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The Role Of Compensation In Employees Motivation Business Essay

Compensation is a manner of finding equal and just wage to an employee for his/her part to the organisation ( Gupta, 2006 ) . The construct of compensation can be traced far back to the early nineteenth century when Fredick.W. Taylor, brought the construct that employees should have a just day-to-day pay relation to their part to the organisation ( Beach, 1980 ) . Harmonizing to Beach ( 1980 ) organisation should establishment and implement sound policies and patterns of employee compensation. Although in pattern it shows that most organisations have established policies on employee compensation yet most employees are in satisfied. This can be supported by a survey conducted by Assy ( 2009 ) which showed that 74.7 % of the employees were non satisfied with their occupations and the chief factor lending toward this was unequal compensation. Another survey conducted by Kimbori ( 2009 ) showed that 128 out of 138 respondents were happening their compensation bundle to be unequal.

A survey by Kiuns ( 2008 ) besides showed that 75 % of the employee felt that one of the major causes of employee turnover in organisations was unequal compensation.

This essay is configured to find the factors that contribute to the equal compensations to employees. Subjects such as Motivation, Job satisfaction, every bit good as Types of Compensation will be consecutively portrayed in the construction of this essay these above subjects will be at the same time be analyzed in item to acquire the clear apprehension to what equal compensation is and how it relates to the motive of employees in Tanzanian context. Finally, decision of the essay will supply the aggregative sum-up of the full essay.


As defined earlier compensation is a manner of happening the best manner to compensate an employee ‘s part to the operations in the organisation. Compensation is a phenomenon that has a legion importance to any organisation. One of the grounds why it is considered so of import is because human existences are a portion of an organisation. The nature of human existences involves the demand of being recognized and considered for what they have done in footings of parts and accomplishments in an sphere. The compensation that an organisation puts out for its employees can enable the fulfilment of this satisfaction. Therefore organisations ever aim at finding appropriate and just payments to their employees for their part to the success of the organisation. When we examine methods of compensation that can really be applied in the workplace, we can usually look at the followers:

Methods of compensation

There are many strategies that have been employed for the compensation of persons in the organisations ; literature has divided the compensation system into three chief classs viz. : Time-wage system, Piece Wage System and Balance or Debt Method. Others have merely categorized these methods into ; piece rates, rewards, wages, net income related wage, Profit portion: every bit good as Bonus schemes which include, Gross saless fillips: Performance fillip: Christmas fillip: below is the account of the different methods that are used for the compensation of employees in the organisation.

2.1.1 Time-Wage system

Under this system, rewards are paid on footing of clip spent on the occupation regardless of the work done. The unit of work may be a twenty-four hours, hebdomad, or month. The system is suited in the undermentioned fortunes:

Where units of end product are non-measurable

When employees have small control over the measure of end product

When holds in work are frequent and beyond the control of the employee

When quality of work is particularly of import

When supervising is good and supervisors know what constitutes a “ just twenty-four hours ‘s work ”

When competitory conditions and cost control do non necessitate blare advance the precise cognition of labor costs per unit of end product

Where machinery and stuffs used are really sophisticated and expensive

Work is of a extremely varied nature and criterions of public presentation can non be established

Employees and trade brotherhoods strongly oppose incentive payment

When workers are new and larning the occupation

When corporate attempts of a group of individuals are indispensable for finishing the occupation

2.1.2 Piece Wage System

In this method the wage is based on the sum of work done or end product of a worker. One unit of end product is considered as one piece and a specific rate of pay is paid per piece. The system is suited in the undermentioned fortunes:

When work done by an single worker can be measured accurately. E.g. production of standardised goods in a mill

When the measure of end product depends straight upon the accomplishment and attempt of the worker

Where the flow of work is regular and breaks are minimal, i.e. insistent occupations

Where quality and craft are non really of import

In big scale production affecting heavy operating expenses and wide supervising

When competitory conditions and cost control require that labour cost per unit is fixed in order

When methods of production are standardized and the occupation is of a insistent nature

2.1.3 Balance or Debt Method

This method involves the combination of Time and Piece Wage Systems.

The worker is guaranteed a clip rate with an alternate piece rate

If the rewards calculated at piece rate exceed the clip rate, the worker gets recognition

On the other manus, if the clip rewards exceed piece rewards, the worker is paid clip pay and the shortage is carried frontward as a debt to be recovered in future.

Another manner of looking at the compensation method involves sing the followers:

Piece Rate

This is the most simplest of all the payment methods. Here the workers are being paid for each point that they really produce in their organisation. This really has a manner of doing workers to bring forth every bit fast as they can because this will increase the sum of money that they will acquire. The more the production the more they are certain of acquiring in footings of hard currency. The payments are made when the work is completed. There is a draw back to this method. The latter is the fact that, there should be a great trade of supervising from the employer to guarantee that the goods that are produced really fast are besides at a high criterion or quality.


Wagess are payment that are made on the footing of the hours that the employees spend working in the organisation. For case an employee may be paid 2000Tshs an hr. There is some security in being paid a pay and those who earn rewards will likely be able to work overtime to increase incomes. I do non see that being a waged worker is a job, as lower degrees of Maslow ‘s hierarchy are rather frequently satisfied by a nice pay, but what does affair is the degree of the pay. For many big concerns there is one big group of manual or production workers who are paid hourly and a group of administrative and selling workers who are paid a wage, and this difference in methods of payment can do bitterness and forestall the dislocation of barriers within concerns. A ‘them and us attitude ‘ can be reinforced by the unnaturally created separation of waged and salaried employees, when in fact the lone difference may be one group wear suits to work the other does non.


Wages are payments that are made on an one-year rate. The incomes of wages are received in monthly period straight into the histories of the employees in inquiry. Wages are a good concern manner of guaranting that the employees work is awarded at the clip when he or she has to the full completed the work in the specific period. They hence make a good concern sense in the fact that they guarantee they are paid monthly in arrears, this means that employees need to wait up to a month to obtain the income that they have worked for. This besides means that there is improved hard currency flow for the concern and improved bank balances. Besides it is simpler and safer to pay money by a bank transportation than in hard currency. Salaried workers are non usually paid overtime but may have other fiscal benefits. This non-payment of overtime does non intend that they do non work more than their contracted hours, they frequently do, but it does intend that employers may non be apt to pay for this excess work.

Net income related wage.

There are those payments that links portion of an employee ‘s income to the net incomes of a company. Normally the people who obtain or are compensated utilizing the net income related wage have wages which are really little than expected and therefore it ensures that the net income is high to be able to obtain a higher overall income aggregation. This procedure besides reduces the issue of revenue enhancement being taken from the wage of the employee. Hence this method is good for non merely the concern but besides the person.

Bonus strategies

There are many facets that fall into the class of fillip strategies. These strategies are suited to the diverseness of the employees who are engaged in different occupations that they are making. These strategies are as follows ;

Gross saless fillip: This is usually paid if a gross revenues mark has been reached. For gross revenues people this may do up a important portion of their wage.

Performance fillip: This can be paid to an person or on a group or mill broad footing, and is frequently paid for making marks of end product and quality. This method of payment is an of import portion of Human Resource Management.

Christmas fillip: Often called a 13 month ‘s salary, paid for trueness to the concern. In some states such as Germany virtually all companies will pay a Christmas fillip.

Net income portion: Some concerns will pay a per centum of net incomes to employees. The sum that they receive will usually depend on salary and length of service, so honoring those that had been with the company longest, more.

Fringe Benefits

Other signifiers of fiscal motive include company autos, pension strategies, sickness benefits, subsidized repasts and travel, and staff price reductions. These are frequently grouped together under the header periphery benefits. Some of these fringe benefits can be regarded as indispensable in promoting the right appliers for certain types of vacancies. For illustration a company auto is a necessity in fiscal service houses for anyone involved in gross revenues, and senior direction in many companies would anticipate both an up market auto and private wellness attention.

Definition and the Concept of motive

Motivation can be defined as a psychological procedure that exerts high degree of attempt to make organisational ends conditioning by the attempts to some persons ( Prasad, 2001 ) . The term motive can be traced to the Latin word “ movere ” which means to “ travel ” . Today all people, practicians and bookmans have their ain definition of motive, but normally one or more of the undermentioned words are included: desires, motivations, wants, demands, attempt, ends, purposes, thrusts, wants and inducements. In order to understand the construct of motive, we have to analyze three chief footings before specifying motive and these include motivation, motivation and the word itself motive.

3.1 motivations

Motivation can be described as restlessness, a deficiency, a hankering or a force. Once in a clasp of motor the being does something to cut down the restlessness, to rectify the deficiency, to relieve a hankering or to extenuate the force. From the above description we can distinguish the term needs, wants and demand.

A demand can be defined as a desire which includes both physiological and psychological for something. It can besides be said as basic human demand. It includes instruction, shelter, sex, nutrient and apparels.

Privations are demands which are directed towards specific thing. Example a individual is hungry but to fulfill this demand the individual wants to eat poulet and Gallic french friess. Therefore here the demand is non any type of nutrient but specific nutrient that is chicken and Gallic french friess.

Demand can be defined as wants for specific merchandise backed by ability and willingness to pay for it. Example a individual wants to go by air to Arusha but if he/she has the ability to pay for the airfare and besides if he/she is willing to pay for it is known as demand. ( Davis, K and Newstrom, J 2004 ) .


There are three types of motivations which include: Primary motivations, general motivations and secondary motivations. These motivations are explained below.

3.2.1 Primary motivations

This is besides known as physiological, biological or unconditioned motivation. For a motivation to be included in this class it must be unconditioned and physiological based. Examples of this type of motor include: hungriness, thirst, and slumber, turning away of hurting, sex and maternal concern.

3.2.2 General motivations

Normally such class of motivation does non necessitate to be but it seems necessary as there are figure of motivations which lie between primary and secondary class. For a motivation to be included under this class it must be unlearned and non physiologically based. Example include: Affection motivation ( Love and fondness is a really complex signifier of general motivation )

3.2.3 Secondary Motivations

These are closely tied to the acquisition construct. A motor must be learned in order to be placed under this class. Example includes: demand for accomplishment, demand for power, demand for association, need for security and demand for position.

Motivating. This is a term which implies that one individual ; in the organisation context a director induces another say employee, to prosecute in action ( work behavior ) by guaranting that a channel to fulfill the motivations becomes available and accessible to the person. This satisfies both the person and the organisation.

One of the common definitions of motive is as follows: Motivation is a psychological procedure that exerts high degree of attempt to make organisational ends conditioning by the attempts ability to fulfill some person. ( Prasad 2005, p145 )

The figure below shows the relationship between motivations, actuating and motive




Needs in the persons

Battle in work behaviour

Triping demands and supplying need satisfaction environment

Beginning: ( Robins, S 2004 ) .

nature of motive

Based on the definition of motive we can deduce its nature relevant to organisational behaviour. Following features of motive clear up its nature.

1 ) Based on Motivations. Motivation is based on person ‘s motivations which are internal to the person. These motivations are in signifier of feelings that the single deficiencies something. In order to get the better of this feeling of lackness he/she tries to act in a mode which helps in get the better ofing this feeling. ( Gupta, C.B, 2006 )

2 ) Affected by actuating. Motivation is affected by ways single is motivated. The act of actuating aid in fulfilling the demand and activates the latent demand in the person. ( Gupta, C.B, 2006 )

3 ) Goal- directed Behaviour. A end directed behaviour is the one which satisfies the causes for which behaviour takes topographic point. Motivation has profound influence on human behaviour in the organisation context. . ( Gupta, C.B, 2006 )

4 ) Related to satisfaction. Satisfaction refers to the contentment experience of an person which he/she derived out of the demand fulfilment. Satisfaction is a effect of wagess and penalties associated with past experience. It provides the agencies to analyze results already experienced by the persons. . ( Gupta, C.B, 2006 )

5 ) Person Motivated in Totality. A individual is motivated in entirety and non in portion. Each person in an organisation is a self – contained unit and his/her demands are interrelated. This affects his/her behavior in different ways. Feeling of demands and their satisfaction is a uninterrupted procedure. ( Gupta, C.B, 2006 )

6 ) Complex procedure. Motivation is really complex.This is because of the demands are besides really complex. ( Gupta, C.B, 2006 )

Types of motive

Self -Determination Theory ( SDT ) which was conducted by Edward L.Deci and Richard Ryan by and large gives us to type of motive.

a ) Intrinsic Motivation

This is a type of motive that comes from personal satisfaction of work itself, for case one voluntary ‘s for a community work such as cleaning the environment by run outing the clotted drains and aggregation of refuse. Here the motive for making the occupation does non come from expressed wagess but linked to the occupation since the engagement is voluntary. ( Robins, S 2004 ) .

B ) Extrinsic Motivation

This type of motive is largely touchable and seeable by others. They are distributed by other people ( or agents ) . In a work topographic point extrinsic motive includes wage, benefits and publicity. Normally a individual works hard in an organisation so that he/she is promoted or given a better wage. ( Robins, S 2004 ) .

motive and behaviours

Motivation causes goal- directed behavior. Needs is the base for a motive which is a sort of mental feeling in an person that he/she needs something. This deficiency of something creates tenseness in the head of single. Since the tenseness is non an ideal province of head the persons attempts to get the better of this by prosecuting himself in a behavior through which he satisfies his demands.

If the environment is favourable end directed behaviour leads to goal- fulfilling and the single succeeds in carry throughing his demands thereby get the better ofing his tenseness.

Summary of Goal – directed behavior


Goal fulfilment


Goal – directed behavior

Favorable environment

Beginning: ( Gupta, C.B, 2006 )

If the environment is unfavourable the demands of persons is non fulfilled and hence leads to defeats. Frustrations can be defined as the accretion of tenseness due to non fulfilment of demands. ( Prasad 2005, p149 ) At this phase the person will seek to set his behavior to get the better of the factors responsible for non fulfilment of his/her demands. This means utilizing defensive mechanism like ( I ) Aggression which include supplanting, negativity, and arrested development. ( two ) Withdrawal which includes phantasy, arrested development, repression and flight. ( three ) Compromise which includes designation, rationalization, reaction and projection.

Summary of Need non – fulfilment and defensive mechanism

Non -Fulfillment of demands








Defensive mechanism


Beginning: ( Robins, S 2004 ) .

motive public presentation

Motivation has a direct relationship with public presentation. If people do non experience inclined to prosecute themselves in work behavior they will set in necessary attempt to execute good.

However single public presentation besides depends on other factors beside degree of motive. How motive works with other factors in shown in the figure below.







Role of perceptual experience

Sense of competency


Beginning: ( Robins, S 2004 )

Motivational theories

Below are some theories that may set an penetration to the facet of motive:

3.7.1 Maslow ‘s theory

Maslow ‘s hierarchy of demands has proved to be a valuable usher to managerial forces sing employees ‘ single demands. It confirms that in add-on to their fiscal demands, employees are motivated by their societal, esteem, and self-actualisation demands, which they expect to be punctually considered by direction.

3.7.2 ERG Model

The ERG theory resembles the hierarchy of demands theory inasmuch as it partially recognizes the inclination for persons ‘ desires to come on upwards as they satisfy lower-level demands. It differs from the hierarchy of demands theory nevertheless, in two respects. First, it permits more than one class of demands to run at the same clip. Second, the ERG theory recognizes defeat, i.e. if a individual continually fails in his or her efforts to fulfill one class of demands, say growing demands, the old demand class i.e. relatedness demands can reappear and rule the individual ‘s behavior. For case, an employee who fails to do it to a managerial occupation may still airt attempts towards co-operation with others, i.e. a relatedness demand. In this manner, it is less stiff than Maslow ‘s theory, which is a uni-directional step-like patterned advance.

3.7.2 Three demand theory

Another motive theory based on demands is the three demands theory proposed by David McClelland and his co-workers. Their needs categorization includes accomplishment, power, and association, which are explained as follows:

Achievement needs i.e. the desire to stand out, to endeavor to win, to accomplish in conformity with a pre-set criterion.

Power demands i.e. the desire to do others make what you want them to make, which they would otherwise non hold done.

Affiliation needs i.e. the desire for friendly relationship, and to cultivate good interpersonal relationship with people.

3.7.3 Equity Theory

The equity theory, propagated by Adams, states that the being of feelings of unfairness will actuate an single employee to cut down that unfairness. That is, the employee ‘s feelings that compared to his or her equals, he or she is seting more attempt into the occupation than he or she is gaining in footings of satisfaction, salary, and benefits, will actuate him or her to work harder in order to cut down if non extinguish the bing unfairness.

compensation with motive

The issues of motive have for along period of clip been linked to the construct of motive. The initial theoreticians such as Fredrick Taylor had put out that the workers in an organisation will go more active and therefore more motivated if they were paid for their work.

The behavioural theoreticians nevertheless have come with a different attack. They have highlighted that money is non a incentive. Till today though it is argued that money does actuate single, but when the wages to persons is given as a fillip on say net income made and the similar, so the employees become extremely motivated to make their work.

Others say that there should be an appropriate strategy such as those which are related to gain fillips etc that will actuate employees.

Therefore organisations should carefully detect their compensation strategies to seek guarantee that they do actuate their employees with this in head, one should cognize that there are specific compensation strategies that will work for a specific person, company, sector, industry etc.

There are other industries that may non be affected by the facet of pecuniary compensation inn general while there are other industries that will wholly depend on the pecuniary compensation as a key to their employee motive.

Job satisfaction

Job satisfaction refers to depict how content an person is with his or her occupation. The happier people are within their occupation, the more satisfied they are said to be. Job satisfaction is non the same as motive, although it is clearly linked. There has been a immense linkage that most bookmans have developed between the constructs of occupation satisfaction and how compensation is one of the many facets that contribute to this satisfaction.

5.1 Herzberg ‘s two factor theory

One of the earliest theories on how to guarantee that employees are satisfied and remain in the organisations is that of Fredrick Herzberg ‘s motivator- hygiene theory, Herzberg ‘s theory proposes that every worker has two sets of demands or demands: incentive demands and hygiene demands ( George & A ; Jones, 1999 ) . Motivator demands are associated with the existent work itself and how ambitious it is. Job aspects such as interesting work, liberty on the occupation, and duty satisfy incentive demands. Hygiene demands are associated with the physical and psychological context in which the work is performed. Job aspects such as the physical working conditions ( for illustration, the temperature and pleasantness of the milieus ) , the nature of supervising, wage, and occupation security satisfy hygiene demands. ( Mohamed, 2009 ) .

5.2 Facet theoretical account of occupation satisfaction

The facet theoretical account of occupation satisfaction focuses on work state of affairs factors by interrupting a occupation into its component elements and looking at how workers are satisfied with each component. A worker ‘s overall occupation satisfaction is achieved by summing up his/her satisfaction with each occupation element/work component.

The facet theoretical account of occupation satisfaction outlines the work elements as ability use, accomplishment, activity, promotion, authorization, company policies and patterns, compensation, colleagues, creativeness, independency, moral values, acknowledgment, duty, security, societal service, societal position, human dealingss supervising, proficient supervising, assortment and working conditions ( David, 2008 ) .

5.3 The disagreement theoretical account of occupation satisfaction

This theoretical account states that for workers ‘ to find their degrees of occupation satisfaction, they compare their occupations to some ‘ideal occupation ‘ and that ‘ideal occupation ‘ could be what one thinks the occupation should be like, what one expects the occupation to be like, what one wants from the occupation or what one ‘s former occupation was like when workers expectation about their ‘ideal occupations ‘ are high and when these outlooks are non met so workers will be dissatisfied and the opposite is true ( David, 2008 ) .

5.4 The steady -state theory of occupation satisfaction

The theory suggests that each worker has a typical characteristic degree of occupation satisfaction, called the steady province equilibrium degree. Different situational factors/events at work may travel a worker temporarily from this steady province, but the worker will finally return to his/her equilibrium degree. Example, publicity may hike the worker ‘s occupation satisfaction but finally the worker will return to equilibrium degree ( David, 2008 ) .


If you pay peanuts you get monkeys, this was one of Herzberg ‘s favorite expressions, and although many observers focused on his motive factors, he was frequently at strivings to emphasize the importance of hygiene factors. Herzberg stressed that wage and other signifiers of fiscal wage are cardinal methods of guaranting the satisfaction of workers and hence we must see, how workers can be motivated, by the different types of fiscal offered by employers. Therefore the facet of compensation to employees is of significance to the well being of organisations. The benefits of counterbalancing employees adequately include the undermentioned, equal employee compensation enables the employees to be motivated thereby increasing their productiveness. In a good compensation bundle is besides of import to retain employees in the organisation therefore avoiding cost in preparation and developing new employees. Surveies have indicated that appropriate employee compensation is related to employee motive, occupation satisfactions every bit good as employee keeping. The relationship between equal employee compensation, employee motive, employee occupation satisfaction and employee keeping have a positive relationship has been scaled to be positive and hence imperative to be for the banking industry to recognize the function of equal employee compensation as it would straight take to employee motive, employee occupation satisfaction and employee keeping in the organisation.

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