Compensation (linking with motivation and performance)

Introduction
"... Whereas the motivational aspects of pay are well documented, the notion that high pay leads to higher levels of satisfaction oare debatable. Intuitively, we would connect higher salaries to higher results, but scientific evidence indicates that the link between compensation, motivation and performance is much more complex..."
Enrico Mestieri, 2021
Research show that there is a little overlap between job satisfaction and salary.
However, wages and salaries can account for up to 70% of an organisational total cost (source: Enrico Mestieri, 2021)
To achieve a better balance between employee motivation and performance, there is a need to base compensation more on human aspects like fairness, purpose, transparency, emotional intelligence, etc. This is becoming more important in a changing world around jobs, work, skills, expectations, values, etc
"...Most employees value working for a company that has developed an ethical corporate culture, take careful leadership choices and central corporate social responsibility. An ethical company reflects its fairness in compensation..."
Enrico Mestieri, 2021
Impact of technology
With the 4th Industrial Revolution, there is an increasing pace of organisational change and this is putting significant pressure on compensation packages.
"...some companies are relying on AI to augment talent retention and employee engagement through fair compensation. Artificial intelligences takes into consideration a vast amount of data, including education, experience, certifications, and locations to help businesses move closer to closing pay gaps......managers tend to follow the recommendations of AI provides......thanks to this technology they can even emphasise transparency in AI-based compensation support. Employees can see where thye sit relative to the market, comparing their retribution to the low and high range of compensation for workers with their skills...... AI can help guaranteeing a better hiring process, shrink wage gaps..."
Enrico Mestieri, 2021
Issues
Some issues that are becoming more important:
- flexible jobs with a meaning and an impact
- lifestyle choices like working at home, flexible working hours, extra holidays, etc
- emphasis is shifting away from individuals to teams (resulting in the need to incentivise collective and supportive behaviours that enhance efficiency, effectiveness, equity, etc)
NB
New approaches to compensation should should take into consideration the expected preferences of the individual, their age and the nature of work to be performed. Also, less focus should be on history (salary, experience, etc) and more on the value that the candidate will bring to the organisation.
However, base pay is still important.
On the other hand, direct bonuses and incentives are becoming less important to increase employees determination, involvement and dedication
Some issues that need handling:
- handling competitive behaviour (this can be between individuals and/or teams, ie putting their self-interest above the collective benefit of the team and/or organisation)
- handling negative impact on team's speed (the cooperative reward structure can result in some members of team not performing at their best, ie 'social loafing' on the part of the worst performer; to handle this it is better to focus more on attitude and less on expertise (academic skills, experience, etc) when selecting staff.)
- unconscious and conscious bias (need to understand compensation-related biases as they can impact salary differences and lead to unsatisfied employees. Some example,
        i) illusionary superiority, ie
"...People were no knowledge on a topic will tend to overestimate their capabilities, whereas those having a limited knowledge will be more realistic in evaluating its real skills. This, apply to modern working environments can lead to incompetents that, exploiting the good work from other people in the team, will show-off their own capabilities, taking credit for others' merits, leading to promotions and a poor performance in terms of compensation within the company, together with bad results..."
Enrico Mestieri, 2021
        ii) individual attractiveness (individual attractiveness stereotypes, eg it has been demonstrated
"...the effect of chief executive officers facial attractiveness on compensation is not only a robust but also economically significant..."
Mingxian Li et al, as quoted by Enrico Mestieri, 2021
        iii) gender (there are 3 major factors regarding gender pay gap
"...female executives receive a lower share of incentive pay in total compensation, relative to males; the compensation of female executives is more exposed to declines in firm value and less exposed to increases in firm value, than that of males. Incentive pay schemes are clearly counter-productive when lowering gender gaps..."
World Economic Forum as quoted by Enrico Mestieri, 2021
         iv) race (studies have shown there is a racial pay gap
"...black workers earn just 75% of white workers' compensation in the United States, with the Hispanic female population being in the last percentile..."
Pew Research Centre as quoted by Enrico Mestieri, 2021)
NB
"...competitive compensation structures should should be used only when people are working independently, co-operative rewards work better when people work interdependently..."
Enrico Mestieri, 2021