A study of executive perceptions of the determinants of compensation design and satisfaction

Abstract

Compensation is a very important issue as it represents the material, moral and social returns obtained by an employee for expending her labour in an organization. Compensation is a central aspect of the employment relationship as it directly decides what employees receive from the organization. Compensation may have different tangible and intangible components which are determined by numerous factors. Executive perceptions of these determinants are important indicators of how they experience the phenomena of compensation. An iterative - interpretative review of literature shows that there are multiple factors that affect the processes of compensation design, and employees desire to be heard in each of these processes. The state of the economy, the role of the Government and the impact of competition are important external factors affecting compensation design. Compensation is linked with numerous organizational factors such as productivity, financial management and adaptation to market changes. Human resource management practices like strategic HRM, performance linked pay and empowerment also influence compensation design. Finally, individual orientations of employees such as instrumental behaviours, opportunistic behaviours and compassionate behaviours also influence the experience of compensation. Executives may hold various ex petitions about the components of their compensation, and these expectations influence the degree of satisfaction of employees with compensation. The expectations of executives indicate the components of compensation desired by them. The experience of satisfaction with compensation itself comprises of satisfaction of executive needs, the satisfaction flowing from the experience of dignity and degree of humanization in compensation design processes. Thus six themes emerged from the initial critical - reflexive review of literature: external factors, organizational factors, HRM factors, individual orientation factors, compensation design components and compensation satisfaction. The main research gap in human resource management literature is that these factors are more often than not employed within an organization-shareholder centric perspective with a consequent employer centric compensation design orientation. In a rapidly changing human resource environment characterized by uncertainty and unpredictability when competing for talent at all levels is getting tighter, the challenge of attracting, retaining and nurturing talent can no longer be sustained on a narrow organizational-shareholder centric world view. There is a need to move away from a compensation design based on competitive "firm to firm" benchmarking to "talent to talent" benchmarking". This study therefore attempts to contribute to compensation praxis by proposing an employee - centric compensation design frame of reference. The key research question revolves around trying to decode the configuration of variables which can go into compensation design from the perspective of talented employees. Compensation is thus not merely an organizational decision but a process through which human beings engage with each other while seeking to deploy their talent in contributing to the collective enterprise. Since most of the studies and scales have an employer-centric focus, scales were developed for eighteen variables grouped into six aspects of the phenomena of compensation design in order to carry forward the critical intent of the study through an iterative- -interpretative engagement with compensation and related human resource management literature. Exploratory Factor Analysis and carried out to check the reliability and validity of the scale. Other validity tests included calculation of Average Variance Extracted (AVE) and Construct Reliability (CR). For all the 18 variables, AVE was higher than the required value of 0.5. Also, CR was higher than 0.8 for all the 18 variables, which satisfies the requirement of being higher than 0.6. Further, discriminant validity tests indicated that the variables are distinguished from each other. Data was collected from 551 executives working in diverse enterprises. Hypotheses were formulated with components of compensation design mediating between 12 independent variables and 3 variables pertaining to satisfaction with compensation. After empirical and theoretical exploration, it was found that variables which had been identified under a particular theme were constituting a second order latent variable representative of that theme. These second order latent variables were validated through AVE, CR and discriminant validity tests. Analysis was carried out in five stages. The Confirmatory Factor Analysis were Five Stage Analysis yielded conceptualizations and relationships which are material in the determinants-expectations- satisfaction dynamics of executive centric compensation design environmental agency constituted by ethical governance agency of the economy, sustainable agency of competitive industry action and regulatory agency of state; organizational responses to environmental agency constituted by democratic governance engagement in finance, responsible engagement in productivity and accountable engagement in adaptation; intensification of human resource utilization processes constituted by control imperative of performance linked pay, resource sub- rectification imperative of strategic HRM and work intensification imperative of empowerment; inter managerial behavioral orientation constituted by instrumental, opportunistic and compassionate orientations; expectations from compensation design components constituted by compensation package, organizational practices and organizational reputation; & compensation satisfaction constituted by satisfaction of needs, dignity and humanity. This study contributes to practice by providing organizations with an employee-centric compensation design framework . Using this framework, organizations can formulate and deploy employee centric compensation designs which can lead to high degrees of executive satisfaction and talent retention. Enhanced executive satisfaction can lead to strengthening the organizational collective and aid the sustenance and evolution of the organization into collective competitive enterprise.