Table of Contents
This paper expounds the concept of Policy and Compensation in the general sense while in the latter part of the paper, it would apply to the context of the labor law in the United Arab Emirates (UAE). Policy on Compensation aims to provide equity incentives and equality in salary, which is comparable among the compensation programs for all employees (Policy on Employee Compensation, 2019). Policy and compensation is an important concepts in the field of Human Resources Management. In fact, there is a separate field of study specific to the topic Policy and Compensation. The two concept has different definitions and meanings to every organization and some authors of HRM books have used the term interchangeably with compensation policy.
Additionally, this paper will detail the discussion of this concept in the requirements of United Arab Emirates. The term policy and compensation or compensation policy seemed simple for the ordinary individual but in the context of organizational theory, the this idea has strong influence to all other organizational aspects and dimensions in business processes. For instance, when a particular organization policy and compensation package is attractive, causes applicant to choose said organization for their employment.
The concept is also the reason why there is an effective recruitment, selection and retention method because compensation policy is the strongest motivating factor to attract and retain employees. Generally, compensation policy applies to international organization, but every organization may amend some provisions and policies governing the practice of compensation policy. Lastly, the paper will utilize different literature review that would explain more the concept. The researcher will state his reason for choosing such literature by identifying the method used in producing such evidence and by discussing the advantages and disadvantages of that particular literature.
Critical Literature Review on Policy and Compensation
I chose Policy and Compensation or Compensation Policy as one of the important areas of Human Resource Management practices because money seemed the strongest motivating factor of humans, the most important resources of the organization. The human resources become more effective and they perform best when they are appropriately compensated for their work services rendered to an organization. Undeniably, money is the basic need and the economic reason behind why people seek a job in order to earn a living. An organization with the best compensation policy is an employer of choice of those wanting a job or employment.
The Concept of Policy and Compensation/Compensation Policy
This first literature to critic is very important because it lays the basic what Compensation Policy is. The literature speaks about the different authors citing their definitions and meanings toward the subject of Compensation Policy. The author of this literature entitled, ‘What Compensation Policy’ explains the concept of Compensation Policy and the different types of rewards were detailed by the author. Not to misconstrue, reward is part of a compensation system and hence should not be misunderstood to be a different topic from compensation. In addition, what is significant in this literature is the explanation to whom compensation system is intended and again the author gave the rationale why every organization should have an attractive compensation policy system.
The author sourced his information through an in-depth investigation of the concept by comparing various works of different authors before he came out with this well written literature review on the concept of Policy and Compensation or Compensation Policy. One of the advantages of this literature is its comprehensive explanation of the concept of compensation policy and it uses the literature of various authors in discussing the concept. Perhaps, one disadvantage of this literature is there is no empirical evidence cited to prove the claims of various authors. However, for basic understanding of the concept of compensation policy, this particular article seems very complete. Gerhart & Rynes (2003) describe the concept of Compensation Policy as the ‘oil’ of the entire human resource process shields. The process concerns how organization formulates and implements the best strategies how to reward people in manner that is fair and just to everyone. The most effective reward compensates people with their true value in the organization. The following are types of reward:
- Gift cards
- Promotion to new position
- Medical coverage
- Performance based incentives
- Employee recognition
- Profit sharing, etc
Meanwhile, according to the article, ‘Reward and Compensation, 2010’, it defines compensation as the payment in any form that organization gives to employee in exchange of his/her services to the employer. Usually, compensation is in a form of salary received by employee from an employer. The purposes of compensation are the following:
- To attract staff
- To motivate staff
- To retain staff
- To drive changes
- For corporate reputation
- For recognition, etc
To make the explanation clearer, the most effective compensation system of any organization is a system that aligns its strategies to the objective of the organization, through the outcome-based evaluation of employee performance. Each measurement to determine performance of employee should reflect the business strategy and the financial goals. The employee’s performance must be the basis of compensation and his/her organization to the success of the organization (Wilson, T. 1999). On the other hand, Taylor and Stern, 2009, said that compensation and reward are two concepts with slight differences in interpretation. For the author, compensation is the entire package paid to employees while reward is that part of compensation only.
Compensation examples maybe are money or non-monetary emolument such salary, incentive package and other benefits. Reward is any monetary or non-monetary recognition of the employee good performance (Compensation and Benefits, 2016). In conclusion, there is no denying that compensation policy or compensation system of a particular organization is the selling point in order to attract the best talents of the organization because compensation is said that it is not just all the time about money but it refers as well as to the other intangible aspects of giving rewards and motivations to people within the organization. While different authors give various explanations to this concept, the common denominator of all those differing interpretations is the fact that compensation policy must be well planned in order to attract the best people as the greatest assets and human capital of the organization.
Compensation in Motivation Theory
In this literature, it details how compensation becomes a motivation for people to work in a particular organization. Compensation is not just about money and yet we have to consider that economics is the primary reason why people seek employee, hence the right compensation must be given to people in exchange of their services for the organization. While the previous section explained the types of rewards as part of the compensation and the motivations they give to people, in this literature it explains the different types of compensations expected of the employees to receive. The advantage of this literature is the clear explanation why the best compensation policy is very motivating for the employees. Furthermore, the literature is the good source of organizations to differentiate the types of compensation they might give to their employees so that they would be motivated to produce the best outputs.
The author again used the different literature of famous authorities in the field of Human Resources Management to come up with his own literature. What I see as the only disadvantage of this literature is the critic made by the author that seems not comprehensive enough to convince the readers the weaknesses of compensation policy system of other organizations. What the author only tells the readers are all praises about the literature he used. Cherry (2011) defines motivation as a process that supports the goal-oriented behaviors of any individual, group or organization. Motivation causes man to move from a very simple action to activities that are more complex.
To activate the behavior of men to move and to act, the motivating forces must affect man’s biological, social, cognitive and emotional forces, hence a person does every day is caused by these factors mentioned. Motivation is important in business because it has impact on the physical and mental reactions of human beings who are the brains of business and its development. Highly motivated employees and staff, who accomplished their jobs efficiently and effectively, support the business development. This happens because highly motivated individuals increase organizational productivity and performance. In addition, these people caused increase revenues, cost production savings and they satisfied the business owners as well (McKay, 2011). According to Lopez (2010), compensation policy is correlated to motivation theory.
Motivation does not mean money and is not synonymous to money. Money is a means to respond to the economics needs of any employee or workers. On the other hand, motivation is an inner and a wholesome desire to exert utmost efforts devoid of money as means of external stimulus. Basic motivation concepts and theories imply guiding principles that govern appropriate individual motivation triggering performance improvement. Most popular components of motivational theories are: direction (what a person is trying to do), effort (how hard that person tries to do it) and persistence (how long that particular persons keeps on trying). This is very important in organizations as guiding principle of leaders and managers on how to increase productivity of their workers. Through proper motivation of workers/employees, leader and manager can address their specific needs for any particular time. Needs change and leader as manager must understand the specific needs and address them appropriately.
Porter (2010) stressed that the factors that make motivation effective are those that initiate, direct, and sustain human behavior over time. Kasztura (2012) claimed that the success of every business depends on motivated employees. However, there is no secret formula for motivating employees and there is no sheet to fill out. Motivation is just like an individual employee. Meaning, one motivation strategy does not fit all employees. It would always be different for every individual. One employee maybe motivated by recognizing his job well done. The other maybe motivated in getting a promotion and many are motivated with increase in salary and additional benefits and incentive package. Regardless of the types of compensation that an organization designed for its employees presupposes an idea that these compensations are part of the motivation strategy of the organization. Below are examples of compensations depending on what the organization policy on compensation dictates.
- Direct financial compensation – this type of compensation consists of pay received by a particular employee that is given in forms of salaries (employee), wage (worker), bonuses and commissions, etc.
- Indirect financial compensation – this type includes all financial rewards (money) that are not included in compensation that is agreed part of the social contract between two parties (employer and employee) like leave pay, benefits, retirement plans, employee services pay, etc.
- Non-financial compensation – refers to what an organization extends to the employee to support his career plan, professional growth, etc that includes training and development, advancement opportunities (scholarship), good workplace condition and environment and opportunities for recognition (Compensation and Benefits, 2016).
In sum, this literature has different dimension because it explains the various motivation theories that govern the giving of compensation policy as one of the best practices of the organizations. It stressed the importance of motivating employees through the right compensation policy system carefully designed by every organization. Also, this particular literature gave the readers an new insight that compensation as well all know is not only all about money but other other things as well as that serve as motivation for employees to work harder and perform better.
Compensation Policy System in the Requirement of United Arab Emirates
In my view, this literature is the most important among reviews discussed in the previous section of this paper. The concept of compensation policy is now applied in the context of United Arab Emirates labor law. The application of the concept to the actual world is the big advantage of this particular literature. The author produced this documents after visiting the government websites and investigated the government latest provisions on compensation policy as part of the labor law of the country. This literature would be very beneficial for organizations here in the UAE because they would be guided accordingly of the existing compensation policy system for both the government and private institutions. Compensation Policy trends are unique to the GCC region because most countries under the council follow the compensation system. Its unique feature is due to the following factors:
- Workforce is dominated by foreign workers comprise 90 percent in both the UAE and Qatar and it comprises 50% in Saudi Arabia.
- Employees in this region have guaranteed allowances (form of reward) in terms of guaranteed cash with additional allowances for housing and transportation. All government owned organizations provide additional costs for the said accommodation and transportation. Meanwhile, local nationals of the GCC countries often enjoy more incentive benefits as long as they work in government owned departments and agencies. Most, employers especially in the private enterprises distribute cash in the form of allowances only to reduce their liabilities as they are linked to base salary.
Pay increases in the GCC is very different in the Western World. The increases are based above the forecast rates. For instance, if the forecast rate is between 1.5% – 2%, then employers both in the private and public owned organizations have the base salary of their employees by 5%. Almost every three years, most organizations increase both the base salary and housing allowance to fight inflation (UAE Labor Law, 2019). In the book Fundamentals of Employee Benefit Programs, which gives its readers a basic explanation of employee benefit programs in the private and public sectors, it pointed out that companies should issue health insurance to pension plans and from retirement planning to dependent care programs to ensure security. It emphasized that in the United States, health services and other health benefits are provided to workers and their family’s protection from financial losses. This will promote increase in productivity of worker, recruitment and retention of interested and qualified workers.
This article is relevant to the problems that UAE is facing on the interest of Emiratis in private companies. Through additional benefits shared to the employees, satisfaction and job security will be felt in their employment in the company (EBRI’s Fundamentals of Employee Benefit Programs, 2009). Compensation and other benefits support Emiratization, which affects the challenges being faced by private firms. The study revealed that the number of nationals in the private sector is limited. Most often, nationals of UAE in are the same jobs, the ones that require less skill. More nationals are inclined to work in a government and semi-government sector as this does not have many issues to face.
In conclusion, this section reviews critically the different literature contend here that are related to Compensation Policy as one of the important areas of Human Resources Management. The literature discussed the concept of Compensation Policy is and why every organization must have an effective compensation policy system. The second literature talked about the different types of compensation that explained to the readers that compensation is not all about money but anything that can compensate and can motivate employees to improve their work performance.
Compensation as part of the discussion of motivation theory was detailed in the second literature when it discussed that the best motivating factor of employees is to compensate their services and the compensation comes both from tangible and intangible things that an organization offers to their employees in exchange of their services. Finally, the last literature discussed the compensation policy system that is applicable in the labor law of the United Arab Emirate an while the compensation policy in this country seems unique with other countries but the UAE belongs to the GCC where labor force is very diverse hence, an acceptable compensation policy that will respond to the diverse needs of the employees.
In view of these findings, organizations in the United Arab Emirates must always adhere to the labor laws of the country because any compensation policy that is not congruence with the labor law provisions will also create problem for the said organization. It is recommended therefore that any organizations here and overseas should design a compensation policy that suits best the type of people they have but most importantly must follow their compensation policy to the labor trends existing in the country that hosts their businesses, companies or organizations.