Compensation Strategies and their Impact
The compensation strategy used by an organisation plays an important role in an organisation’s performance. Accounting and accounting regulators are interested in compensations options used by organisations. This study seeks to review studies addressing the impact of employee benefits on organizational performance. Two studies have been chosen for review. The first study by Kehinde A. Obasan investigated the effect of Compensation Strategy on Corporate Performance using Nigerian Firms as a case study. The second study by Pamela F. Resurreccion focused on Performance Management and Compensation as Drivers of Organization Competitiveness: The Philippine Perspective.
Their employees’ potential influences the performance of a company in a competitive business environment. The employment relationship is an important factor for profit-oriented companies (Obasan, 2012, p. 38). Employees offer their input in the form of expertise and skill and return expect different forms of compensation from the employer (Resurreccion, 2012, p. 53). Compensation is important to the employees because it influences their security, living standard, well-being, and status. On the other hand, employers view compensation from two perspectives. First, it is a cost that should be controlled. And second, compensation is an investment that should generate optimum returns. The two studies should address the general concept surrounding compensation strategies (Obasan, 2012, p. 39) (Resurreccion, 2012, p. 56).
Specifically, the articles were chosen because they address the following issues on compensation strategies and how they influence the employment relationship;
- They examine the structure and nature of compensation strategies used by corporates.
- They analyse the impact of compensation strategies to the organisations and the employees.
- The studies investigate the relationship between compensation strategies and corporate performance.
- Purpose and research question(s) for the two studies
The study by Obasan, (2012) focussed on examining the impacts of compensation strategy on corporate performance. The author sought to address the empirical and critical aspect of compensation strategy and how it affects economic and business finance fields. Based on the purpose of the research, Obasan examined the research question below;
On the other hand, the study by Resurreccion, (2012) focussed on determining the relationship between compensation practices, performance management and corporate competitiveness in the industry. Resurreccion focused her study on the performance of the Multi-Corporation and small and medium enterprises (SMEs) in the Philippines.
The two studies were based on different topics; therefore, the findings were different. The study, the effect of Compensation Strategy on Corporate Performance by Kehinde A. Obasan found the following;
First, good compensation and employees benefits are important in enhancing organizational productivity and performance (Resurreccion, 2012, p. 67).
Second, Nigerian Corporations cite high operating cost to offer their employees inadequate compensation and benefits.
Third, Nigeria has enacted labour laws that guide the compensation strategies that employers should offer their employees. However, the employers do not bid to the requirement of the labour law when it comes to enforcing compensation and benefits practices (AICPA, 2016, p. 37).
Review of Two Studies
Fourth, Employees believes that organizations are more likely to generate more returns compared to the cost incurred when they provide the right compensation and benefits packages (Goodman & Lorensen, 1977, p. 54).
On the other hand, the study, Performance Management, and Compensation as Drivers of Organization Competitiveness by Pamela F. Resurreccion had the following findings;
First, employees’ compensation and benefits are significant to the effectiveness of an organisation.
Second, the implementation of effective employees’ compensation and benefits increases the chances of an organisation’s competitiveness in the industry (Ozkan, 2011, p. 79).
Third, companies that offer competitive compensation and benefits packages are more profitable compared to those that do not provide competitive compensation and benefits packages (PricewaterhouseCoopers LLP, 1998, p. 89).
Fourth, the Company’s competitiveness increase when their employees perceive that the compensation strategy is favourable and will positively impact their living standard and well-being (Biswas, 2012, p. 69).
A comparative analysis of the two studies shows their differences based on the findings. The studies focussed on two different research topics even though the study area was the same (employees’ compensation and benefits and corporate performance. Amidst the differences, the studies had general similarities as well. The following similarities were found;
First, Compensation and employee benefit are important to the growth and productivity of a company. Therefore corporates should develop and incorporate effective employee benefits in their organisational goals and objectives. Effective employee benefits help to meet the employees’ needs who in return offer their expertise and skill to the employer (Christian & Lüdenbach, 2013, p. 101).
Second, the studies focused on employees’ compensation (pay and benefits) and organisational productivity. Corporate organisations should redesign their compensation strategy to be employee driven. Companies are known to apply rigid compensation strategies that do not benefit their employees. Compensation and employee benefits should go beyond monetary compensation (Berger, 2012, p. 80). Employees want diversified reward choices. Based on the current trend in the market, employees are ready to forgo part of their monetary compensation for non-monetary compensations. Therefore, compensation and employee benefit policies should be administered in a manner that they meet the needs of both the employees and the employers (Milkovich, 2005, p. 45).
Third, the increasing competition in the global market has pushed companies to appreciate the value of human capital. An organisation is striving to align their business strategies with human resource practices. Compensation and employee benefits are major determinants of corporate competitiveness in the market (Biswas, 2014, p. 73).
Implications for Accountants and Regulators
Fourth, Companies should adopt convenient and flexible compensation and employee benefits that provide high package benefits and attractive retirement compensation. Such policies contribute to the competitiveness of an organization (Christian & Lüdenbach, 2013, p. 88).
This section highlights the implications of the findings from the two studies and how they can assist external stakeholders such as accountants in Australian companies, accounting regulators and the Australian government.
First, accountants should not perceive a competitive compensation package as an additional cost to an organization. They should find a balance between maintaining an organizational cost as the desired level and providing lucrative compensation to the employees.
Second, accountants should ensure that the company abides by the recommended compensation strategies in the market.
First, the study encourages the accountant to seek additional compensation packages instead of providing pay rise to the employees.
Second, Accountants should come up with short term, medium term and long term compensation packages for their employee
First, accounting regulators should ensure that companies adhered to the established accounting compensation and benefits packages for the employees.
Second, ensure that compensation packages are well defined to avoid conflicts between the employers and the employees.
First, accounting regulators should consider all the factors that impact employees’ compensation and benefits when developing accounting policies guide compensation strategies.
Second, regulators should develop matching accounting principles that support both the services provided by the employees and the compensation offered by the employer (Mirza, et al., 2011, p. 54).
First, the study showed that employers do not respect the established labour laws. Therefore, the government should foresee that the laws have been respected.
Second, the government collects taxes from corporate organisations. Likewise, when employees are compensated well, they are more likely to contribute to economic growth and development. Therefore, the government should advocate for lucrative compensation to the employees (Biswas, 2012, p. 93).
First, just like in the study by Kehinde A. Obasan, the government is interested in the operations of the corporate organisation as an income generating entity.
Second, based on the study findings, the government should ensure that the employees do not discriminate against the employees from compensation and other benefits. The employers ought to adhere to the set accounting policies on employment benefits (Milkovich, 2005, p. 108).
Conclusion
Two studies were chosen for review. The first study by Kehinde A. Obasan investigated the effect of Compensation Strategy on Corporate Performance using Nigerian Firms as a case study. The second study by Pamela F. Resurreccion focused on Performance Management and Compensation as Drivers of Organization Competitiveness: The Philippine Perspective. The studies had there similarities and differences.
The studies found out that the increasing competition in the global market has pushed companies to appreciate the value of human capital. While employees want diversified reward choices, employers view lucrative compensation and benefits as additional operating cost. Compensation and employee benefits should go beyond monetary compensation. Employees. Therefore, compensation and employee benefit policies should be administered in a manner that they meet the needs of both the employees and the employers.
Lastly, the two studies focussed on different research topic which contributed to the differences in the findings.
References List
AICPA, 2016. Audit and Accounting Guide: Employee Benefit Plans. New York: John Wiley & Sons.
Berger, T. M.-M., 2012. IPSAS Explained: A Summary of International Public Sector Accounting Standards. New York: John Wiley & Sons.
Biswas, B. D., 2012. Compensation and Benefit Design: Applying Finance and Accounting Principles to Global Human Resource Management Systems. New York: FT Press.
Biswas, B. D., 2014. Employee Benefits Design and Planning: A Guide to Understanding Accounting, Finance, and Tax Implications. London: Pearson.
Christian, D. & Lüdenbach, N., 2013. IFRS Essentials. New York: John Wiley & Sons.
Goodman, H. & Lorensen, L., 1977. Illustrations of accounting for employee benefits. New York: American Institute of Certified Public Accountants.
Milkovich, G. T., 2005. Compensation. 8th ed. New York: McGraw-Hill/Irwin.
Mirza, A. A., Holt, G. & Knorr, L., 2011. Wiley IFRS: Practical Implementation Guide and Workbook. New York: John Wiley & Sons.
Obasan, K. A., 2012. Effect of Compensation Strategy on Corporate Performance: Evidence from Nigerian Firms. Research Journal of Finance and Accounting, 3(7).
Ozkan, N., 2011. CEO Compensation and Firm Performance: an Empirical Investigation of UK Panel Data. European Financial Management.
PricewaterhouseCoopers LLP, 1998. Understanding new international accounting standard 19: employee benefits. New York: PricewaterhouseCoopers LLP.
Resurreccion, P. F., 2012. Performance Management and Compensation as Drivers of Organization Competitiveness: The Philippine Perspective. International Journal of Business and Social Science, 3(21).
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