1. Motivation and Compensation
Compensation Management
Prepared by: Zaheed Husein Md Al-Din, Sr. Lecturer, BBS
Adapted from: Compensation, Ninth Edition
(By: George T. Milkovich, Jerry M. Newman)

2. Topics for Discussion
Link Between Organization Strategy and Employees’ Behaviors
Behavior
Performance Management and Compensation Management
How to get desired behaviors?
Preference for Pay System
Motivation Theories
Total Reward System
Wage Components
Pay-For-Performance Plan

3. Link Between Organizational Strategy and Employee Behavior
Corporate Goals
Business Unit Goals
Department/
Team Goals
Employee Team Results
Individual Goals
Employee Task Behaviors

4. Behavior =f(M, A, E) Motivation: Ability: Environmental Obstacle:
Performance Management
Compensation
Culture
Ability:
Selection
Recruitment
Training
Environmental Obstacle:
Organizational Design
Organizational Development
HR Planning

5. Economic Obstacles Unions Economic Conditions
Public Policy/Legislation

6. Behaviors Compensation Need to Reinforce
Attraction
Retention
Developing Skills

7. Relation: Performance Measurement and Compensation Strategy
Variability in Organizational Performance
Low Variability:
Few swings in overall corporate performance
High Variability:
Regular and large swings in overall corporate performance
Variability/ease of measurement in individual performance
Unstable, Unclear and changing objectives
Provide wide range of rewards beyond just money. Include significant incentive component
Provide wide range of rewards beyond just money. Emphasize base pay with low-incentive portion
Stable and easily measured
Emphasize monetary rewards with large-incentive component
Emphasize monetary rewards: large base pay with low-incentive portion

8. How to get desired behaviors?
Motivation involves three elements:
What’s important to a person
Offering it in exchange for some
Desired behavior

9. Preference for Pay System
Individual Performance
Changes in cost of living
Seniority
Market Rate
Cafeteria Style/Flexible Compensation

10. Motivation Theories
Maslow’s Need Hierarchy: People are motivated by inner needs. Needs form a hierarchy from most basic to higher-order
Herzberg’s Two Factor Theory: Employees are motivated by two types of motivators: hygienic factor and satisfiers
Expectancy:
Motivation =
Expectancy * Instrumentality * Valence

11. Motivation Theories (contd.)
Equity: Employees are motivated when perceived outputs are equal to perceived inputs
Reinforcement: Rewards reinforce performance
Goal Setting: Challenging performance goals influence greater intensity and duration in employee performance
Agency: Pay directs and motivates employee performance

12. Total Rewards System Compensation: Wages, commissions, and bonuses
Benefits: Vacations, health insurance
Social Interaction: Friendly workplace
Security: Stable, consistent position and rewards
Status/recognition: Respect, prominence due to work
Work Variety: Opportunity to experience different things
Workload: Right amount of work (not too much, not too little)

13. Total Rewards System (contd.)
Work Importance: Is work valued by society
Authority/control/autonomy: Ability to influence others; control own destiny
Advancements: Chance to get ahead
Feedback: Receive information helping to improve performance
Work Conditions: Hazard free
Development Opportunity: Formal and informal training to learn new knowledge skills/abilities

14. Wage Components Base Pay Across the Board
Cost-of-living adjustments (COLA)
Merit Pay
Lump-sum Bonus
Individual Incentive
Success-sharing Plans
Gain Sharing
Profit Sharing
Risk Sharing Plan

15. Person Characteristics and Preferred Reward Characteristics
Materialistic: Relatively more concerned about pay level
Low Self-Esteem: Want large, decentralized organization with little pays for performance
Risk-Takers: Want more pay based on performance
Risk-Averse: Want less performance-based pay
Individualists: Want pay plans based on individual performance; not group performance

16. Pay-for-Performance Plan
Effectiveness depends on three things:
Efficiency
Strategy
Structure
Standards
Equity/Fairness
Compliance

17. End of Topic