Impact of Compensation on Employee Productivity

Management is primarily motivating employees at work to carry out their work effectively and efficiently through recognition. As salary is fixed, it culpably fails to motivate employees at work. Hence providing compensation based on their performance and productivity will encourage them to perform better. Compensation and reward system are meant to encourage and boost the employees’ performance in the organization. This paper attempts to understand that how improved compensation would enhance the level of job satisfaction among employees. The research specifically investigates the outcome of organizations reward packages which play a critical role in influencing the job satisfaction. However, there is neither low nor high rate of productivity and change of behavior in employees after supplementing such benefits. This study aims to find out the effect of compensation and reward system in enhancing employees’ productivity.

Monetary and non-monetary benefits offered by organizations make employees ensure their value in the organization. The key role of providing monetary packages is to raise the performance and productivity level of individuals of the organization. A successful organization is the one which can efficiently exploit its employees’ skills and qualifications. Compensation and rewards are mostly fixed on the basis of performance appraisal. In other words, it can also be stated that rewards determine the withholding of employees in the organization and also their acceptance level of responsibilities laid by the management. The perception of employees towards compensation and reward packages assesses the individuals’ performance, satisfaction, productivity and their existence in the organization. Employees are no longer satisfied with traditional reward systems and want to feel valued and appreciated.

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Rewards may be in the form of monetary, non-monetary benefits or recognition. Monetary benefits include bonuses, incentives, escalation in pay structure, allowances, retirement plans, etc. Non-monetary benefits include free refreshment, free company trip or picnic, and also include health protection benefits and insurance. Recognition sums up the process of acknowledging a person for their work. For instance, the most outstanding staff of an organization being awarded with the employee of the year award is one form of recognizing the employees’ performance or productivity which would motivate the employee to perform better than earlier. An effective reward management will affect employees’ satisfaction and demotivate them, hence affecting their performance outcome. In some cases, the rewards have a positive effect on the work atmosphere that would inspire the individual to increase their work effort in order to gain more rewards and recognition. Furthermore, researchers have also explained that compensation management system possess the capacity to establish and withhold a competitive advantage for the organization.

Need for the Study

This research work is carried out to analyze the effect of compensation and reward system that enhances the contribution of employees towards the organization goals.

Objectives of the Study

1. To evaluate the impact of reward system that enhances employees’ productivity;
2. To find out how the compensation benefits influenced workers job satisfaction;
3. To assess the employees’ preference towards pay system.

Research Methodology

The present study is entirely based on primary data. The data was collected from the employees of various organizations, Chennai by conducting a survey. By administering a valid Questionnaire, data was collected from 111 respondents which includes manual and Google forms. Secondary data was collected from various sources which include articles, journals, research papers and many other websites. Purposive sampling technique was used to obtain response from the respondents. Sample respondents have been chosen using convenience sampling technique.

Review of Literature

Carlson (2006) inspected the results of five human asset rehearses on deals development performance. The outcomes recommend that preparation and advancement, enlistment bundle, looking after assurance, utilization of performance examinations, and serious pay were progressively significant for high deals development performing firms than for low deals development performing firms. However, Carnahan (2010) figured at how remuneration structure influences the accessibility and business choices of workers. The researcher found that the representatives with superior are more unfavorable in leaving firms with intense scattered pay whereas on the other side workers with low performance are inevitable to leave firms with substantial scattered pay.

Hameed (2014) examined the effect of pay on workers performance. The study identified that from various outcomes proved that compensation has positive effect on worker performance. But, Aslam (2015) figured out that most important asset of any organization is its human resources. The researcher also examined about the components such as monetary incentives, non-monetary benefits, recognition and various other rewards play an important role with the representative performance in holding a proficient and powerful workforce.

Ibrar and Khan (2015) examined the impact of employee motivation on Organizational Performance of select fabricating firms. The outcome obtained from the examination indicated that there existed connection between representative inspiration and the hierarchical performance. The investigation uncovered that extraneous inspiration given to laborers in an association impacts the laborers performance. Kelechi (2016) analyzed the effect of compensation offered by organization in improving workers efficiency. This study examined the comprising features of successful compensation organization on associations and the advantages that are to be acquired thereof. The discoveries of the examination showed that viable compensation provided by organization has a positive bearing on representative efficiency after offering pay practices and techniques that will empower them to pull in, propel, hold and fulfil their representatives.

Limitations of the Study

1. The study was limited to employees of the administrative department of various organizations.
2. The study was confined to Chennai only.
3. The numbers of respondents are limited to 111 due to limited time and resources available.

Data Analysis

The researcher has applied non-probability sampling method to collect data from the respondents and used Chi square test and ANOVA to test the validity of the respondents.

Chi Square Test

Hypothesis: Ho: There is no significant relation between the influence of reward system on performance and the behavior after receiving such reward system; H1: There is a significant relation between the influence of reward system on performance and the behavior after receiving such reward system.

Interpretations: Applying Pearson’s Chi Square Test, it is found that the value of p is 0.878, which is higher than 0.05. Thus, the null hypothesis is accepted. It reveals that there is no significant relation between the influence of reward system on performance and the behavior after receiving such reward system.

ANOVA

Hypothesis: H0: There is no significant relation between educational qualification and the reward system the employees prefer; H1: There is a significant relation between educational qualification and the reward system the employees prefer.

Interpretations: Applying ANOVA test it is found that the value of p is 0.949, which is higher than 0.05. Thus, the null hypothesis is accepted. So, it can be concluded that there is no significant relation between the educational qualifications and the reward system that the employees prefer.

Findings

From the study it is found that there is no noteworthy relationship between influence of reward system on performance and the behavior after receiving such reward system. From the study it is figured out that there is no important relationship between the educational qualifications and the reward system that the employees prefer.

Suggestions

Many respondents felt that good workers should be identified and suitably rewarded. At the same time non-performers should be motivated to increase their contribution for the betterment of self and overall productivity of the organization. The organization must also focus more on balancing the physical and mental health of the employees by conducting various recreational activities. It is the organizations responsibility to reduce the gap between the performers and non-performers by offering various training and career enrichment programs.

Conclusion

This study revealed that many employees with specialized skill apart from regular trade work should be dealt separately with additional allowance, rewards and recognition plus should also afford the way for progression in service to higher level which would enhance their productivity and performance towards the organizational goals. This study also figured out that increasing the amount of rewards and appraisal of employees in every area of workplace of the organization results in tuning the employees flexible to every action of the organization. Hence it can be concluded that the compensation and reward system structured by the organization decides the productivity and performance of employees in the workplace.

References

1. Alfandi, D. A. M., & Alkahsawneh, D. M. S. (2014). The Role of the Incentives and Reward System in Enhancing Employees Performance. A Case of Jordanian Travel and Tourism Institutions'. International Journal of Academic Research in Business and Social Sciences. https://doi.org/10.6007/ijarbss/v4-i4/788
2. Hoole, C., & Hotz, G. (2016). The impact of a total reward system of work engagement. SA Journal of Industrial Psychology. https://doi.org/10.4102/sajip.v42i1.1317
3. Carlson, D. S., Upton, N., & Seaman, S. (2006). The impact of human resource practices and compensation design on performance: An analysis of family-owned SMEs. Journal of Small Business Management. https://doi.org/10.1111/j.1540-627X.2006.00188.x
4. Carnahan, S., Agarwal, R., & Campbell, B. (2010). The Effect of Firm Compensation Structures on the Mobility and Entrepreneurship of Extreme Performers. In Business. https://doi.org/10.1002/smj
5. Hameed, A., Ramzan, M., Hafiz, M., Kashif Zubair, M., Ali, G., & Arslan, M. (2014). Impact of compensation on employee performance. International Journal of Business and Social Science.
6. Aslam, A., Ghaffar, A., Talha, T., & Mushtaq, H. (2015). Impact of Compensation and Reward System on the Performance of an Organization: An Empirical Study on Banking Sector of Pakistan. European Journal of Business and Social Sciences.
7. Ibrar, M., & Khan, O. (2015). The Impact of Reward on Employee Performance (A Case Study of Malakand Private School). International Letters of Social and Humanistic Sciences. https://doi.org/10.18052/www.scipress.com/ilshs.52.95
8. Kelechi, N. G., O., A. V., & Akintaro, A. A. (2016). The Effect of Compensation Administration on Employee Productivity. Oman Chapter of Arabian Journal of Business and Management Review. https://doi.org/10.12816/0027245