Compensation Is a Sub-Discipline of Human Resources

Compensation is a sub-discipline of Human Resources Management and has become even more critical for organizations in the 21st century. Compensation, of course, is the salary or pay an employee receives from an organization and may fall into four categories: 1) Guaranteed Pay (fixed), 2) Variable Pay (Performance or results based); 3) Benefits (Medical, etc.), and 4) Equity-Based Compensation (Stock or organizational programs). There are many forms of compensation, many philosophies as to motivational aspects of employees. . Managers tend to look at the compensation platform within their organization and are motivated to satisfy their own needs above the overall needs of the stakeholder contingent. However, in any organization, it is important to measure processes, successes, values, and employee contributions to the overall health of the organization. Certainly, for most organizations, salaries and benefits constitute their largest capital outlay after materials and equipment, and for some, even more than hard costs (Stevens, et al., 2006).

With the advent of so much global competition, stakeholder expectations and expected transparency of operations, firms have increasingly begun to experiment with compensation programs. Market-based pay structures are now the most prevalent type of compensation, used by about 60% of American organizations over 50 employees. In general, when the market is as competitive as it has become, the pay structures of competitive organizations become part of the strategic human resource management (SHRM) process of analyzing what the external labor-market pays for positions that are similar in range (education, background, expertise, performance, etc.). Key to this philosophy is also the idea of geography (cost-of living, etc.) so that a position in New York City would understandably pay more for the same job than one in a small town in Wisconsin. However, that being said, the critical nature of the position is also taken into consideration for market-based compensation studies. If, for instance, there is a position that is highly specialized and technical, requiring experience in a topic or genre that only a few have, that position will score higher in SHRM studies. Unless the target is specialized, though, a general rule is that most organizations concentrate on the 50th percentile of the market as the basis for their compensation management strategy -- the point in which half the organizations pay more, half less, for a specific job. One must also be aware of the value of the particular job for the organization -- if a job produces X$ for the company, then regardless of the skill and background of the individual, that job is worth Y$ within that industry, that market, or that organization (Costello, 2009).

Thus, the key is a balancing effect. For instance, some positions that are hard to fill within certain industries may now pay a premium. Registered Nurses, particularly those with experience and a sub-field, are becoming rarer in the expanding healthcare market. Therefore, the market-based philosophy of compensation is more competitive as the number of individuals qualified for that position shrinks, than say an accountant who is entry level and can work in most fields. Market-Based Compensation Strategies must therefore match the market data to the market in which employees are recruited, the geographic area of the position, the strategic importance of that position to the organization, and the labor pool indicative of that industry. Of course, this is something that changes depending on the level of the position -- obviously top tier executives have different rules than entry-level workers (Dorf, ed., 2004).

In fact, most SHRM experts note that the heart and soul of the 21st century compensation model is, indeed, market-based salary structures. The older model, of course, is a more rigid control system. Bureaucratic control is an approach to organizational design that has a very formal, some say "mechanistic," structure. The goal is of employee compliance to a rigid hierarchy and set of rules. Employees must meet minimum levels of competency and there is typically a stringent series of controls. These types of organizations reward on individual performance and allow very minimal employee participation in events, decisions and even workflow. This type of operation assumes the theory that managers must rely on threats and coercion in order to get employees to do their jobs. This is also known as Theory X, and holds that the sole motivation for work is fiscal, and that it is only through salary, bonuses, and wages that work gets done. . They X managers believe in close supervision and a clear chain of command to motivate; maintaining a distance and less personal relationship with employees (Kreitner, 2009).

Market-Based compensation, though, follows a different model of the organization. Most see that one cannot implement it without changing the entire philosophy of the organization. In contrast to the bureaucratic control model, decentralized control is an approach that is far more informal and organic in structure. The goal is employee commitment to the organization, which then relies a great deal on group norms, a strong corporate culture, and employee-buy-in of strategies and tactics. Employees are encouraged to perform beyond minimal levels in order to better the organization as a whole. The overall organization is relatively flat and managerial control less autocratic. Rewards are directed towards the group, the team, and efforts made to improve the organization as a whole. This type of structure uses a different motivational technique, called Theory Y This holds that self-motivation gets better results. . Theory Y managers believe that the satisfaction of doing great work is a good motivator, and that managers need to be open to other forms of motivation (compliments, greater responsibility, etc.) to get results. Thus, incentives range from purely monetary to a broad range of emotional and attitudinal issues that allow for the individual to complete tasks. For managers, applying Y principles, workers receive independence and responsibility for work -- opportunities to excel and less direct supervision (Sahin, 2012).