Chapter 2

Literature reviews

Maslow's hierarchy

Maslow's hierarchy of needs is a motivational theory in psychology comprising a five-tier model of

human needs, often depicted as hierarchical levels within a pyramid.
Needs lower down in the hierarchy must be satisfied before individuals can attend to needs higher up.
From the bottom of the hierarchy upwards, the needs are: physiological, safety, love and belonging,
esteem, and self-actualization.

1. Physiological needs –
2. Safety needs 
3. Love and belongingness needs 
4. Esteem needs 
5. Self-actualization needs 

The original hierarchy of needs five-stage model includes:

Maslow (1943, 1954) stated that people are motivated to achieve certain needs and that some needs take
precedence over others.

Our most basic need is for physical survival, and this will be the first thing that motivates our behavior.
Once that level is fulfilled the next level up is what motivates us, and so on.

1. Physiological needs - these are biological requirements for human survival, e.g. air, food, drink,
shelter, clothing, warmth, sex, sleep.

If these needs are not satisfied the human body cannot function optimally. Maslow considered
physiological needs the most important as all the other needs become secondary until these needs are met.

2. Safety needs - Once an individual’s physiological needs are satisfied, the needs for security and safety
become salient. People want to experience order, predictability and control in their lives. These needs can
be fulfilled by the family and society (e.g. police, schools, business and medical care).

For example, emotional security, financial security (e.g. employment, social welfare), law and order,
freedom from fear, social stability, property, health and wellbeing (e.g. safety against accidents and
injury).

3. Love and belongingness needs - after physiological and safety needs have been fulfilled, the third
level of human needs is social and involves feelings of belongingness. The need for interpersonal
relationships motivates behavior

Examples include friendship, intimacy, trust, and acceptance, receiving and giving affection and love.
Affiliating, being part of a group (family, friends, work).

4. Esteem needs are the fourth level in Maslow’s hierarchy - which Maslow classified into two
categories: (i) esteem for oneself (dignity, achievement, mastery, independence) and (ii) the desire for
reputation or respect from others (e.g., status, prestige).

Maslow indicated that the need for respect or reputation is most important for children and adolescents
and precedes real self-esteem or dignity.

5. Self-actualization needs are the highest level in Maslow's hierarchy, and refer to the realization of a
person's potential, self-fulfillment, seeking personal growth and peak experiences. Maslow (1943)
describes this level as the desire to accomplish everything that one can, to become the most that one can
be.
Individuals may perceive or focus on this need very specifically. For example, one individual may have a
strong desire to become an ideal parent. In another, the desire may be expressed economically,
academically or athletically. For others, it may be expressed creatively, in paintings, pictures, or
inventions.

Maslow's hierarchy of compensation and benefits.

It can be easy to get caught up in the benefits rat race. You know, keeping up with the Joneses, or in this
case, the Joneses, Inc. You probably spend a fair amount of time thinking about what’s in your benefits
package, how it measures up against your competitor’s, how to market it to potential employees and
more.

But the basis of why benefits packages are offered to employees is to meet their basic needs. Medical
insurance keeps employees healthy and able to work on a day-to-day basis while retirement benefits give
employees peace of mind for their future. It may seem elementary, but to understand basic human needs,
the best place to start is Maslow’s Hierarchy of Needs.

Every benefit you offer employees falls into one of the categories in Maslow’s hierarchy of needs. Just
like there are different levels of human necessities to meet our needs, there are some

benefits people need before additional benefits or trendy extras should be offered. Take a look at the
categories below to see where each type of benefit fits in.

Physiological needs
The most basic of human needs fall into this category. Most benefits aren’t considered to meet
physiological needs because if it’s considered a benefit to employment, it isn’t required for human
survival, but fair compensation falls into this category as a means to buy those basic necessities.

The benefits that do fall into this category are things like a clean and safe facility to work in, access to
food and water and time off. It sounds simple because it is. These are things that are legally required in
the scope of employment.
 

Safety needs
After physical needs have been met, the need and desire for a sense of safety becomes people’s main
concern. As far as safety needs that are satisfied by your company, there are quite a few. Your
commitment to employ someone fulfills his or her need for employment and financial security. Health
care coverage also fulfills a need for a healthy body, while disability and life insurance provide peace of
mind that they’ll be protected if an unfortunate accident should occur. Lastly, retirement benefits offer
long-term security that the employee and their family will be taken care of.

The funny thing about this category of Maslow’s hierarchy of needs is that most of the major benefits fall
under it, yet as far as Maslow is concerned, it provides mostly intangible, mental health wellbeing to
employees.

Love and belonging

This need consists of a desire for interpersonal relationships and a sense of belonging. While your
employees may not find love in the workplace (or who knows, maybe they will!), you can help to foster
healthy and productive workplace relationships. This can be through workday events for employees,
group training, team-building activities and more. Don’t forget that these are an important but often-
forgotten part of your company’s added benefits for employees.

Esteem

We all have a need to be respected, which includes self-esteem and self-respect. Many people’s self
esteem comes from confidence they gain at work, so it’s important to help employees succeed and
encourage respect and appreciation for others. This is where a pay for performance compensation model
comes into play. Rewarding people for performance feeds this basic need.
Learning and development programs will be a significant part of this, including offering certifications
and other training at no cost to employees. Appreciation programs and awards will also add to a sense
of accomplishment, confidence and respect for employees.

Self-actualization

Maslow stated, “What a man can be, he must be.” This thought is what the need for self-actualization is
based on. Self-actualization includes the need to accomplish everything that you can. For employees to be
happy and thriving, it’s vital that you provide them with the resources to do so. For some, it may be that
they need the space and time to be creative in their jobs, while for others it may be opportunity for
advancement. As an HR manager, you have the power to help your employees be all they can be.

Human capital theory

The Basic Theory of Human Capital 1. General Issues One of the most important ideas in labor
economics is to think of the set of marketable skills of workers as a form of capital in which workers
make a variety of investments. This perspective is important in understanding both investment incentives,
and the structure of wages and earnings. Loosely speaking, human capital corresponds to any stock of
knowledge or characteristics the worker has (either innate or acquired) that contributes to his or her
“productivity”. This definition is broad, and this has both advantages and disadvantages. The advantages
are clear: it enables us to think of not only the years of schooling, but also of a variety of other
characteristics as part of human capital investments. These include school quality, training, attitudes
towards work, etc. Using this type of reasoning, we can make some progress towards understanding some
of the differences in earnings across workers that are not accounted by schooling differences alone. The
disadvantages are also related. At some level, we can push this notion of human capital too far, and think
of every difference in remuneration that we observe in the labor market as due to human capital. For
example, if I am paid less than another Ph.D., that must be because I have lower “skills” in some other
 dimension that’s not being measured by my years of schooling–this is the famous (or infamous)
unobserved heterogeneity issue. The presumption that all pay differences are related to skills (even if
these skills are unobserved to the economists in the standard data sets) is not a bad place to start when we
want to impose a conceptual structure on

What is compensation?

Compensation is the total cash and non-cash payments that you give to an employee in exchange
for the work they do for your business. It is typically one of the biggest expenses for businesses
with employees. Compensation is more than an employee’s regular paid wages. It also includes
many other types of wages and benefits.

Types of compensation include:

 Base pay (hourly or salary wages)

 Sales commission
 Overtime wages
 Tip income
 Bonus pay
 Recognition or merit pay
 Benefits (insurances, standard vacation policy, retirement)
 Stock options
 Other non-cash benefits

Compensation is a systematic approach to providing monetary value to employees in exchange

for work performed. Compensation may achieve several purposes assisting in recruitment, job
performance, and job satisfaction
Compensation is the remuneration awarded to an employee in exchange for their services or
individual contributions to your business. The contributions can be their time, knowledge, skills,
abilities and commitment to your company or a project.

In simpler words, compensation is the money received by an employee from an employer as a

salary or wages.

First, let’s start with a definition for compensation. When talking about compensation, we
usually mean the payment received by an employee from an employer in the form of a salary,
wages, benefits and variable pay. However, it’s important to note that compensation can also
refer to money that is paid to someone for something that has been lost or damaged, such as
“workers compensation” for unemployed or injured workers. It can also refer to a payout as the
result of a lawsuit. In a more general sense, compensation can mean anything of value given to
make up for a loss, such as a paid dinner to “compensate you for your time and trouble”.
equity Theory
According to this theory, there should be equity or the uniformity in the pay structure of an
employee’s remuneration. If the employee feels he is not being paid fairly for the amount of work he does
in a day will result in lower productivity, increased turnover and high absenteeism. The remuneration
system should comply with three types of equity thus, compensation and benefits for Thai airways whilst
using this method plays vital role for its employees in order to retain and perform well in doing what
make them happy. This method shows the equality among all employees and fairness whether its salaries
or tasks or errand that everyone have to do for the firm

Reinforcement and Expectancy Theory

This theory is based on the assumption that, the reward-earning behavior is likely to be repeated,
i.e. an employee would do the same thing again for which he was acknowledged once
Similarly, in the case of Expectancy Theory, given by Vroom, the employee is motivated to do a
particular thing for which he is sure or is expected that performance will be followed by a definite reward
or an outcome

Agency Theory
 This theory states that both the employer and the employee are the stakeholders of the company,
and the remuneration paid to the employee is the agency cost. The employee will try to get an increased
agency cost whereas the employer will try to minimize it. Hence, the remuneration should be decided in
such a way that the interest of both the parties can be aligned thus, these theories posit that the
compensation in the form of salary or wages can be decided based on the outcome or the behavior of an
employee

Define compensation
Compensation is the total cash and non-cash payments that you give to an employee in exchange for the
work they do for your business. It is typically one of the biggest expenses for businesses with employees.
Compensation is more than an employee’s regular paid wages. It also includes many other types of wages
and benefits.

Types of compensation include:

 Base Pay
 Commissions
 Overtime Pay
 Bonuses, Profit Sharing, Merit Pay
 Stock Options
 Travel/Meal/Housing Allowance

Define benefits
Benefits are any perks (advantages or profit) offered to employees in addition to salary.  Benefits can be
quite valuable. That's why it's important to consider benefit as an employee earnings. Benefits reinforces
and addresses employee needs wants and desires. Giving benefits also helps company to retain employees
and reduces lay off in an company.

 Fringe benefits
 Retirement benefits
 Medical insurance
 Disability insurance
 Life insurance plans and policy

Compensation and benefits in business contact

Comensation and busssiness contact are important part of human resorce management. compensation and
business contact are the types of agreement made between employees and firm so that employee can work
in a firm. These are primary part of employee advantages that’s company needs to acknowledge. These
contacts differ from company to company for example: In a company when you receive a job offer, the
first thing you look at is the salary. Whether the recruiter lists the wage as an hourly, weekly, monthly, or
hourly rate, candidates see it as the most critical part of any job offer. Typically, when employees think
about compensation, the salary is what they think of. But, for many employees (especially senior
employees) compensation is far more than just the regular paycheck.
Chapter summary