Several theories in Human Resource Management relay a unified synonym, that is, to optimize the resource (manpower) (Harney & Collings, 2021). This could be through motivation, training, rewards etcetera. Equity Theory was developed by J. Stacy Adam during the 1960s. This theory claims that the output of an individual can / should be measured by the inputs given on respective exertion. In simpler terms, inputs can be as each employee’s contributions or rewards, whereas, outputs are consequences with another. Adams insists that input has to equivalent to output (or) rewards has to be equivalent to accomplishment’s value. The more the closeness of output and input, the higher is the satisfaction for employees. This astounding theory stood as a strategy for organizations to fix the pay scale for their personnel. Figure 2 is a pictorial representation of Equity Theory.
Based on the types of rewards illustrated in Fig. 3, the direct rewards are examined in this research by analyzing their covariance and correlation of indicators. The literature of each of these direct rewards is highlighted in the following section.
2.1 Literature Review: Salary fixation
An organization will opt to follow particular remuneration-regulation to minimize cost or to maximize profit, or for both. The general thumb rule for calculating salary is (Almusaddar et al., 2018),
Whereas represents salary, FS represents functions of sales and CS represents consumer satisfaction (Kalra et al., 2003). The organization offers any permutation and combination of compensation such as commission, salaries, task-based commission, incentives etcetera for the sole purpose of maximizing the bottom-line, that is, profit. any combination of salary, sales commission, and satisfaction-based commission to maximize profit. All the above elements have their own merits when it comes to evaluation. Several Human Resource experts claim that salaries are considered a significant strategy among all, to attract best-output from employees (Biele et al., 2009). Through this research, this is been challenged. Not for the sake of challenging, but for identifying whether this is still a better strategy post-2020 pandemic era and post-2019 IR 4.0 era.
2.2 Incentive Fixation
According to Bayesian equilibrium, the organization upgrades the employee’s compensation scheme based on performance. Employees are offered additional compensation by comparing the increased sales done by individuals. In the context of this research, the salaries will motivate the person to maximize their interactive time with prospective consumers and consequently maximize the pre-sales exertions as described by Parasuraman in SERVQUAL theory (Kar, 2016). The purpose of Task-based incentives goes one step higher by ensuring that employees would consistently focus on pre-sales and post-sales exertion, like responding to customer’s queries, sorting out any administrative concerns, etcetera. Further to that, it is understood that both salaries and task-based incentives stand as mechanisms to upgrade the productivity of employee’s performance in an organization (Kishore et al., 2013).
2.3 Compensation
The process of Compensation is based upon philosophies in Compensation and strategies that include policy, structure, procedure, and principle on providing appropriate returns to employees or stakeholders in terms of pay or benefits (Rosolen & Maclennan, 2016). He also claims that this process constitutes measuring the job value and maintain the pay pattern. Determining factors for compensation are the performance of the employee, the competence of the employee, skills of the employee., etcetera. If these are transposed to equivalent benefits, then the process of compensation is complete. It has to be noted that compensation is merely not only about cash or money. This is wider than financial rewards. Several types of research are done on non-financial compensation and those have become eye-openers for Human Resource Managers (Kim et al., 2017)
(Afridi et al., 2020) claims that compensation is a core element in human resources activity. If the principles are properly laid, then there could be evident productivity in the company. It is the responsibility of the HR department to concurrently revise the compensation & benefits strategies depending upon growth or any internal factors in the organization. Since these deal with individual performance, there has to be an extensive interaction between employees and employers to arrive at compensation-slab. According to (Bouranta et al., 2019) compensation range enumerates the span between lower and higher PayScale of salary in the organization. The range of salaries in an organization is represented with grades of employment level which indicates the job value in the market. These are reviewed periodically as shown in Table 1.
Table 1
Review of Salary Structure Range
Job Level
|
Percent of Companies
|
Annually
|
Every Two Years
|
Every Three Years
|
Other/ Varies
|
No Formal Ranges for
Job Level
|
Top executives
|
60%
|
8%
|
5%
|
8%
|
19%
|
Nonexecutives
|
77%
|
9%
|
7%
|
6%
|
1%
|
Source: Culpepper Salary Budget & Planning Survey, 2019 (SHRM.ORG, 2019) |
2.3.1 Exploring Compensation and Benefits
The organization recruits’ employees to become part of the team to achieve organizational objectives and employees join the organization to gain monetary rewards as cash or other benefits to growing in their career. One of the greatest factors, why individuals get employed in companies rather than embarking on their own business, is due to fixed earning of rewards consistently (Arkin, 2008). Apart from the company's notoriety and work profile, the cash advertised as compensation is urgent in drawing in individuals to work for the organization. The more the stipend and benefits are advertised to workers, the more is their commitment, inspiration to work and do well. In any case, companies that offer lesser compensations see a tall whittling down rate and less efficiency from workers (Bhaumik et al., 2019). All these components offer assistance in making recompense and benefit an imperative figure in overseeing the workforce. Pay rates for employees are fixed by a few parameters like academic qualification, work experience etcetera. While hiring personnel for the Management team, abilities like leadership, networking with industry, communication skills etcetera are considered (Eklinder-frick & Åge, 2020). Compensation has few ingredients such as variable pay, fixed pay and certain benefits. Figure 4 depicts the elements of compensation.
2.4 Commission
Commissions are considered as one of the common compensations to pay employees for obtaining consistent performance. The motive is to spread the organizational intention that the organization wants to create a solid reward for their employees to engage their best output in the prescribed job or task. The industry norm is 5% of total order billing, however, this depends upon the industry and organization. Among all compensation elements, the commission is a stronger motivator to perform more among employees (Kishore et al., 2013). If employees are assigned a task to accomplish in a stipulated period, a few of the coherent tasks may not be explicitly included in the calculation of compensation. This could be either because of unavailability of task-value or could be due to intentional cut in the framework of compensation devising strategy (Neessen et al., 2021). Whatsoever, it is important to fix a value (preferably in monetary value) for each sub-task, this not only will enable to understand the process but also makes the process transparent (Urrila, 2021). By all means, the commission is regarded as a solid compensation scheme. The primary or only demerit is, the commission is not consistent like salaries. So, people tend to avoid getting commission and therefore become an employee of an organization to have sustainable income irrespective of sales or output, or performance. Below Fig. 5 illustrates how the commission has an edge over bonuses (Kishore et al., 2013)
It is a fallacy of assumption to assume that the highest paid jobs are the best performing industry. It is also a myth to assume that the demand and supply of manpower determine the value-fixation of compensation to them (Flepp et al., 2021). Following Table, 1A illustrates the fact that the highest paid jobs not necessarily be the most performing industry.
Table 1
A – Top 50 High paid Job versus Industry
|
Occupation
|
Annual Wage
|
Industry
|
Growth Rate (2020)
|
1
|
Anesthesiologists
|
$266,000
|
Health Care
|
0.34%
|
2
|
Surgeons
|
$251,900
|
Health Care
|
0.34%
|
3
|
Oral and Maxillofacial Surgeons
|
$242,700
|
Health Care
|
0.34%
|
4
|
Obstetricians and Gynecologists
|
$235,200
|
Health Care
|
0.34%
|
5
|
Orthodontists
|
$229,400
|
Health Care
|
0.34%
|
6
|
Psychiatrists
|
$216,100
|
Health Care
|
0.34%
|
7
|
Physicians and Surgeons, All Other
|
$211,400
|
Health Care
|
0.34%
|
8
|
Family and General Practitioners
|
$208,600
|
Health Care
|
0.34%
|
9
|
Dentists, All Other Specialists
|
$200,000
|
Health Care
|
0.34%
|
10
|
Internists, General
|
$198,400
|
Health Care
|
0.34%
|
11
|
Prosthodontists
|
$197,000
|
Health Care
|
0.34%
|
12
|
Chief Executives
|
$196,100
|
Industrials
|
0.18%
|
13
|
Pediatricians, General
|
$187,500
|
Health Care
|
0.34%
|
14
|
Dentists, General
|
$174,100
|
Health Care
|
0.34%
|
15
|
Nurse Anesthetists
|
$169,500
|
Health Care
|
0.34%
|
16
|
Airline Pilots, Copilots, and Flight Engineers
|
$161,300
|
Services
|
0.11%
|
17
|
Petroleum Engineers
|
$154,800
|
Energy
|
0.76%
|
18
|
Computer and Information Systems Managers
|
$149,700
|
IT
|
1.04%
|
19
|
Podiatrists
|
$148,500
|
Health Care
|
0.34%
|
20
|
Architectural and Engineering Managers
|
$146,300
|
Real Estate
|
0.10%
|
21
|
Marketing Managers
|
$145,600
|
Industrials
|
0.18%
|
22
|
Financial Managers
|
$143,500
|
Financials
|
0.13%
|
23
|
Lawyers
|
$141,900
|
Services
|
0.11%
|
24
|
Sales Managers
|
$137,700
|
Services
|
0.11%
|
25
|
Natural Sciences Managers
|
$133,700
|
Energy
|
0.76%
|
26
|
Compensation and Benefits Managers
|
$130,000
|
Financials
|
0.13%
|
27
|
Law Teachers, Postsecondary
|
$129,800
|
Education
|
0.17%
|
28
|
Public Relations and Fundraising Managers
|
$127,700
|
PR., Comm.
|
0.89%
|
29
|
Personal Financial Advisors
|
$124,100
|
Financials
|
0.13%
|
30
|
Advertising and Promotions Managers
|
$123,900
|
PR., Comm.
|
0.89%
|
31
|
Human Resources Managers
|
$123,500
|
Services
|
0.11%
|
32
|
General and Operations Managers
|
$123,500
|
Industrials
|
0.18%
|
33
|
Physicists
|
$123,100
|
Health Care
|
0.34%
|
34
|
Health Specialties Teachers, Postsecondary
|
$122,900
|
Health Care
|
0.34%
|
35
|
Purchasing Managers
|
$121,800
|
Services
|
0.11%
|
36
|
Pharmacists
|
$121,700
|
Health Care
|
0.34%
|
37
|
Judges, Magistrate Judges, and Magistrates
|
$121,100
|
Services
|
0.11%
|
38
|
Air Traffic Controllers
|
$120,300
|
Services
|
0.11%
|
39
|
Computer Hardware Engineers
|
$119,700
|
IT
|
1.04%
|
40
|
Computer and Information Research Scientists
|
$119,600
|
IT
|
1.04%
|
41
|
Optometrists
|
$119,100
|
Health Care
|
0.34%
|
42
|
Training and Development Managers
|
$117,700
|
Education
|
0.17%
|
43
|
Aerospace Engineers
|
$115,300
|
Industrials
|
0.18%
|
44
|
Actuaries
|
$114,900
|
Financials
|
0.13%
|
45
|
Economics Teachers, Postsecondary
|
$114,800
|
Education
|
0.17%
|
46
|
Managers, All Other
|
$113,200
|
Industrials
|
0.18%
|
47
|
Economists
|
$112,700
|
Financials
|
0.13%
|
48
|
Chemical Engineers
|
$112,400
|
Industrials
|
0.18%
|
49
|
Software Developers, Systems Software
|
$111,800
|
IT
|
1.04%
|
50
|
Medical and Health Services Managers
|
$111,700
|
Health Care
|
0.34%
|
Source - (Fox Business, 2020) |
From the above table, it could be understood that fixation of compensation is not done based on the organization’s performance in revenue generation, whereas, it’s based on the market value of a particular skill set. Hence, if the market value is set for every skill-set as industry practice, then every organization has to make exact revenue. Though this is a prerogative to be as a theory, it is next thing to impossible to witness it. For instance, assuming all other things remaining the same, there are two similar skill-sets (a) and (b) is fixed to receive $(n) for their employment in two different organizations respectively as (x) and (y), then the bottom-line of both (x) and (y) should be exactly same because the skill-sets deployed in same and their value is same (Harney & Collings, 2021). But this never happens. Never history of business, it is found two similar companies in one industry generate similar revenue because of deploying similar skill-set of employees (with ceteris paribus).
2.5 Research Framework
Based on the theoretical framework (illustrated in Figs. 2B and 2C), the following conceptual framework is constructed for this research. The latent constructs are formulated after a thorough literature review. Institutional policies are denoted as policies and hypothesized as moderating variables, whereas the fixed-salary, task-based incentives, commission are hypothesized as independent variables. The target or outcome variable or dependent variable is improvising compensation and benefits. Below Fig. 6 illustrates the conceptual framework of this research and Fig. 7 illustrates the covariance between each latent construct that is to be measured in the following sections.
2.6 Hypothesis
H1 Fixed Salary has a significant relationship with Improvising compensation and benefits
H2 Task-based incentives have a significant relationship with improvising compensation and benefits
H3 Commission has a significant relationship with improvising compensation and benefits
H4 Policies has a moderating effect with improvising compensation and benefits when measured with task-based incentives