Compensation Structure

Lighting dark alleys

How compensation structure in a company affects employees

Monetary benefits are some of the main motivators for employees to stay in a company. Employees constantly seek hikes and other perks through which they believe will keep their income steady. According to research, extrinsic motivation such as money and profession play a crucial role in determining the level of an employee’s engagement with their job. However, the drawback to this hypothesis – employees aren’t as dedicated to their work as other individuals who are intrinsically driven to achieve organisational goals. Besides, there are instances where employees have struck a chord by balancing both their intrinsic and extrinsic needs.

The composition of an employee’s compensation structure, which is related to monetary benefits, falls under the extrinsic domain. As per some studies conducted by industrial psychologists, dissatisfied employees have stated rigid compensation structure as their prime reason for poor work performance. To delve deeper, a compensation structure or remuneration constitutes basic pay, tax, provident fund, company expenses and perks. The basic pay and perks are usually rendered flexible and change on a timely basis.

Being rigid in the introducing changes in the compensation structure also effects employees who are intrinsically dedicated to their work. This is because without finances, one cannot fulfil their personal, social and esteem needs. As stated earlier — most employees are intrinsically driven to perform their jobs — is entirely refutable as their personal, social and esteem needs coincide with the work they perform.

A healthy composition of a compensation structure is driving force for employees to remain active in their jobs, thereby reducing the rate of attrition. Employees tend to remain loyal to their companies and serve for a longer duration.

Attrition is a major hurdle that most recruiters and HR managers find it difficult to dodge. In fact, it becomes a problem when the management follows rigid rules and regulations in terms of managing remuneration. The fastest way to stop an employee from quitting is to raise their salary or introduce additional perks in their compensation structure. This not only projects the company as being employee-friendly but also flexible in terms of remuneration.