CHAPTER 5: DISCUSSION AND INTERPRETATION OF RESULTS
5.2 Key Empirical Findings Drawn from the Literature
This study started-off by deriving and recognising four main research propositions from the literature review, namely (1) remuneration theories (i.e. economic-inclined and psycho- logically-inclined motivational theories), (2) factors driving pay, (3) remuneration compo- nents and (4) impact of remuneration components on company performance. Figure 5.1 shows the linkage between these research propositions as derived from the literature.
Proposition 1 Proposition 2 Proposition 3 Proposition 4
Economically-inclined remuneration theories
Psychological motivation remuneration theories
Influence Remuneration
Strategy / Drivers Determine Remuneration
components Impacts Corporate perfor- mance
28 Figure 5.1: Research propositions
Page | 150 The propositions and their linkages were drawn from the literature. Perkins and White (2008: 60) categorised remuneration drivers into economic-inclined remuneration theories and the psychological motivation remuneration theories. The principle of economic- inclined remuneration theories is that there is competition for labour in the same way that within a capitalist society goods and services are traded in a market. In this regard, em- ployers seek to purchase labour at the best price and employees seek to sell their labour within this market at the best price.
Psychological motivation remuneration theories on the other hand place greater emphasis on behavioural and biological factors and are based on the need to understand how people at work are motivated as remuneration systems affect employee behaviour and act as a managerial lever for employee performance (Perkins and White, 2008: 49).
These models are the theoretical foundations that inform and influence remuneration poli- cies and practices, which ultimately impact on corporate performance. It thus goes without saying that these models should be considered by employers when designing remuneration policy in order to enhance its effectiveness and encourage higher levels of motivation and resultant levels of performance (Lawler, 2000).
According to Brown (2001), “the satisfactory management of employment requires the sat- isfactory management of remuneration as a necessary, if not a sufficient, precondition”.
Whilst remuneration may not be a sole motivator, it is a critical if not indispensable moti- vating factor, of which the absence thereof or dissatisfaction with the absence thereof could have catastrophic consequences for the organisation‟s performance.
The nature and quantum of remuneration originate from an organisation‟s remuneration strategy framework, usually formulated by the Board of Directors, which encompasses strategic direction on the organisation‟s approach to remuneration by providing strategic pointers to policy, best practice principles and a framework with respect to the level and form of remuneration that must be paid in order to attract, motivate and retain the right people (Mahoney, 1989). It usually seeks to align and ensures that remuneration policies and practices mirror and provide leverage to the organisation‟s business vision, mission and values that underpin the business strategies.
Page | 151 The main conventional principles that underpin a typical organisation‟s strategy for a re- muneration structure are the pay-for-the-job strategy; pay-for-the-market strategy; pay-for- the-person strategy and the pay-for-performance strategy (Mahoney, 1989). Given these varied strategies, remuneration structures can be designed in an unlimited number of ways and a single employer typically uses a combination of several ways to design remuneration packages appropriate to their organisations and industry, with a broadly defined remunera- tion package usually constituted by a combination of fixed and variable pay (Bratton and Gold, 2007).
Fixed pay is generally time- and skills-related, meaning the more time is made available by the employee to the employer and the higher the skills levels of the employee, the greater the level of pay. However, fixed pay is not necessarily considered by employees to be re- wards, but regarded as entitlements (Wood et al 2005: 151). Consequently, its effect on both individual and corporate performance is to a greater extent limited and is thus not suitably aligned to the trend of rewarding for performance.
Resultantly, the presence of satisfactory fixed pay will not trigger performance or job satis- faction, but its absence will create job dissatisfaction (Wood et al 2005: 149). Dissatisfied employees reduce moral, are disruptive (Porter et al 2002: 343-345) and make smaller con- tributions to productivity than their satisfied counterparts. Thus, while money is not a mo- tivational factor for many „placed‟ employees, it is still used as a successful attraction method for potential employees (Wood et al 2005: 151). Fixed pay is thus a factor largely determining decisions by employees as to whether to remain in employment but not influ- encing job related behaviour or motivation driving employees to try harder.
Conversely, the variable pay approach is underpinned by the need for greater wealth shar- ing in order to stimulate both individual and corporate performance. It rewards perfor- mance and reflect the different impacts that individual and team performance have on overall business performance (Lawler, 2000). It ensures that remuneration is aligned to or- ganisational performance and varies in relation to organisational performance. Employees enjoy higher compensation whenever they increase shareholder value and are penalized for any actions that destroy shareholder value. The common types of variable or performance
Page | 152 related pay are the Short-Term Incentives (STI), Long-Term Incentives (LTI) and the Commission Schemes. These were discussed extensively in Chapter 2.
There is general consensus in both the literature and general market that variable remu- neration is the single significant contributor to individual performance and ultimately or- ganisational performance. Becker et al, 1997 argue that variable remuneration has become an interior constituent of a performance management systems and an “essential element of the infrastructure that supports the value creation process” as it tend to provide strong mo- tives to compel employees to give their best.
Bratton and Gold (2007) suggest that correctly designed performance-based pay systems have numerous advantages. Firstly signal key task behaviours and provide information about current performance levels. Second, they reduce the need for other types of manage- rial control over the labour process. Third, the practice helps to change the culture of the organisation and promote an entrepreneurial type of behaviour
Becker et al (1997) advocate that variable incentive compensation plans are a critical suc- cess factor for organisational performance and “must define desired employee behaviours and reward those behaviours in meaningful ways when goals are achieved” and should “re- flect the values of the workforce that the organization wants to attract”
It is thus unsound to look at incentive schemes in seclusion from wider motivational fac- tors. Incentive plans are just but one instrument available to Managers when facing the composite challenge of creating and sustaining a high performance culture in the organisa- tion. Of course there are many options and the research in the area is immense.
Literature has undoubtedly confirmed that performance-based pay positively influence corporate performance. The pay-for-performance practice is therefore critical strategy for motivating employees to expend greater efforts to drive corporate performance.
The results from this study support the literature propositions. Evident from the study is that while fixed pay was identified as the second remuneration component that was in- creased to a greater extent, aside from variable pay (i.e. performance-related short-term
Page | 153 incentive), its perceived impact on corporate performance was found to be rather very lit- tle. Variable pay on the other hand was identified as the remuneration component that was increased to a very greater extent with its perceived impact on corporate performance hav- ing been found to be highly positive.
It is evident from the literature that it is the varied remuneration theories that shape an or- ganisation remuneration strategy and policy framework, which framework define the re- muneration components which would ultimately impact on organisational performance. It also follows that whilst fixed pay still constitute a critical component in remuneration deci- sions, its quantum in relation to the total compensation package need to be carefully looked at given its limited impact on both individual and corporate performance. This calls for a rather delicate balancing act as to what proportion it should account for in relation to vari- able pay, which has been empirically confirmed to have a high positive impact on compa- ny performance.
The linkages between the research propositions drawn from the literature has been con- firmed and is specifically now known for Namport.