the pay among the employees that which are to retain its knowledge base and keeping the employees who are about the leave is one of the company’s objectives to pay the unperformed employees with higher pay and also to have some fresh talents who are with growing potential in the new areas that the company is going to enter into. But as a kind of apology for the unfairness, I would represent the company and make a decision that the company would increase Lisa’s pay to make sure that her output/input rate would be least identical to the rest of the staffs with the hope that at least Lisa would not be demoralized according to the equity motivation theory.

3.2 Active listening and feedback collection from Lisa

The company does have some difficulties in deciding the compensation policy as well as balancing the strategic business needs, hence, one thing that I, as the compensation director, would not only explain the company’s difficulties to Lisa, also talk with her with honesty and try to collect feedback from her. I will first express my sincere sorry to her regarding the company’s wrongdoing by assigning inequity in the pay policies adopted by the company. Secondly, I will have a long talk with her and ask how she felt when she found out this paper, I will agree with what she complaint because it is the truth, and also I would ask her “what will you do if you are in my position as the company really need to attract these new talents while at the same time needs to facilitate its growth by controlling the cost to the minimum level?”, feedback would be collected by active listening as well as recording down her advices and feeling.

3.3 Reporting to the higher management

After collecting the feedback and ideas from Lisa, three things that I will follow up with this case is: first of all, I will report this event together with Lisa’s suggestion to the senior management to seek reaction from the higher management because they are the bosses who could influence the final decision making; and secondly, I would also propose a change in the pay model setting to better reflect the requirement of the employees like Lisa who want some equity in the pay distribution; and last but not least, I would also follow up with the case and waiting for the updated decision by the higher management and also I would at the same time bring in some changes to the current pay model and the most importantly, I would update these changes and news with Lisa to make sure that she feels that the company is focusing on resolving this issue rather than covering up the issue because everyone would be motivated if they feel that their complaint or other ideas are respected which means that the company are doing something for the resolution of the issue.

Adams, H. P. 1965. Karl Marx in His Earlier Writings. New Jersey: Routeledge.

Bagley, T. L. 2008. Employee retention and succession planning for a Department of the Navy program office. United States: Capella University Press.

Citehr.com 2011. Pay model. Accessed on 9 Mar 2012 [online] http://www.citehr.com/40540-pay-model.html

Heathfield, S. M. 2009. Human Resource Management Glossary Index. Accessed on 9 Mar 2012 [online] http://humanresources.about.com/od/glossaryc/g/compensation.htm

Landy, F. J. & Conte, J. M. 2010, Work in the 21st Century: An Introduction to Industrial and Organizational Psychology. New Jersey: McGraw Hill. p. 374

Liebler, J. G. & McConnell, C. R. 2004. Management principles for health professionals. Sudbury, MA: Jones and Bartlett Publishers, Inc.

Robert, M. 1997, Strategy pure and simple two. New Jersey: McGraw Hills. p. 234

Tutor2u.net 2011. People – Theories of Motivation. Accessed on 9 Mar 2012 [online] http://tutor2u.net/business/gcse/people_motivation_theories.htm