Compensation

Employee compensation is one of the major tasks of HRM. Compensation can have several meanings, but generally in HRM, it refers to all the ways in which an organisation may reward employees for the services that they render. The primary inducement offered to employees in exchange for the contributions of labour services in the employment contract is salary, benefits, and incentives (Roberts 2005:34). Anh and Kleiner (2005:105) were of the view that the more the organisation offers, the more employees feel satisfied with their work and in their personal lives, and the more effectively employees perform their jobs. Nel et al. (2011:233) maintained that compensation must attract good employees, retain good workers, and provide all the support needed to keep the employee motivated to perform at his or her best. In this regard, Schuldes (2006:22) claimed that the Hawthorne studies carried out from 1927- 1933 demonstrated that there was an immediate increase in performance when the study participants had their pay tied to their performance. This led Schuldes (2006:22) to claim that people are more satisfied with their pay when they feel that it is based on their performance.

Roberts’ (2005:114) study also discovered a direct positive relationship between rewards and recognition and job satisfaction and motivation. Compensation, according to Singh (2012:2), has been an extremely important issue for both employers and employees; it is a crucial incentive that is directly or indirectly related to all human needs. Singh (2012:2) added that compensation is a reward for past service to the organisation, and a stimulus to increase performance in the future. Based on Singh’s (2012:2) statements, one can conclude that compensation could be used as a reward for exceptional job performance, aimed at eliciting more exceptional performance.

Drawing from organisational justice principles, it would be fruitless to design compensation packages without addressing fairness issues, as this could be adverse to what Nel et al. (2011) confirmed. It could be a favourable scenario for municipalities to also design and implement adequate compensation packages that are meant to attract, motivate, and retain the best employees, which will lead to improved organisational performance, and ultimately quality service delivery. Unfortunately, rightly or wrongly, this is likely to be perceived as unfair by employees of municipalities who may feel that a certain beneficiary has been favoured on a partisan basis. These claims are substantiated by Paradza, Mokwena and Richards (2010:50) in their study of the role of municipal councillors in service delivery at local government level in South Africa.

Paradza et al. (2010:50) pointed out that the Randfontein Local Municipality is divided along party-political lines, and that political leaders who are supposed to lead the municipality are not immune to “politicking”, and at times they politicise the allocation of resources required for effective council work. Paradza et al. (2010:50) maintained that this has a negative impact on the functioning of the municipality, and the council itself. From the organisational justice literature explored earlier in this chapter, in such a case it could be inferred that municipal employees could feel unfairly treated because the pay package offered to them is not commensurate with their worth, and because they were deliberately paid on a partisan basis.

Arnold (2005:137) cautioned managers to consider internal equity in pay between employees, jobs, and sections of the organisation, and that when analysing internal

equity issues, they should recognise that employee perceptions of equity are important for organisational success. Arnold (2005:137) added that when employees believe their pay is unfair (whether it is or not), they are likely to consider leaving the organisation, which means high labour turnover, with its detrimental consequences. Managers of municipalities therefore need to ensure that their pay system has internal equity between jobs, by paying employees in accordance with their importance to the municipality, and not on any other basis, such as political affiliation.

It has been found in a US study (Tang and Sarsfield-Baldwin 1996) that pay structures that are based on proper distribution rules, such as seniority, length of service, merit, and/or contribution, have strongly evoked employee perceptions of distributive justice, which have led to enhanced job satisfaction, and ultimately improved organisational performance (Ismael et al. 2009:238). Tang and Sarsfield-Baldwin’s (1996) study led Ismael et al. (2009) to develop a conceptual framework which emphasises that distributive justice mediates the relationship between pay structure and work attitudes and behaviour. Studies have emphasised pay structures that are based on correct distribution rules. For this reason, it will be appropriate for organisations, including municipalities, to pay employees based on such rules, and nothing else. Otherwise, aggrieved employees could be expected to perceive unjust or unfair treatment. According to Ismael et al. (2009:238), it could be expected that fairness of pay structure will influence employee attitudes and behaviour. The proper management of personnel is therefore critical to the effective and efficient functioning of municipalities, and must be prioritised across all municipal functions (Department of National Treasury 2011:105). The Municipal Systems Amendment Act Act 7 of 2011 seeks to address certain issues, including (1) the appointment and competencies of municipal managers and managers directly accountable to the municipal manager, (2) regulating the employment of municipal employees who have been dismissed or are subject to disciplinary processes by other municipalities, and (3) regulating the duties, remuneration, benefits, and other terms and conditions of employment for municipal managers.

Lind and Tyler’s (1988) group-value model, based on a sample drawn from a textile products company in the South-eastern United States, found that delivery of the pay

message from supervisors to subordinates through good interpersonal communication increased employees’ feelings of justness regarding the pay system, and this could lead to increased performance in the organisation (Ismail & Junoh 2005:38). These researchers suggested that the processes or procedures followed in deciding on a payment system should be appropriately communicated to affected employees, to ensure justness in employee perceptions and increased employee performance in organisations. Communication about pay systems, as described by Coetzee (2005:191), is an exchange of information and an understanding about pay systems. Ismail and Junoh’s (2005:38) and Coetzee’s (2005:191) assertions suggest that communication could increase employee understanding and appreciation, as well as credibility of compensation practices in pay administration, thus positively influencing perceptions of procedural and informational justice. Coetzee (2005:191) asserted that procedural and informational justice will prevail if there is communication about pay systems. In the case of municipalities, communication about compensation between the HR division and the employee will ensure that employees are aware of how the pay system has been designed, and how it works. Besides this, communication of the pay structure to municipal employees will make the pay structure public knowledge, and this could discourage any abuse of pay systems by officials in charge.

Compensation is therefore a crucial HR function, because if it is perceived to be unfair by employees, it may affect the justness perceptions of employees and give rise to employer-employee conflicts and disputes, which may affect organisational outcomes.