SUMMARY:
As organizations like a hospital continue to face mounting competitive pressures, they seek to do more with less and do it with better quality. As goals for sales volume, profits, innovation, and quality are raised, employment growth is tightly controlled and in many cases, substantial cuts in employment have been made. To be able to accomplish more with fewer employees calls for effective management of human resources. Typically, the employee compensation system plays a major role in efforts to manage human resources better.
Employee compensation plays a key role because it is at the center of the employment relationship, being of critical importance to both employees and employers. Employees typically depend on wages, salaries, and incentives so forth to provide a large share of their income and on benefits to provide income and health security. For employers, compensation decisions influence their cost of doing business. Compensation decisions influence the employer's ability to compete for employees in the labor market (attract and retain), as well as their attitudes and behaviors while with the employer.
Employee compensation practices differ across employment units (e.g., organizations, business units, and facilities) on several dimensions (Gerhart & Milkovich, 1990, 1992; Gerhart, Milkovich, & Murray, 1992). The focus of the employee compensation literature has been on defining these dimensions, understanding why organizations differ on them (determinants), and assessing whether such differences have consequences for employee attitudes and behaviors, and for organizational effectiveness. At the individual level of analysis, theories have been used to show how pay plans can be used to energize, direct, and control employee behavior.
Three such theories used in research on pay are the following: The Reinforcement Theory states that a response followed by a reward is more likely to recur in the future (Thorndike's Law of Effect). The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely. By the same token, high performance not followed by a reward will make it less likely in the future. The theory emphasizes the importance of a person actually experiencing the reward. The second is Equity theory suggests that employee perceptions of what they contribute to the organization, what they get in return, and how their return-contribution ratio compares to others inside and outside the organization,' determine how fair they perceive their employment relationship to be. And thirdly, Agency theory, until recently best known in the economics, finance, and law literatures, focuses on the divergent interests and goals of the organization's stakeholders, and the ways that employee compensation can be used to align these interests and goals.
Compensation and Benefits is one of the most important HR processes which are critical for HR organization namely managing the personnel expenses budget, setting the performance standards, setting the transparent compensation policies and introducing the competitive benefits for employees. Hospital as a business institution and an organization is different from other industries because of its dependency on skills, training and technical knowledge of workers and where lives are at stake and when time is an essence in relation to its operation . More so, we cannot question the fact that fulfilled workers perform better.
Compensation and benefit package is intended to serve as a catalyst to stimulate new thinking around where to focus energy, effort and expense in total rewards. The principles behind are the following: Reward staff in a competitive and equitable manner and be based on merit, competence, responsibility and accountability (compensation equity), designed to motivate and encourage staff to develop skills and competencies and provide opportunities for career advancement, be flexible, transparent and administratively simple and follow determination of condition of service based on Flemming (general staff) and Noblemaire Principles (higher or professional staff) - equal pay for work of equal value.
To understand further, there are five (5) strategies which are most effective when applied to a Total Rewards Framework such as follow:
- Define your differentiator, something/ideas hard to replicate by others.
- Learn what motivates your employees.
- Develop a total reward brand.
- Personalize the experience
- Reach people through multiple communication channels.
Total compensation are classified as either extrinsic or intrinsic rewards. Financial (extrinsic) rewards are further differentiated to be direct in the forms of base pay (wage and salaries) or variable pay given as incentives to individual, team or organization. On the other hand indirect benefit comes may mandatory for legal compliance as required by law or voluntary breaks, security plans, educational assistance etc. The non-financial (intrinsic) compensations are composed of satisfaction derived benefits such as praise and rewards. This is well illustrated in Figure 1.