Behavioral Dimension of

Compensation Management

BY
Ruchi N Sao
Contents

■ Factors influencing effective compensation management

■ Motivational issues in compensation

■ Organizational justice and compensation

■ Impact of compensation on employee behavior

■ Consequences of dissatisfaction with compensation

Course Outcome
Knowledge of impact of behavioral dimension of compensation.
Factors influencing effective compensation management

■ Motivation

■ Ability and willingness to pay

■ Appropriate compensation philosophy

■ Skill availability
Factors influencing effective compensation management

■ Labour market trends

■ Organizational performance

■ Effective compensation strategy

■ Attitude of top management

Motivational Issues in Compensation

■ Compensation is a critical driver of employee efforts,

performance and outputs

■ Intrinsic and extrinsic motivation

■ IM with rewards will reduce, but without recognition

■ EM can boost performance of employees

Motivational Issues in Compensation

■ Knowledge and skills are productive elements of employees

which is derived from job satisfaction, commitment and
motivation

■ Compensation acts as an EM to employees to work harder

■ Employee satisfaction is a result of performance which will

be motivated by increase in compensation
Generations

■ Generation Z: Born 1996 onwards

■ Generation Y or millennial: Born 1977 to 1995

■ Generation X: Born 1965 to 1976

■ Baby Boomers: Born 1946 to 1964

■ Traditionalists or silent generation: Born 1945 and before

 Relation between Compensation,
employee motivation and satisfaction
Theories of Motivation and their
implication on Compensation
Organizational Justice and Compensation
■ “Employees’ perceptions of fairness in organizational setting.”

■ “The conditions of employment that leads individuals to

believe that they are treated fairly or unfairly.”

■ Relation between organization’s compensation policy and

relevant behavioral and attitudinal outcomes

■ Results can be on performance, deviant behaviors and

employee turnover
Employees perspective of Compensation & Justice

■ Distributive justice is concerned with the perceived

fairness of rewards received.
– It is not only by the amount received, but what is
received relative to others

■ Justice theory shares an association with equity theory

■ Also, people will determine fairness with respect to

expectations, needs and general norms
Organization’s determination of outcomes
■ Procedural justice is concerned with how they are paid

■ Perceived fairness of the methods used to determine amount of

rewards

■ More with respect to how the decisions are arrived at which will
impact fairness perceptions

■ Outcomes will decide fairness perceptions and satisfaction

■ It results in OCB, trust, commitment and performance

Two Factor Model

Distributive Justice Procedural Justice

Linked to outcome satisfaction Linked to system satisfaction

Will impact behaviours focused to the Will impact behaviours focused on

specific job organization

Increase Job Satisfaction?? Increase Commitment??

Focus on perception of rewards Focus on perception of procedural

received by employees fairness
Impact of compensation on employee behavior

■ Employee satisfaction
– Comparison theory
– Opponent process theory
– High performance cycle theory

■ Employee turnover
– Use of compensation to reduce turnover
Consequences of dissatisfaction with compensation

■ High turnover

■ Higher absenteeism

■ Increase in grievances and legal complexities

■ Lower OCB

■ Stealing and causing damage or destruction

■ Strike in factories

■ Lower productivity resulting in low performance