Compensation and Employee Benefits


The papers should be at least 13 full pages long (1” margins, Times New Roman font, 12 pt., double spaced without additional spacing or unnecessary page breaks), excluding the title page, abstract and bibliography.
· Cites the proper number of articles from the approved list (or pre-approved).
· Provides an integrated review of the information contained in the articles that represents at least 80% of the body of the papers, excluding the comparison and personal views sections.· Includes a complete bibliography of all works cited in the body of the papers.
· Includes proper citations for all material obtained from the articles.
· Meets the 13 full page and formatting requirements.
· Includes a separate, identified section (at least 2 pages) with personal views and recommendations beyond a general summary or restatement of the information in the review section;
· Includes a separate, identified section (at least 1 page) with a comparison of the quality of information from the various sources;
· Reflects senior level work.
· Does not include any quoted material.
· Does not use any material from the textbook or other textbooks.
· Does not include material from books, book reviews in the academic journals, or any other non-approved sources.
· Does not include a general discussion of the topic with minimal information from the articles.
· Does not include plagiarism or excessive paraphrasing representing more that 15% of the paper.
About the source “must use at least 5 articles from academic journals, 3 articles from practitioner journals, and 3 sources from the internet. ” thank you 


Name of Student

Name of Professor

Human Resources Management Paper

22 September 2015

Compensation and Employee Benefits


Introduction. 1

An Integrated Review of the Information Contained in the Articles with Technical Recommendations for Management  2

Pay-for-performance systems. 2

Employee benefits. 6

The link between goals and monetary incentives. 10

Comparing the Quality of Information from Different Sources. 13

Conclusion: My Interpretation of the Information, Practical Implications, and Recommendations. 14

Works Cited. 16


Compensation and employee benefits play a critical role in terms of both increasing productivity and retaining employees. Some of the compensation schemes being used today include pay-for-performance (PFP) (Nyberg, and Pieper and Trevor 27), bonus systems (Locke 130), long-term incentive plans (Park and Sturman 82), and fixed-salary schemes (Dulebohn et al. 4). These methods of compensations are being used by organizations to achieve various objectives, such as attracting high-quality staff, retaining talented workforce, providing incentives for greater productivity. However, the effectiveness of a compensation system may vary depending on many factors, for example method of implementation, contextual and cultural factors, employee preferences, job type, and employee tenure (Cadsby, Song and Tapon 400).


To understand all these dynamics, management of contemporary organizations should seek firsthand information on the technical recommendations generated through empirical findings of studies that analyze the effectiveness of various compensation and employee benefits schemes. Organizational leaders need to obtain information on the technical recommendations provided by academic research regarding the best way of compensating employees in order to retain them as well as get optimal performance.

Indeed, numerous findings and recommendations have been generated by academic journals, practitioner journals, and internet-based studies on how best employers can manage employee benefits and compensation practices. The aim of this essay is to provide an integrated review of information contained in journal articles and internet publications with a view to provide technical recommendations for management. Additionally the essay compares the quality of the information obtained from different sources. Lastly, I offer my personal interpretation of this information, its practical implications, as well as the recommendations that follow from study findings.

An Integrated Review of the Information Contained in the Articles with Technical Recommendations for Management

Pay-for-performance systems

            One of the most widely discussed method of employee compensation is pay-for-performance, also known as merit pay. Pay-for-performance is a scheme of employee compensation whereby remuneration varies depending on output. It is one of the approaches to employee compensation whose justification is derived from the need to resolve agency problems. This is largely because of the way it aligns firms’ preferences with those of employees. The scheme can also be used as a sorting tool for identifying and attracting the most capable workers (Cadsby, Song, and Tapon 387). For instance, “high performance” workers tend to opt for pay-for-performance while their less productive counterparts settle for a fixed salary (Cappelli and Neumark 739). Moreover, the idea of sorting the workforce based on preferences in terms of compensation scheme is in tandem with the person-organization fit philosophy. In this philosophy, the dispositions of employees should must matched with the characteristics of the organization in order for both entities to derive maximum benefits. Thus, organizations should use pay-for-performance not only as an incentive but also as a sorting tool meant to enable them to match workers’ dispositions and organizational characteristics for optimum productivity.

            The main limitation of this sorting process is that its effectiveness is heavily anchored on the ability by employees to undertake a reasonably accurate forecast of their own future productivity and performance. To address this potential shortcoming, management teams responsible for compensation and employee benefits should treat each employee with different compensation packages with a view to discern the impact that each of them will have on individual behavior. This within-person comparison enables organizations to control for variability in terms of employee preferences based on factors such as personality, contextual/cultural factors, and task characteristics (Cadsby, Song and Tapon 400). Moreover, there are many types of PFP schemes, and testing each of them on employees is an ideal way of increasing the chances of coming up with one best suits both the organization and its members.

            Research indicates that pay-for-performance (PFP) is a primary tool that organizations use to encourage employees to produce maximum performance (Nyberg, Pieper and Trevor 24). Although there is an association between performance-related pay and performance, managers must watch out for certain limitations. One of these limitations is that supervisors may affect negatively the relationship between PFP and future performance, for example, through poor evaluation of talent. When employees feel that their talents are not being properly evaluates, they may tend to perform poorly despite the introduction of bonuses (Nyberg, and Pieper and Trevor 24).

            Moreover, the extent to which pay-for-performance practices lead to an increase in performance depends on whether the firm in question is efficient in the implementation of those practices (Perry, Engbers and Jun 45). Another mediating variable is the relationship between bonus pay and merit pay in a firm. Organizational differences in this regard may mean that one organization succeeds in the use of pay-for-performance practices while another fails in the use of these same practices (Nyberg, and Pieper and Trevor 27). The view that PFP promotes future performance contradicts traditional economic models, which embrace the notion of rational self-interest. The view promoted by recent literature is that a rise in bonus pay as a percentage of the base pay enables many companies to increase productivity (Nyberg, and Pieper and Trevor 25; Perry, Engbers and Jun 43).

            PFP leads to a positive outcome in terms of performance even for low-ranking employees. This means that it should be applied throughout the organization in order for maximum benefits in terms of improvement in performance to be achieved. PFP’s benefits are twofold; it attracts employees of a higher quality while at the same timer motivating the existing employees to work harder (Cadsby, Song and Tapon 399).

            Another crucial finding is that labor costs tend to be lower under pay for performance schemes. Thus companies seeking to lower their cost of production should adopt performance-related compensation schemes. However, the reduced labor costs may vary depending on the specific parameters of PFP that are being compared with fixed-salary schemes.

            Moreover, whenever employees are allowed to choose their preferred method of compensation, those who choose pay-for-performance often end up earning higher wages than they used to earn under the fixed salary method (Cadsby, Song and Tapon 399). This means that it may be a good thing for organizations to put risk premium as a way of encouraging employees to opt for PFP schemes. This risk premium is justified by the decision by employees to subject themselves to PFP risk even when less risky alternatives such as fixed-salary schemes are available.


            The choice of PFP is becoming increasingly popular among millennials who are interested in working in an environment of freedom. This is one of the major demographic changes that are exerting tremendous influence on practices relating to compensation and employee benefits within the contemporary workplace. Other than PFP, millennials also seem comfortable with the emerging trend whereby employers choose the more cost-effective option of providing more benefits instead of offering workers an annual salary increase (Mui 4). Some of the benefits that employers have started introducing for workers who receive performance-related benefits include doubled parental leave, targeted bonuses, doctor-on-demand services, pre-tax commuter benefits, and paid gym membership (Mui 5).

            There is no uniformity or universality in the incentive effects of PFP, and outcomes are determined by factors such as whether employees are risk-averse or not. Risk-averse workers tend to shy away from performance-based incentives (Cadsby, Song, and Tapon 387). In fact, such workers can even perform poorly when compelled to work under a pay-for-performance scheme.

            On the flip side, performance-related pay often fails to change employee perceptions regarding the need to change motivation (Perry, Engbers and Jun 43). At the same time, bonus pay tends to have a more profound impact on future performance compared to merit pay (Nyberg, and Pieper and Trevor 1). Another disadvantage of PFP schemes is that they may motivate employees to pay too much attention to tasks whose outcomes will earn them individual financial rewards, in many cases at the expense of many other equally important workplace tasks. To overcome these disadvantages, those who design PFP schemes must devise ways of minimizing unintended negative consequences (Cadsby, Song and Tapon 403).

            Contextual and cultural factors play a crucial role in determine whether pay-for performance systems will become effective (Perry, Engbers and Jun 44; Cadsby, Song and Tapon 400). Moreover, there are many situations where performance-related pay has failed due to implementation breakdowns (Perry, Engbers and Jun 45). Effectiveness of performance-related pay can also be achieved by reducing ambiguity in job responsibilities (Perry, Engbers and Jun 44).

            To enhance the impact of pay-for-performance, employers should also put into consideration employee tenure, job type, and trends in the use of pay-for-performance practices within the organization (Nyberg, Pieper and Trevor 1). Contextual contingencies should be put into consideration during the adoption of pay-for-performance systems. Organizations should consider the relationships between performance and group incentives as well as base pay in order to come up with successful pay-for-performance programs (Perry, Engbers and Jun 47). They should also specify the results they expect from performance pay in order to choose the right system (Perry, Engbers and Jun 47).

Employee benefits

Regarding employee benefits, findings indicate that employers should consider variations in benefits preferences based on many factors, one of them being age (Dulebohn et al. 3). Other factors that should be considered in the introduction of various employee benefits include size of organization, type of industry, full-time/part-time considerations, and geographical location (Cowan 1). Moreover, organizations can achieve better productivity outcomes, superior attendance, and lower healthcare costs by providing disease management benefits for the workforce. At the same time, employers need to adopt a strategic approach to work-family benefits in order to support the specific need of their employees. They should be ready to adapt to the dynamics of market power among workers since increasing market power increases the chances of workers’ access to more work-family benefits (Dulebohn et al. 14). Employees’ embracement of work-family benefits can also be influenced by external organizational constituents, for example, a situation where a company serves customers with greater family-related needs (Dulebohn et al. 15).

Regarding health benefits, the choice in most countries is between employment-based benefits (like in the United States) and national social security and health insurance plans that meet the needs of individuals in terms of healthcare and retirement (Like in many European countries). In the United States, multinational corporations are continuing with their pursuit of a decades-old approach to health benefits, whereby traditionally-defined pension plans are being replaced by 401(k) type retirement programs and plans (Salisbury 2). The companies are also seeking to control their growing health-benefits costs in the United States by promoting consumer-focused health plans. This trend has led to a situation where the private-sector employers in the United States are setting the ground rules on the salaries and benefits that all employers in the country should provide.

It is unlikely that the current trend whereby employers in both public and private sectors around the world are reducing the health benefits that accrue to employers. A major reason why this trend is unfolding is globalization. Due to globalization, global events are increasingly shaping domestic trends. For example, events that unfold outside the American labor market are increasingly emerging as the primary drivers of trends in salaries, benefits, and compensation at the domestic level. For this reason, companies must be on standby for the outcomes of various debates on which benefits to retain and ones to cast aside. Some developments that can be attributed to globalization as far as employee health benefits are concerned have already emerged. For example, major American corporations are not reliant on overseas talent to fill their talent needs.

In many parts of the world, national social security and health insurance plans have been developed to provide health benefits to individuals. However, the situation in the United States remains somewhat different because failure to regulate healthcare utilization and technology has led to relatively higher levels of health care spending through public programs. At the same time, companies in other countries have succeeded in providing higher health and retirement benefits compared to the United States primarily because of their tendency to shy away from private pension systems. Despite spending heavily on health and insurance benefits through private pension systems, U.S. employers are yet to extend those benefits to the country’s lowest-income workers. Thus, for optimal benefits to be achieved by both employers and workers of all cadres, American public- and private-sector companies should support national health insurance plans.

 Such changes, though, is unlikely to take effect in the U.S. corporate sphere due to pervasive American desire for individual control and choice as opposed to commitment to specific “community” obligations by the public (Salisbury 3). This phenomenon is best demonstrated by the present ambivalence towards employer-provided health benefits. On the one hand, American workers continue to demand for the introduction of universal health coverage. On the other hand, they argue that they would like their employers to continue contributing to their health benefits.

In terms of overall salary packages, however, the magnitude of changes being introduced by American companies is more profound. To a large extent, these changes are being occasioned by worsening economic conditions as well as the powerful influence of globalization. For example, most American companies are replacing the annual pay rise with cheaper ways of compensating employees such as increased spending on benefits. The good thing with benefits such as bonuses is that they are a one-time phenomenon. Many employers have realized that it is cheaper to roll out perks such as commuting insurance than to offer an annual pay rise. Consequently, gains wages have been outpaced by growth benefits-related spending. It may be better for companies operating in today’s circumstances to adopt this strategy than to embrace the traditional approach of increasing workers’ salaries on an annual basis. This is because increased benefits-related spending may increase employee performance at a lower cost for the company than the wage-increase approach.

The move by many companies to shun the pay-increase approach may explain why wages have continued to stagnate in recent times despite a significant rise in hiring and a rapid drop in the level of unemployment. Although these findings provide crucial insights into the measures that companies should take to avoid a ballooning wage bill, it also poses some risks for employee commitment because stagnant wages almost certainly translate into rising rents and as well as the introduction of austerity measures at the family-budget level. Another point of caution arises from the fact that most of the jobs that often come with benefits are those that fall within the higher-skilled category. For these jobs, the goal of achieving a reduction in wage growth can easily be achieved. However, it may be difficult for a similar feat to be achieved in regards to lower-cadre jobs whose compensation rates may be tottering on the edge of the country’s minimum-wage requirements.

The move to avoid the annual pay rise notwithstanding, companies should endeavor to compensate their most valued talent in a manner that matches their current lifestyle in order to reduce the risk of turnover. One way to offer attractive benefits is to increase the duration of an employee’s paid leave (Mui 4). This is because such a reward gives employees the flexibility they desperately need to establish some work-life balance, which is becoming an increasingly impossible feat to accomplish in today’s 24/7 global economy.  Moreover, it enables employers to build a relationship with their workforce that extends beyond a mere paycheck.

The link between goals and monetary incentives

Organizations are also facing challenges in their attempts to link goals to monetary incentives. To address this problem, academic researchers have come up with several findings and recommendations. One of them is that managers should stretch goals and provide bonuses to employees who reach those goals in order to avoid ambiguity on what an employee needs to do to get rewarded (Locke 130). A major problem with this approach is that there are situations where employees may perform very well, only to miss the goal, meaning that they fail to qualify for bonuses. This phenomenon can kill morale as well as encourage employees to engage in dishonest practices in future.

Another drawback is that the incentive approach can lead to dysfunctional outcomes such as cooking books to earn a bonus, piling up inventory, and taking short cuts (Rynes, Gerhart and Minette 388). Fortunately, these drawbacks can be prevented through the establishment of rules and standards that each employee should be required to respect. In this regard, top management has a responsibility to create an organizational climate that facilitates adherence to those ethical rules and standards. For example, taking punitive disciplinary action against employees who use fraudulent means to earn bonuses may discourage other employees from engaging in such behavior.

Management teams are also being encouraged to develop an advanced version of a bonus system that is linked to goals, which involves the introduction of multiple goal levels and attaching different bonus levels to each. Under this approach, employees are discouraged from cheating or looking for short cuts in their efforts to reach the ultimate goal. However, this approach may not be ideal for employees who become complacent before reaching the highest level of achievement. Any cases, giving bonuses to employees before they reach the ultimate goal may demotivate them from working towards reaching goal. This problem calls for efforts by top management to come up with a minimum level of achievement below which an employee cannot qualify for bonus. The choice of minimum level of achievement should be informed by the performance levels that a company seeks to achieve in order to attain its bottom line. To maximize performance, employers may also need to consider introducing multiple goals to activities whose successful completion leads to a strong sense of pride on the part of the employee. In other words, the approach may work best in contexts where monetary benefits are not the only motivators for employee performance.


To avoid disappointments in situations where an employee almost reaches a goal but does not qualify for a bonus, organizations should adopt a linear bonus system, for example a corresponding bonus every time an employee records a percentage increase in sales, however small. This system is also useful since it creates a situation where there is no limit to the bonuses an employee gets even after the stipulated goal has been reached (Locke 131). Meanwhile, organizations must strike a balance between the seemingly unlimited compensation for jobs that are remunerated based on the linear bonus system such as sales jobs and the fixed salary packages of other workers who are employed in non-sales jobs. Failure to strike this balance may lead to pay dispersion, which can potentially impact negatively on job performance due to the resulting perception of unfairness and inequality (Shaw, Gupta and Delery 493).

Indeed, recommendations on pay dispersion in contemporary organizations also need to be highlighted. To begin with, pay dispersion occurs when there is variation in pay rates within an organization. Pay dispersion, if promoted through formal procedures that embrace fairness and justice, leads to higher performance by individual employees. However, the interdependent nature of work can make pay dispersion counterproductive. Thus, in situations where the work being done involves a high level of interdependence among employees, pay dispersion should be reduced (Shaw, Gupta and Delery 493). Organizations must weigh the benefits of improved individual efforts due to pay dispersion against the gains that come with pay compression such as increased cohesion among employees. In other words, they should pay most attention to situational contingencies since they are the most crucial determinants of the strategic effectiveness of pay dispersion (Shaw, Gupta and Delery 493).

A helpful suggestion for organizations seeking to reduce pay dispersion is the adoption of a bonus system whereby employees are motivated based on goals but compensated based on performance (Rynes, Gerhart and Minette 386). This approach is ideal for recognizing the efforts of employees who were unable to reach their goals because of the extremely difficult circumstances in which they were operating. To establish an effective incentive system, organizations should identify a strategic goal, match it with the desired outcomes, address integration of specific goals across organizational levels, and pick a bonus system that increases the odds of overall organizational success (Locke 133). A seemingly onerous challenge arises due to the need for managers to track every effort being made by an employee in order to understand the circumstances in which he works. Unfortunately, many senior management teams lack the capacity to follow up on the context of each employee’s workplace activities. In many cases, senior managers tend to be inconsistent in their appraisal of the day-to-day activities of employee leading to bias.  However, with strong leadership, an organization can succeed in creating a philosophy of organizational justice by motivating each employee based on his contribution to goals but compensate him based on his performance.

Comparing the Quality of Information from Different Sources 

            The journal articles and internet sources that have been selected for this paper contain important information on the technical recommendations relating to compensation and employee benefits. It is because of this quality of information that this paper has developed crucial recommendations on how organizations should respond to opportunities and challenges relating to pay-for-performance schemes, employee benefits, as well as ongoing efforts to establish and strengthen the link between goals and monetary incentives. For example, some insightful ideas have been presented on what human resources professionals think is the best way of evaluating pay systems (Rynes, Gerhart and Minette 386).

In terms of the debate on PFP, Nyberg, and Pieper and Trevor have provided high quality information on the compensation scheme can lead to future increase in performance as well as how various contingencies can influence this compensation-performance relationship (5). This source is highly credible given that it adopts an empirical approach.

Similarly, the issue of employee benefits and bonuses has also been supported by several high-quality journal articles. For instance, Dulebohn et al. have provided valuable propositions on primary employee benefits based on an in-depth analysis of recent research on the evolution of employer-provided benefit programs in the United States (2). Moreover, this section has benefited tremendously from recommendations of internet sources that provide current information on how organizations are designing employee benefits in order to retain and motivate employees (Salisbury 2; Mui 4; Cowan 3).


Regarding the link between goals and monetary incentives, the explanation on how to adapt bonuses to different goal levels and job characteristics is a particularly helpful suggestion (Locke 132). Moreover, Shaw, Gupta and Delery have provided a high-quality journal article that offers valuable recommendations on how to enhance the link between organizational goals and monetary incentives (493). In this article, not only do the authors adopt a theoretical perspective, they analyze data in a manner that leads to valid findings and recommendations for compensation practices in contemporary organizations (Shaw, Gupta and Delery 491).

Conclusion: My Interpretation of the Information, Practical Implications, and Recommendations

I think organizations should embrace the ideas that scholars and practitioners have espoused in the sources. Regarding PFP schemes, I think the information on why employers choose to vary remuneration with output is useful. Equally useful is the recommendation for organizations to embark on a sorting process through which they understand the ability by employees to perform optimally under various compensation schemes. I would also like to place emphasis on the recommendation that the extent to which pay-for-performance practices lead to an increase in performance depends on whether the firm in question is efficient in the implementation of those practices. This recommendation has far-reaching consequences for compensation practices because it urges organizations to choose their approach to PFP based on factors such as intra-organizational environment, job characteristics, and employee preferences.

Regarding employee benefits, I think the most crucial recommendation is that organizations must respond appropriately and adapt to the influence of globalization in their choice of health and retirement benefits for their workers. This is because foreign labor practices, especially those relating to health benefits, are increasingly influencing the compensation practices of companies at the domestic level. I also feel that the move by many companies to shun the pay-increase approach in preference for one-off bonuses is also likely to have far-reaching practical implications for contemporary organizations.

Lastly, managers should implement the recommendation on link between goals and monetary incentives such as bonuses, particularly in relation to situations where organizations encounter dysfunctional outcomes in the process of motivating employees to attain the desired goals. I think that if not properly implemented, a bonus system can lead to undesirable outcomes for an outcome. Thus, a company should desist from adopting a bonus system until such a time when all the necessary implementation mechanisms have been put in place.

Works Cited

Cadsby, Bram., Song, Fei and Tapon, Francis. “Sorting and Incentive Effects of Pay for Performance: An Experimental Investigation.” Academy of Management Journal, 50.2 (2007): 387-405.

Cappelli, Peter and Neumark, David. “Do “High-Performance” Work Practices Improve Establishment-Level Outcomes?” Industrial & Labor Relations Review, 54.4 (2001): 737-775.

Cowan, Carola. Employee Benefits Survey: Compensation Revisited. The Wyoming Department of Employment, Research & Planning, 2000: Online.

Dulebohn, James., Molloy, Janice., Pichler, Shaun and Murray, Brian. “Employee benefits: Literature review and emerging issues.” Human Resource Management Review, 12 (2008): 1-18.

Locke, Edwin. “Linking goals to monetary incentives.” Academy of Management Perspectives, 18.4 (2004): 130-133.

Mui, Ylan. “Companies have found something to give their workers instead of raises.” The Washington Post, July 28, 2015: Online.

Nyberg, Anthony., Pieper, Jenna and Trevor, Charlie. “Pay-for-Performance’s Effect on Future Employee Performance: Integrating Psychological and Economic Principles toward a Contingency Perspective.” Journal of Management, 111 (2014): 1-31.

Park, Sanghee and Sturman, Michael. “How and what you pay matters: The relative effectiveness of merit pay, bonuses, and long-term incentives on future job performance.” Compensation and Benefits Review, 44.2 (2012): 80-85.

Perry, James., Engbers, Trent and Jun, So. “Back to the Future? Performance-Related Pay, Empirical Research, and the Perils of Persistence.” Public Administration Review, 3 (2009): 39-51.

Rynes, Sara., Gerhart, Barry and Minette, Kathleen. “The importance of pay in employee motivation: Discrepancies between what people say and what they do.” Human Resource Management, 43.4 (2004): 381–394.

Salisbury, Dallas. “Benefit Trends: Change Is Now Constant.” The Wall Street Journal, 2008: Online.

Shaw, Jason., Gupta, Nina and Delery, John. “Pay dispersion and workforce performance: Moderating effects of incentives and interdependence.” Strategic Management Journal, 23 (2002): 491–512.

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