Imapct factor(SJIF): 6.56
A Refereed Monthly International Journal of Management
Title of the Paper: “Compensation Policy A tool ; Fostering Employee Retention.”
Dr. Yogita Mandhanya (B.Com, DCA MBA (HR), PhD (Management))
Lecturer - Human Resources
Shri Vaishnav Institute of Management
Scheme No. 71. Gumasta Nagar,
Indore (M.P) 452009.
In a world of mom-and-pop operations, offering competitive employee benefits is what will set one business apart from another and will attract and retain valuable employees. This trend is evident even in times of economic recession. Viewing the same phenomenon from a different perspective, organizations today are at greater risk of losing capable human resources to other organizations. The keyword in terms of human resource management is ‘Employee Retention.’ Employee turnover hike the costs of any organization. An insight to which are the most effective retention strategies that can have a long-term impact. Compensation is the most important factor favoring employee retention. The purpose of the paper is to highlight the importance of designing an effective compensation as a key to retain employees. Compensation might not be the most important factor in determining whether an employee will stay with you, but it can tip the balance. The study comprises of a sample of 300 employees from automobile sector. This study explores the relationship between compensation policy and employee retention in Automobile sector. The sample size consists of 300 employees. Data was analyzed with Descriptive Statistics. Pearson Correlation Coefficient was employed to establish the relationship among the variables. The findings indicated that effective compensation package had positive relationship with employee retention and thus affects employees’ decision to stay in the company. The implication of the study is that, the management should provide effective working environment to retain employees. Finally the study also recommends that thriving and friendly environment should be provided at the workplace to make employees more satisfied to remain in the company.
Key Words : Employee Retention, Compensation Strategy, Motivation, Employee Satisfaction.
Human Resource as the word suggests is one of the most important factors of production without which no industry can survive. Long term organizational success depends upon the recruitment, development, reward and retention of the right people. Employee retention refers to adopting measures to prevent valuable employees from leaving their jobs. How to retain employees is one of the biggest problem that plague companies in the competitive marketplace. Nowadays, businesses often find that they spend considerable time, effort, and money to train an employee only to have them develop into a valuable asset and leave the company for greener pastures. In order to create a successful company, employers should consider as many options as possible when it comes to retaining employees, while at the same time securing their trust and loyalty so they have less of a desire to leave in the future. Hiring good people is tough, but keeping them can be even tougher. The solution is attractive, effective, compatible practices.
Thus efficient human resource practices are a base for retention of employees in any organization. There are various practices followed by different organizations but important among them is the compensation strategy. Money is the most important criteria nowadays for employees to leave the organization. In this dynamic environment opportunities are in ample which motivates them to leave. Thus an effective compensation strategy holds the highest percentage for retaining an employee. Compensation encompasses variety of variables like incentives, increments, allowances, reward for effective performance, career advancement and growth etc.
Employee compensation is one of the major determinants of employee satisfaction and retention in an organization. The compensation policy and the reward system of an organization are viewed by the employees as indicators of the management’s attitude and concern for them. A good compensation system should be able to attract and retain employees, give them a fair deal, keep the organization competitive and motivate employees to perform their best. Bevan et al (1997) found that people leaving jobs gave dissatisfaction with pay as their main reason and that attitude surveys also found relative difference in terms of pay satisfaction between people who leave and colleagues who stay in the same organization. A study by Graham, Murray and Amuso (2002) supports this study where they concluded that compensation and reward schemes signify an organization’s appreciation for employee efforts and this encourages individuals to remain with the firm.
Compensation: A Tool for Retaining Employees
Employees should be paid appropriately and fairly for the work they do. So companies should research what other companies are offering in terms of salary and benefits and pay approximately. It is also important to research what is the standard compensation package and benefits for the particular position, particularly related to non monetary benefits like insurance, retirement benefits, paid vacation etc. The compensation package offered should be competitive enough, so that team members will not go out and look for employers who are willing to offer more competitive compensation packages. It constitutes the largest part of the employee retention process. Employees always have high expectations regarding their compensation packages. Compensation packages vary from industry to industry. So an attractive compensation package plays a critical role in retaining the employees. Compensation includes various aspects like salary and wages, bonuses, benefits, prerequisites, stock options, bonuses, vacations etc. setting up of a package must be done very effectively and efficiently.
Review of Literature
1. Employees must have an incentive (compensation, recognition, reward etc.)
2. Employees must possess the necessary skills to make their efforts meaningful (selection, training, development, career opportunities etc.)
3. Employees must have opportunity to participate at various levels. (Communication, participation, promotion etc).
Objective of the Study
For this purpose the following hypothesis was formulated
The population for the study comprised the employees of automobile companies in Pune district of Maharashtra. Total 300 questionnaires were distributed to the employees. The SPSS has been used for the analysis of the data.
The data has been collected through self structured questionnaire (after checking its reliability and validity) based on five point likert scale. It consisted questions based on compensation schemes, rewards, recognition, incentives, fringe benefits, facilities, etc. For the analysis of data step wise regression analysis was used. Compensation scheme has been taken as independent variable and employee retention as dependent variable.
Analysis and Discussion
Table 1.1 Descriptive Statistics
Table 1.2 Correlations
The value of correlation coefficient between Compensation and Employee Retention is 0.916, and it is significant at 5% level of significance thus, it may be concluded that Compensation policies have significant role in sustaining the talent. Furthermore, since the value of correlation coefficient r suggests a strong positive correlation, we can use a regression analysis to obtain a relationship between the variables.
Table 1.3 Model Summary
Table 1.4 Model Summary
Table 1.5 ANOVA
Table 1.6 Coefficients
Employee Retention is taken as a dependent variable and Compensation is taken as independent variable. Model summary shows the values of R2, adjusted R2 and R2 change, which are all same in this case. Here R2 is 0.839 with standard error of estimate equal to 10.618. We can interpret this as 83.9% of the variation in Employee retention is explained by compensation. This value of coefficient of determination (R 2) is significant and therefore the association can be considered as significant. ANOVA table gives results of Analysis of variance. Since the p value is less than 0.01 and 0.05 it is significant at both the levels of significance and it lead to reject the hypothesis of all model coefficients being zero or we can say that variation explained by the model is not due to chance. And we should conclude that all the model coefficients differ significantly from zero and Compensation can be used to judge the retention of employees.
The regression equation, which can be formed using coefficients table, is
Employee Retention = 87.463 + 3.124*Compensation
Since p-value is less than 0.05 the hypothesis that the slope of the regression line is zero is rejected. The model is considered to be statistically acceptable. A Residual is the difference between observed and model predicted value of the dependent variable. A histogram is used to check the assumption of normality error term or residuals. Since the shape of the histogram for regression standardized residuals is approximately normal. Thus the assumption of regression analysis about the normality of residuals is fulfilled.
The study contributes towards extending the knowledge base of practices followed with regards to employee retention. It provides practical implications for Compensation practices which are mostly significant from an organization development perspective and offers strategic tool for progressive organization. Results of the study suggest that organizations that design an effective Compensation package may have higher retention of their employees. More specifically, the findings provide relatively strong supports for the existence of a positive relationship between Compensation and Employee Retention. The study supports the findings of Fitz-enz (1990), which advocate that retention management as driven by several key factors which should be managed congruently namely organizational culture and structure, recruitment strategy, pay and benefits philosophy, employee support programs, and a training and career development system. Managing core employees effectively means identifying their needs and satisfying them through various practices. It was explored that compensation constitutes the largest part of the employee retention process. An attractive compensation package plays a critical role in retaining the employees. Higher and continuous increment in salary was the most common reason for wanting to change jobs, and when asking how the remuneration system should be designed, base pay with additional bonus and benefits were preferred. Comprehensive compensation and benefits provide a leading edge in automobile industry with respect to retention. This is very consistent with the famous theory on Maslow's hierarchy of needs, that certain employees or groups of employees are drawn largely to pecuniary gains and are less drawn to non-pecuniary benefits that an employment may offer. Compensation and benefits, however, have the most significant relationship with intention to stay in comparison with career development, training and development and performance appraisal and achievement. Thus this study shows that compensation and reward schemes signify an organization’s appreciation for employee efforts and this encourages individuals to remain with the firm.
Thus we can conclude that compensation has a positive impact on employee retention. An attractive compensation package is a motivating factor to retain the employee in his job. Employee appraisal should be encompassing various enrichments. An upward career growth should come with corresponding salary and merit increases. In addition, performance-based bonuses motivate employees in terms of aligning their individual goals with company goals. Implementing incentives such as stock options, profit sharing and spot rewards are other ways compensation affects retention. These forms of compensation demonstrate how critical employee performance is to the organization's overall profitability. Spot rewards are usually not as lucrative; however, they provide immediate recognition, reward and compensation when company leadership observes an employee performing superior work. Appreciation recognition along with motivational policies are the keys to employee retention, and if compensation is a part of recognition, then compensation is likely to increase employee retention.
The study can further be explored in other areas apart from automobile sector for new arenas.
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