Assignment Of Bargaining And Negotiation Management Business Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Compensation and employee retention are two important component of human resources management. This paper will start with discussing in detail about the two terms compensation and employee retention and later will try to develop a linkage between them by analyzing how much important part compensation plays in employee retention.


Compensation in terms of human resource management refers to total monetary and non monetary benefits given to an employee by employer in return of his or her services or work performed. (Heathfield). Compensation can be associated to business structure and employee recruitment, retention, motivation, performance, feedback, and satisfaction and are typically among the first things potential employees consider when looking for employment. For employees, compensation is the equivalent not to how they are paid, but ultimately, to how they are valued (Employee Compensation).

Compensation packages can be considered total rewards systems, containing nonmonetary, direct, and indirect elements.

1. Non-Monetary Compensation: any benefit an employee receives from an employer or job that does not involve tangible value.

2. Direct Compensation: an employee's base wage which can be an annual salary or hourly wage and any performance-based pay that an employee receives.

3. Indirect Compensation: far more varied, including everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, child care or moving expenses.

Namasivayam et al. (2006) noted that compensation satisfaction varies depending on employee position, manager or hourly employee. Total compensation satisfaction must be evaluated for each level of the organization. Compensation and Benefits is rewarding the employee for the services rendered by them for the benefit of the organization. It is a set of programs aimed at achieving the following objectives:

1. Compensation aids in attracting capable employees to the organization.

2. It also helps motivate employees towards superior performance.

3. Compensation also helps in retaining the employees and their services over an extended period of time. (Business Review Kenya, 2011)

Types of Compensation and Benefits

There are three types of Compensation and Benefits namely;

Base Compensation, Variable Compensation, Supplementary Compensation, Base Compensation and Benefits

Base Compensation

Base Compensation is one type of Compensation. It refers to the basic salaries and wages given to he employees. It is normally constant at a given amount irrespective of the difference in work performance.

Factors influencing Base Compensation and Benefits, One factor that influences Base Compensation is demand and supply of labor in the market. Labor union pressure is also another factor influencing Base Compensation. This is because unions always try their best to fight for their members' rights. Nature of job as determined by the job description, each employee deserves a different compensation package. Size of the organization and its ability to pay its employees. Product market compensation is yet another factor influencing Base Compensation. Psychological and social factors like employee satisfaction and security. Salaries paid by similar firms are also a factor affecting Base Compensation. Government policies on wage determination Cost of living of the employees. When the employees' cost of living is very high then they need a higher compensation benefit. Increase in productivity of labor Firms in general; whether competing firms or not.

Variable Compensation and Benefits

This type of compensation as by its name is variable. It means that one gets compensation as per the work done. If one does a remarkable job then he or she deserves a higher compensation package than one whose work is of poor quality.

Supplementary Compensation and Benefits

Supplementary Compensation is compensation given by an employer when he or she wishes to. It is not compulsory or a routine once one is given the compensation that one will be awarded another time. In this type of Compensation the employer has a right to add, deduct or even withdraw the benefits when he or she wishes to. (Business Review Kenya, 2011)

Employee Retention

Employee retention is major vital issue facing corporate leaders as a consequence of the lack of skilled labor, economic growth and employee turnover. Retention is defined as "the ability to hold onto those employees you want to keep, for longer than your competitors" (Johnson, 2000). The analysis of retention ought to be considered at more than just a single level because the "influences" of retention can arises at several levels (Klein, 1994).A number of studies have found that managing turnover is a challenge for organizations, as different organizations using dissimilar approaches to retain employees (American Management Association, 1994). Retention is considered as all-around module of an organization's human resource strategies. It begins with the hiring of right people and continues with practicing programs to keep them engaged and committed to the organization (Freyermuth, 2007).

Today the demands of workers have been amplified very much as ever before. It is in terms of every aspect, not only salaries and perks but also work experience and cultural context in which International Journal of Academic Research in Business and Social Sciences it occurs. Providing a productive, flexible and lively work environment can be a critical asset in attracting and retaining valuable employees. In order to build up an effective retention plan for today's employment market, it is crucial to apprehend the varying needs and prospect. If the retention strategies are not accurately entrenched in the business processes, the all effort since recruitment will eventually proves useless (Earle, 2003).

Compensation and employee retention

Your ability to keep workers provides benefits that often far outweigh any savings you get by replacing current workers with new, lower-paid employees. For example, each time you replace an employee, you have the cost of recruiting and training a new hire. During this process, your productivity can decrease. In addition, you lose the institutional memory of that employee and might lose the worker to a competitor who increases its market share at your expense. Some departing workers can take customers or clients with them to their new company. Estimate the dollar cost of replacing key employees or groups of lower-level staff members to determine whether the money you save on not increasing their compensation outweighs the costs you incur when workers leave (Samuels, 2013).

Incentive-based compensation has long been used to motivate sales professionals. With the arrival of a new generation of technologies, the idea of a pay-for-performance model for an entire company seems like a plausible, concrete way to meet challenges around employee performance, retention and engagement-while also boosting business results across the board. In fact, by 2005, 75 percent of all U.S. companies had connected at least part of an employee's pay directly to performance measures.1A pay-for-performance strategy is most successful within the context of an integrated learning and talent management solution, which, until recently, was not entirely possible. With linkages to performance data-including competency assessments, goal achievements, key performance indicators (KPIs) and succession plans-organizations can now realize the full promise of pay-for-performance and create a culture of meritocracy. The benefits of such an approach include:

• Shorter compensation cycles

• Simplified processes and reduced paperwork

• Increased visibility into rewards

• Enhanced employee performance

• Higher employee retention (COY, 2013).

Carefully developed bonus or profit sharing programs provide encouraging, goal-oriented initiatives for employees to aim towards. The goals for success set out by the manager and the employee are more attainable if realistic and practical incentives are firmly in place. Benefit programs are important to employees. Benefits can extend beyond the traditional health insurance and retirement programs (DRAKE I NTERNATIONAL, 2012).

Research indicates that the total cost of employee turnover is about 150% of an employee's salary. Because of this high cost of turnover, the organization that is the focus of this article sought to understand their employee's turnover intentions and the reasons for the potential turnover. Through a series of surveys, observations, and interviews, it was determined that the location of the company and its compensation package were the most common factors in remaining with the company and that compensation and lack of challenge and opportunity were the most common factors in contemplating Leaving the organization (Ramlall, 2003).

When it comes to retaining key employees, there is no substitute for a fair and well-calculated base salary. According to Eric Rudolf understanding compensation with the help of equation for mangers have to do a department wide assessment in terms of retaining key employees.


Total Salary = Current Role + Past Results + Upward Mobility

Salary Component #1: Current Role (Compensation for What an Employee Does)

Salary Component #2: Past Results (Compensation for What an Employee Has Already Accomplished)

Salary Component #3: Upward Mobility (Compensation for What an Employee is Capable of Doing Some Day) (Rudolf, 2012).


In today's world of cut throat competition organizations found it difficult to retain there key employees. Compensation apart from other factors like career path, work environment, communication, organizational justice and respectful treatment is a major factor because of which employees leave a particular organization. Turnover costs in an organization can be saved by compensating there employees in a fair manner. Organizations have to link compensation with retention which should be transparent and performance based, making sure that benefits reflect employee concerns and monitor changes and trends in market. If you want your employees to be innovative, reward them for new ideas. If you want your employees to stay with you for a long time instead of training new employees every season, offer bonuses or tie their wages to their tenure. If you need employees that show up on time, work hard, and can be trusted with the most challenging of tasks, recruit those people; reward those people; promote those people. The future of your business could depend on it.