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Int. J. Human Resources Development and Management, Vol. 6, No. 1, 2006
A review and analysis of compensation practices in the Caribbean Sunil J. Ramlall Department of Management, College of Business, University of St. Thomas, TMH 343, 1000 LaSalle Avenue Minneapolis, MN 55403, USA E-mail: sjramlall@stthomas.edu Abstract: The paper examines and analyses compensation practices in the Caribbean; compares ‘current’ practices and the extent to which HR professionals think the current practices ‘should’ be utilised in driving firm performance; and compares current compensation practices in the Caribbean to the USA wherever applicable. The findings do not only provide vital understanding of the effectiveness of current practices, but also provide critical insights as to how organisations in the Caribbean can become more competitive through compensation strategies. Some of the major findings identified include: •
pay increases are generally not tied to individual performance
•
current compensation systems do not always provide the money’s worth
•
there is little input from employees on compensation practices
•
seniority currently plays a significant role in an employee’s compensation
•
employees do not feel that the current compensation practices enable organisations to attract, motivate, and retain employees.
Keywords: compensation in the Caribbean; international compensation; HR strategy; firm performance; comparison of compensation strategies. Reference to this paper should be made as follows: Ramlall, S.J. (2006) ‘A review and analysis of compensation practices in the Caribbean’, Int. J. Human Resources Development and Management, Vol. 6, No. 1, pp.48–67. Biographical notes: Dr. Sunil J. Ramlall is an Assistant Professor in the College of Business at the University of St. Thomas. He has a PhD in Human Resource Development from the University of Minnesota and an MBA from the University of St. Thomas. His primary areas of research include HR and firm performance, HR competencies, HR metrics, and training and development among other areas.
1
Introduction
Human resource management practices in general (Becker and Gerhart, 1996; Huselid and Becker, 2000) and compensation systems in particular (Banker et al., 1996; Becker and Gerhart, 1996; Shaw et al., 2001) have been shown to be highly related to organisational performance. Given the quest of organisations across the world to compete Copyright © 2006 Inderscience Enterprises Ltd.
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more effectively in the global economy, there is an urgent need to review current compensation practices in the Caribbean and to determine how the practices align with enhancing organisations’ competitiveness. The purpose of this paper is to identify current compensation practices in the Caribbean, relate the identified practices to the culture in the Caribbean, and to compare the results to practices in the USA. With the continuous changes in the global economy, Caribbean organisations continue to search for strategies that will foster higher levels of competitiveness in the region and enable organisations to gain sustainable competitive advantages. Many authors (including Downes, 2003; Loayza and Palacios, 1997; Ramlall and Owens, 2005) have articulated the need for changes in human resource management (HR) practices in the region. As these authors have highlighted, changes in the global economy continue to have a profound impact on the nature and structure of the labour markets forcing organisation in the Caribbean to assess the effectiveness of the respective HR practices. In addition, the participation of the Caribbean into the Free Trade Area of the Americas (FTAA) intensifies the need for Caribbean organisations to reexamine their compensation strategies as a means to attract, develop, deploy, and retain qualified employees as a means to enhancing organisational effectiveness.
2
Purpose of the paper
The paper examines and analyses compensation practices in the Caribbean; compares ‘current’ practices and the extent to which HR professionals think the current practices ‘should’ be utilised in driving firm performance; and compares current compensation practices in the Caribbean to the USA. The findings do not only provide vital understanding of the effectiveness of current practices, but provide critical insights as to how organisations in the Caribbean can become more competitive through compensation strategies. Furthermore, awareness of the gap between current practices and what the practices should be, enable firms to design compensation philosophies and strategies that will maximise employee motivation to engage in behaviours consistent with organisational strategies (Milliman et al., 1995). In addition, the findings provide valuable information to researchers and practitioners around the world, especially those with an interest and market in the Caribbean. As observed by Datta et al. (2005), there has been growing interest in the degree to which human resource systems contribute to organisational effectiveness, yet limited research attention has been paid to the contextual conditions that moderate the efficacy of these practices.
3
Literature review
In general, firms are continuing to internationalise their operations to gain larger market shares through available international markets, forming partnerships and ventures with organisations in different countries, and even seeking qualified labour from the international the market (Palich and Gomez-Mejia, 1999). The internationalisation of operations are typically motivated to exploit unique assets in overseas markets, to gain access to lower cost or higher quality inputs (labour, raw materials, intermediate goods, specialised skills, etc.), to build scale economies and other efficiencies, and to preempt
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competitors that may seek similar advantages in strategic markets (Kim et al., 1993; Mitchell et al., 1995). With the effort to become more competitive and compete more effectively in the global economy, Caribbean organisations are continuously seeking ways to capitalise on the international market. As Downes (2003) noted, organisations in the Caribbean are searching for ways to enhance productivity and one of the strategies he noted was a wider use of paying for performance that fostered higher levels of productivity. Furthermore, with the move towards the Free Trade Agreement of the Americas (FTAA), there are major implications for Caribbean organisations given the goals of the agreement to a) enhance trade liberalisation with a view to generate economic growth and prosperity, contributing to the expansion of world trade, b) enhance competition and improve market access conditions for goods and services among the Parties, including in the area of government procurement, and c) eliminate the barriers to the movement of capital and business persons among the Parties. “Three factors make effective human resource management critical in the quest for global competitiveness. First, increased emphasis on multinational trade and the growth of foreign subsidiaries. Second, expansion of the international workforce brings increased capabilities, and third the traditional factors of production.” (Lowe et al., 2002)
In addition, it is argued that human resource management capabilities serve to attract, retain, motivate, develop and use human capital in a firm (Coff, 1997; Kamoche, 1996; Mueller, 1996). With the move towards FTAA and becoming more vibrant competitors, arises the critical issue of compensation. Compensation as defined by Geringer and Frayne (1990) is the monetary and non-monetary, direct and indirect, that an organisation exchanges for the contributions of its employees performance and personal contributions. In examining the national or regional models of compensation, national borders significantly define the contextual features such as national economic, demographic, and cultural conditions and must be considered when developing compensation systems that align with organisational, national, and regional strategies (Bloom and Milkovich, 1999). As Hofstede (1980) explained, “most of a country’s inhabitants share a national character”, p.89. Furthermore, it is common to believe that compensation and reward systems, because of their social and economic significance, portray and reinforce cultural norms (Mahoney, 1979). Nevertheless, Bloom and Milkovich (1999) explained that organisations developed their own social norms, and that the compensation practices and systems of these companies were related to their own social norms. In addition, firms can structure compensation policies which are consistent with the firm’s culture and simultaneously attract, motivate, and retain employees who fit with the organisation. After years of poor economic management, many Caribbean countries are experiencing a process of structural reform that places then on the path to a superior economic performance (Edwards, 1995). Change, as described by Lawler-III (2000), should be facilitated through the usage of pay systems, given that changes in an organisation’s pay system are usually of high impact and have high visibility. This paper addresses current compensation practices in the Caribbean and compares responses to what the practices should be in enabling organisations to compete more effectively in the global economy. Many research findings have found the direct relationships between specific HR strategies such as compensation systems and labour productivity including Arthur (1994), Guthrie (2001) and Huselid (1995).
A review and analysis of compensation practices in the Caribbean
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An effective compensation system can lead to organisational competitiveness, higher levels of profitability and productivity and also contributes to higher levels of employee motivation, attracting qualified applicants, retaining skilled employees, and maintain workforce stability (Gomez-Mejia and Balkin, 1992; Lawler-III, 2003; Milkovich and Newman, 1993; Wright et al., 1994). With the knowledge of the outcomes of effective compensation practices, and given the aspiration of Caribbean organisations to achieve such outcomes, the compensation practices and the congruence to the organisational and regional initiatives are reviewed and analysed.
4
Research methods
4.1 Data collection and sample The sample is comprised of primarily HR Managers and Generalists within the Caribbean. Given that HR professionals are most likely to have developed the compensation practices or are intimately familiar with the practices, surveys were sent to HR Professional Associations in the Caribbean, directly to companies’ HR executives, and through the University of West Indies. The surveys were sent via e-mail and included an explanation of the purpose of the research and briefly explained the value of the participants’ input. Surveys were sent to approximately 543 HR professionals. Surveys were completed and returned by 182 participants representing approximately 34% participation rate. This number represents a considerably better than “the 10–12 percent rate typical for mailed surveys to executives” (Hambrick et al. 1993). Participants were given two weeks on average to return the completed survey. All participants were promised a free copy of the paper upon completion. Participants were promised strict confidentiality and were assured that neither their names nor their company names would be identified in the paper nor other publication based on this research effort. The sample included employees from 130 different companies. Even though surveys were distributed to the entire senior HR staff at a given organisation, no more than two responses from the same organisation were used in the data. With the need to maintain a balance of input from organisations across the Caribbean, surveys were sent to the entire HR staff at the respective organisations even though the researcher was limiting a maximum of two participants from any given organisation. The intent was to have as many organisations from different industries, size, location, and other factors represented in the study. There were four organisations that had more than two employees returning completed surveys. This resulted in a total of six completed surveys randomly selected and excluded to ensure that a maximum of two participants from any given organisation were included in the data. The survey was developed using a modified version of (Balkin and Gomez-Mejia, 1990; Gomez-Mejia and Balkin, 1992) instrument that was originally used to identify the relationships between various compensation practices and organisational outcomes including firm performance. In addition, multiple open-ended questions were asked as a means of gathering participants’ perspectives on the role of compensation in achieving the strategic business objectives of the organisation and what role HR played in the decision-making process for deciding on compensation practices. In addition, the
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open-ended questions sought input on the impact of culture, national laws, and the role of union on compensation practices at the respective organisations. The questions inquired the extent to which, •
compensation is aligned to business strategies
•
the importance and effectiveness of benefits as part of the total compensation
•
pay incentives are important
•
the compensation practices are competitive compared to other organisations
•
variable compensation is an integral part of the total compensation
•
pay raises and level of compensation are based on performance
•
long-tern performance is valued over short-term
•
compensation practices help to achieve the organisation’s goals and objectives.
These questions provided current practices (‘now’) and how the extent to which the practices should be changed in driving firm performance (‘should be’). Where applicable, results from the Caribbean were compared to responses from US firms as identified in a previous study by (Lowe et al., 2002). In addition, 13 open-ended questions were developed by the author intending to gather information on how national culture, compensation laws, trade unions, and similar factors influenced compensation practices at the respective organisations. The complete survey can be in Appendix 1. The survey instrument was pre-tested by 12 HR Executives in the USA with responsibility for compensation to ensure that the relevant questions were being asked, the instrument was clear, and easy to follow. Furthermore, all questions were developed from relevant papers found from an exhaustive literature review.
5
Results
The results compare the current compensation practices in the Caribbean and the desired type and level of practices viewed to be necessary in enhancing firm competitiveness. Results are also compared to practices in the USA through the findings of Lowe et al. (2002) and other studies.
5.1 Pay package design and market positioning This category examined •
the relative importance of the base salary as an important component of the total compensation package
•
relevance of base salary to other forms of pay
•
the relative important importance of benefits of the total pay package
•
current nature of the benefits package and what it could be
A review and analysis of compensation practices in the Caribbean
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•
whether pay incentives are an important part of the compensation strategy
•
whether pay incentives are designed to provide a significant of an employee’s total compensation.
5.1.1 Salary Participants were asked to rate their view of the relative importance of base salary as an important component of total compensation. The average for both ‘current’ and ‘should be’ scores were relatively high with their view of ‘current’ practices being 4.27 and ‘should be’ at 4.16. Figure 1 provides a graphical summary of the pay package design practices based on current practices and how these practices should be changed to foster higher levels of organisational effectiveness. Figure 1
Comparing pay package design practices
Quite notable is the average for question 1b of 4.31 for ‘current’ and 3.96 for ‘should be’. Respondents indicated that their companies’ philosophy on base pay enables their organisations to be competitive in this area and furthermore, indicating that there may be too much emphasis on base pay. This is especially true given that participants stated that there is more need to focus on incentive compensation as a means of driving firm performance. Currently, incentive compensation is reported at 2.12 and 2.04 and a score of 3.84 and 3.76 respectively for questions relating to the importance of incentive compensation and incentives as a significant source of total compensation and what the emphasis should be.
5.1.2 Benefits It is quite evident that organisations in the Caribbean felt that their benefits offered were not competitive. Participants indicated that benefits are not currently viewed as being critical to attracting, motivating, and retaining employees and that the benefits offered were not generous and competitive. The mean score for the question as to whether benefits are an important part of total pay package was 3.15 for current and 4.28 as to where it should be. This is a relatively significant difference inferring a high level of dissatisfaction with the benefits packages offered by organisations in the Caribbean.
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Furthermore, respondents indicated that the benefits packages could be much more generous and competitive. The mean score for current view of the benefits package being generous was 2.58 and 4.27 as to how employees viewed the significance of the benefits package.
5.1.3 Incentives Compared to data collected by Lowe et al. (2002) and as indicated in Figure 2, Caribbean organisations view incentive compensation in a relatively similar manner to organisations in the USA. This finding is quite surprising given the differences in the way incentive compensation practices are viewed and implemented as being relatively small. Figure 2
Incentive compensation – views and practices within the Caribbean and USA
Similar to American organisations, Caribbean organisations viewed incentive compensation as a significant way to foster higher levels of productivity and thought that incentive compensation should be used more extensively within organisations. The mean score for the question as to whether pay incentives are an important part of compensation strategy was 2.12 for current practices and 3.84 for how incentives should be. This is an extremely significant difference and a strong view as to how employees view their current compensation philosophy.
6
Pay policy choices
This category examined multiple perspectives of the compensation philosophy and practices, the role of employees in formulating compensation strategies, and the factors that most significantly affect the respective strategies decided upon by the organisation. As explained by Milkovich and Newman (2005), pay systems translate the organisation’s strategy into practice in order to achieve the desired organisational objectives. Table 1 provides a summary of the mean scores of current practices and the degree to which these practices should be different in enabling Caribbean organisations to become more competitive.
A review and analysis of compensation practices in the Caribbean Table 1
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Pay policy choices
Pay policy choices
Current Should practice be Difference
Risk sharing Pay is at least partially tied to group or organisation performance – 5a
1.60
3.48
1.88
Comp. system is designed to facilitate partial variable pay – 5b
1.73
3.46
1.73
Employees should take some risks with pay – 5c
1.50
3.04
1.54
Internal consistency in pay relationships Internal pay equity is important – 6a
3.35
4.38
1.03
Efforts are made to maintain internal equity – 6b
3.50
4.15
0.65
Internal equity is priority over external equity – 6c
2.80
3.61
0.81
Pay is kept secret from employees – 7a
2.69
2.89
0.19
Formal policies in place to discourage divulging pay info – 7b
1.57
1.81
0.24
Does not disclose administrative procedures on pay systems – 7c
2.54
2.46
–0.08
Pay secrecy
Pay-for-performance Strong commitment to merit pay – 8a
2.80
4.46
1.66
Pay increases tied to performance – 8b
1.73
4.20
2.47
Seniority not tied to pay decisions – 8c
3.31
2.77
–0.54
Pay policy is not centralised – 9a
3.46
3.81
0.35
HR staff in each bus. Unit has flexibility to develop comp. – 9b
1.20
2.40
1.20
Minimum interference from HQ on pay decisions – 9c
1.67
2.75
1.08
Pay decentralisation
Egalitarian pay Comp. system reflects low hierarchy – 10a
2.31
2.50
0.19
Special pay packages and privileges are offered – 10b
3.69
3.28
–0.41
Pay system is as egalitarian as possible – 10c
2.46
3.35
0.89
1.60
3.40
1.80
Pay participation Employees input are considered by top management – 11a Many different groups of employees have input – 11b
1.58
3.31
1.73
Pay decisions are autocratic – 11c
3.73
3.46
–0.27
Have a job-based system – 12a
3.23
3.46
0.23
Have a skill-based system – 12b
2.69
4.00
1.31
Job is more important than incumbent’s ability – 12c
3.35
3.73
0.38
Pay system has a futuristic orientation – 13a
1.85
3.35
1.50
Pay system rewards for short-term accomplishments – 13b
2.85
3.65
0.80
Job-based pay
Long-term pay
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Risk sharing Respondents to the survey clearly indicated that pay is not tied group or organisational performance. Furthermore, with scores of 1.60 for the view on current practices and 3.48 as to how organisations in the Caribbean viewed this issue, there is a clear opinion that pay should be based on organisational and group performances. As reported by Lowe et al. (2002), current state of practice was rated at 2.46 and 4.00 for ‘should be’. Based on Hofstede’s (1980) research on cultural dimensions, Caribbean cultures, as exemplified by the report on Jamaica, are much more collective as compared to the USA. Hence, one would expect more of an emphasis being placed on organisational and group performance vs. an emphasis on individual performance in a more collectivist culture. In this case, Caribbean organisations had lower mean scores than the USA for the question on whether an employee’s earnings are contingent on group or organisation performance. Internal consistency in pay relationships Except for internal pay equity, participants of the study seem relatively satisfied with the measures taken to ensure relative equity within the respective organisations. Nevertheless, the perception exists that organisations still need to give additional attention to ensure there is internal equity among departments and positions with relatively equal importance to the organisation. Pay-for-performance It was clearly evident through the results that employees wanted their pay to be tied to their performance and for there to be a stronger paradigm on rewarding performance. Employees indicated that there is currently too much emphasis on seniority. Based on the study conducted by Lowe et al. (2002), the US scores were 2.42 and 4.22 for ‘is now’ and ‘should be’ respectively. It is quite noteworthy, that both the US and the Caribbean employees averaged almost identical scores as to how pay should be tied to performance. This is in spite of the significant difference in the power distance and uncertainty avoidance indexes measured by Hofstede (1980). As can be easily inferred by studies such as Hofstede (1980) and Milliman et al. (1995), collective cultures such as those in the Caribbean have historically emphasised seniority rather than individual performance. The results from this study show a shift and willingness from employees be paid based on their performance rather than merely seniority. Pay participation Employees stated that there is little input by the general employee population in the decision on designing and implementing a compensation strategy. It is typically an autocratic process with senior management deciding on how employees should be rewarded. Employees clearly indicated a preference and a desire to be included in the decision making process or at least be able to share thoughts on features of the reward system.
A review and analysis of compensation practices in the Caribbean
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Pay effectiveness
Compensation is a powerful way to attract, motivate, and retain employees as a means to furthering an organisation’s strategic goals (Lawler-III, 2000; Milkovich and Newman, 2005). Furthermore, compensation is a critical strategy that reinforces the behaviours, attitudes, and skills necessary to achieve organisational capability (Ulrich and Beatty, 2001). With the Caribbean facing intense competitive challenges in the global economy, one component of this study sought to determine how effective compensation systems of Caribbean organisations were in enhancing organisational competitiveness. In responding to the question asking if their organisations’ pay policies and practices are highly effective, managers and other employees responded with a mean score of 2.58 and 4.31 for ‘should be’. One can easily infer that employees are convinced that their current compensation practices are not highly effective and desire significant changes to the current compensation system. Quite profound is the response that the current compensation practices do not give shareholders ‘their money’s worth’ as indicated through mean scores of 2.52 and 4.64 for current and should be practices. From a strategic and even ethical perspective, employees feel that there is much more to be done to maximise the interest of shareholders and other stakeholders groups. Employees also felt that the current pay practices did not appear to enjoy widespread acceptability among the workforce. Table 2 provides a detailed summary of the mean scores of all questions asked in the survey. Table 2
Overall results sorted by difference Current
Should be Difference
Pay increases tied to performance – 8b
1.73
4.20
2.47
Comp. system provide money’s worth – 14c
2.52
4.64
2.12
Management is happy with comp’s role in achieving organisation goals – 14b
2.58
4.58
2.00
Pay is at least partially tied to group or organisation performance – 5a
1.60
3.48
1.88
Employees input are considered by top management – 11a
1.60
3.40
1.80
Pay policies contribute to attraction, retention, and motivation – 14e
2.38
4.12
1.74
Comp. system is designed to facilitate partial variable pay – 5b
1.73
3.46
1.73
Many different groups of employees have input – 11b
1.58
3.31
1.73
Pay policies and practices are effective – 14a
2.58
4.31
1.73
Incentive importance – 3a
2.12
3.84
1.73
Incentives as a component of total comp. – 3b
2.04
3.76
1.72
Benefits are generous – 2b
2.58
4.27
1.69
Strong commitment to merit pay – 8a
2.80
4.46
1.66
Employees should take some risks with pay – 5c
1.50
3.04
1.54
Pay policies have widespread acceptability – 14d
2.77
4.31
1.54
Pay system has a futuristic orientation – 13a
1.85
3.35
1.50
58 Table 2
S.J. Ramlall Overall results sorted by difference (continued) Current
Should be
Difference
Have a skill-based system – 12b
2.69
4.00
1.31
Competitive benefits – 4b
3.04
4.35
1.31
HR staff in each bus. Unit has flexibility to develop comp. – 9b
1.20
2.40
1.20
Benefits importance – 2a
3.15
4.28
1.13
Minimum interference from HQ on pay decisions – 9c
1.67
2.75
1.08
Internal pay equity is important – 6a
3.35
4.38
1.03
Pay system is as egalitarian as possible – 10c
2.46
3.35
0.89
Competitive pay – 4a
3.58
4.46
0.88
Internal equity is priority over external equity – 6c
2.80
3.61
0.81
Pay system rewards for short-term accomplishments – 13b
2.85
3.65
0.80
Pay policies emphasise long-term results – 13c
2.53
3.26
0.73
Efforts are made to maintain internal equity – 6b
3.50
4.15
0.65
Job is more important than incumbent’s ability – 12c
3.35
3.73
0.38
Pay policy is not centralised – 9a
3.46
3.81
0.35
Formal policies in place to discourage divulging pay info – 7b
1.57
1.81
0.24
Have a job-based system – 12a
3.23
3.46
0.23
Pay is kept secret from employees – 7a
2.69
2.89
0.19
Comp. system reflects low hierarchy – 10a
2.31
2.50
0.19
Does not disclose administrative procedures on pay systems – 7c
2.54
2.46
–0.08
Base salary importance – 1a
4.27
4.16
–0.11
Pay decisions are autocratic – 11c
3.73
3.46
–0.27
Base salary is high – 1b
4.31
3.96
–0.35
Special pay packages and priviliges are offered – 10b
3.69
3.28
–0.41
Seniority not tied to pay decisions – 8c
3.31
2.77
–0.54
On the critical question as to whether pay policies and practices greatly contribute to retention, attraction, and motivation of employees, the response clearly indicated that the current compensation system was ineffective in achieving the intended outcomes. Given the harsh reality of compensation systems being a core strategy in attracting, motivating, and retaining employees, and also the significant percentage of an organisation’s expenditure on labour cost, this information provides compelling insights for Caribbean organisation on the nature of current compensation systems. Many scholars have explained the necessity of effective compensation systems in enabling organisations to be successful (Gomez-Mejia and Balkin, 1992; Huselid, 1995; Lawler-III, 2000). Similar to the findings of Von-Glinow et al. (2002) on their global HR best practices, employees in the Caribbean viewed benefits, emphasis on individual performance, and a reduced emphasis on seniority as ways of enhancing the effectiveness of the compensation system.
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Discussion and conclusion
In their efforts to becoming more competitive in the global economy, Caribbean organisations continuously seek ways to enhance organisational effectiveness. Not only does this study provide concrete insights about employees’ views of compensation systems, but also provide highly useful information about compensation practices for organisations across the world with business interests in the Caribbean. Clearly, given the Caribbean cultures are viewed as more collective, one would have expected more of an emphasis on organisational or team outcomes vs. emphasising individual performance and rewards as being strategies to creating more effective reward systems. There is a clear and urgent desire from employees to have their rewards linked to individual performance. For many organisations participating in the study, there was excessive emphasis on seniority and less emphasis on competencies. The biggest influence that local cultures have on compensation philosophy is in terms of pay for performance. One of the observations was that some organisations are trying to move towards a pay for performance system but culturally lots of the Caribbean markets are not used to this or ready to make progress in this respect. As one senior leader of an organisation reported, “in many countries where we operate there is a cultural expectation that everyone gets a salary increase every year – regardless of the businesses performance”. Another manager responded, “There is an expectation in some Caribbean countries that individuals have the right to a job and therefore you get lots of applicants who are not suited to roles applying for them. Also, many unqualified applicants currently hold position based on political, family, and/or social connections and not necessarily on qualifications.”
Stockholders, society, managers, and employees all have deep interest in compensation. Though, the perspectives may differ among the respective stakeholder groups, the relative importance is extremely high. From a society perspective, pay can be viewed as a measure of justice in ensuring men and women are paid at a relatively equal scale as an example. Stockholders can view pay as a means to maximise investments in the company. Managers may view pay as a major labour cost and hence would use pay to influence behaviours and attitudes that will achieve organisational outcomes. Employees may view pay as a reward or even an entitlement for work performed in the organisation. As Milkovich and Newman (2005) stated, the objectives of compensation systems are to “translate the strategy into practice to foster efficiency, fairness, and compliance”. Based on responses in this study, Caribbean organisations are far from maximising the investment in their pay systems. There is a clear gap in aligning the pay systems to achieve the behaviours and skills that enable their respective organisations to be more competitive in the global economy. Participants strongly indicated that the compensation systems were not providing the money’s worth and are generally failing to attract, motivate, and retain employees. Caribbean nations have a relatively low uncertainty avoidance score (Hofstede, 1980), thus prompting the opinion that changes aligning rewards to performance are quite achievable. To create more competitive organisations, greater emphasis should be placed on the alignment of the compensation systems, and employee and firm performance. In addition, organisations have to be able to measure the
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effectiveness of the compensation strategies and make necessary changes. The results provided by managers and employees within Caribbean organisations are profound and provide new knowledge on the level of effectiveness and also provide direct feedback and recommendation on strategies for enhancing the effectiveness of compensation practices.
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Lawler-III, E. (2000) Rewarding Excellence: Pay Strategies for the New Economy, Jossey-Bass, San Francisco. Lawler-III, E. (2003) ‘Reward practices and performance management system effectiveness’, Organizational Dynamics, Vol. 32, No. 4, pp.396–405. Loayza, N. and Palacios, L. (1997) Economic Reform and Progress in Latin America and the Caribbean (Conference), World Bank, Montevideo. Lowe, K., Milliman, J., De-Cieri, H. and Dowling, P. (2002) ‘International compensation practices: a ten-country comparative analysis’, Human Resource Management, Vol. 41, No. 1, pp.45–66. Mahoney, T.A. (1979) Compensation and Reward Perspectives, Irwin, Homewood, IL. Milkovich, G. and Newman, J. (2005) Compensation, 8th ed., McGraw Hill-Irwin, New York, p.15. Milkovich, G.T. and Newman, J.M. (1993) Compensation, 4th ed., Irwin, Homewood, IL. Milliman, J., Nason, S., VonGlinow, M., Hou, P., Lowe, K. and Kim, N. (1995) ‘In search of best strategic pay practices: an exploratory study of Japan, Korea, Taiwan, and the United States’, Advances in International Comparative Management, Vol. 12, pp.157–183. Mitchell, W., Roehl, T. and Slattery, R. (1995) ‘Influences on R&D growth among Japanese pharmaceutical firms’, The Journal of High Technology Management Research, Vol. 6, pp.17–32. Mueller, F. (1996) ‘Human resources as strategic assets: an evolutionary resource-based theory’, Journal of Management Studies, Vol. 33, No. 6, pp.757–785. Palich, L. and Gomez-Mejia, L. (1999) ‘Theory of global strategy and firm efficiencies: considering the effects of cultural diversity’, Journal of Management, Vol. 25, No. 4, pp.587–606. Ramlall, S. and Owens, E. (2005) ‘Creating and sustaining economic growth in the caribbean through human resources’, Int. J. Human Resource Development and Management, Vol. 5, No. 3, pp.227–239. Shaw, J., Gupta, N. and Delery, J. (2001) ‘Congruence between technology and compensation systems: implications for strategy implementation’, Strategic Management Journal, Vol. 22, pp.379–386. Ulrich, D. and Beatty, D. (2001) ‘From partners to players: extending the hr playing field’, Human Resource Management, Vol. 40, No. 4, pp.293–308. Von-Glinow, M.A., Drost, E. and Teagarden, M. (2002) ‘Converging on IHRM best practices: lessons learned from a globally distributed consortium on theory and practice’, Human Resource Management, Vol. 41, No. 1, pp.123–140. Wright, P., McMahan, G. and McWilliams, A. (1994) ‘Human resources and sustained competitive advantage: a resource-based perspective’, International Journal of Human Resource Management, Vol. 5, pp.301–326.
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Appendix 1 Compensation strategies and practices in the Caribbean Your responses below are part of the effort to collect relevant information on compensation practices in the Caribbean. Neither individual nor organisation identity will be identified in the results. The author assures full confidentiality. Upon completion of the research project, I would be happy to send you a copy if you wish.
Type of organisation: Industry: Number of employees: Annual revenue (if for profit) (US$): What is your position title? Using the following scale, please answer the questions below: 1
not at all
2
to a small extent
3
to a moderate extent
4
to a large extent
5
to a very great extent.
Please note that you should have two responses for each question (what the current practice is today and the second, what you think it should be) Strategy dimension I: Pay package design (pay mix) 1
Salary
(a) The base salary is an important part of the total compensation package. Current
Should be
(b) The base salary is high relative to other forms of pay that an employee may receive in this organisation. Current 2
Should be
Benefits
(a) The benefits are an important part of the total pay package. Current
Should be
(b) The employee benefits package is very generous compared to what it could be. Current
Should be
A review and analysis of compensation practices in the Caribbean 3
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Incentives
(a) Pay incentives such as a bonus or profit sharing are an important part of the compensation strategy in this organisation. Current
Should be
(b) Pay incentives are designed to provide a significant amount of an employee’s total earnings in this organisation. Current
Should be
Strategy dimension II: Market positioning 4
Pay relative to competitors
(a) Preferred position of organisation’s salary levels with respect to competitors. Current
Should be
(b) Preferred position of organisation’s benefits level with respect to competitors. Current
Should be
Strategy dimension III: Pay policy choices 5
Risk sharing
(a) In this organisation a portion of an employee’s earnings is contingent on group or organisation performance goals being achieved. Current
Should be
(b) We designed our compensation system so that a-portion of our compensation costs is variable. Current
Should be
(c) We believe that employees should be risk takers with some of their pay. Current 6
Should be
Internal consistency in pay relationships
(a) Internal pay equity is an important goal of our pay system. Current
Should be
(b) We try hard to achieve comparable pay relationship across different parts of the organisation. Current
Should be
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(c) In our organisation we give a higher priority to internal pay equity than we do to external market factors. Current 7
Should be
Pay secrecy
(a) We keep pay information secret from the employees. Current
Should be
(b) We have formal policies that discourage employees from divulging their pay to coworkers. Current
Should be
(c) Our organisation does not openly disclose the administrative procedures on how pay levels and pay raises are established. Current 8
Should be
Pay-for-performance
(a) We have a strong commitment to a merit pay system. Current
Should be
(b) In this organisation pay raises are determined mainly by an employee’s job performance. There is a large pay spread between low performers and high performers in a given job. Current
Should be
(c) An employee’s seniority does not enter into pay decisions. Current 9
Should be
Pay decentralisation
(a) Pay policy is not centralised in this organisation. Current
Should be
(b) The Personnel staff in each business unit has freedom to develop its own compensation programs. Current
Should be
(c) There is a minimum of interference from corporate headquarters with respect to pay decisions made by line managers. Current
Should be
A review and analysis of compensation practices in the Caribbean
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10 Egalitarian pay
(a) Our compensation system reflects a low degree of hierarchy. In other words, we try to give a minimum of perks (reserved parking spots, first-class air travel, etc.) to top executives. Current
Should be
(b) We offer special pay packages and privileges as status symbols to the higher echelons in the organisation. Current
Should be
(c) We try to make our pay system as egalitarian as possible. There are very few perks or specific rewards available to any ‘elite’ groups of employees. Current
Should be
11 Pay
(a) Employees’ feelings and preferences for various pay form (e.g., bonus vs. profitsharing) are taken very seriously by top management. Current
Should be
(b) Many different kinds of employees (individual contributors, managers, personnel staff have a say in pay policies. Current
Should be
(c) Pay decisions in this organisation are made on an autocratic basis. We tend to ‘follow the book’ very closely. Very few employees have any input to pay decisions. Current
Should be
12 Job-based pay
(a) We have a job-based pay system. That is, factors within the job are key determinants of the amount of pay. Current
Should be
(b) We have a skill-based pay system. That is, individuals are rewarded in part on their mastery of job skills. Current
Should be
(c) The job is a more important factor than an incumbent’s ability or performance in the determination of pay rates in this organisation. Heavy emphasis is placed on job evaluation procedures to determine pay levels. Current
Should be
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13 Long-term pay
(a) The pay system in this organisation has a futuristic orientation. It focuses employees’ attention on long-term (2 or more years) goals. Current
Should be
(b) The pay system in this organisation rewards employees for short-term accomplishments during a fixed time period e.g., annual or semiannual performance reviews). Current
Should be
(c) Our pay policies recognise that long-term results are more important than short-term results. Current
Should be
Compensation system assessment 14 Pay effectiveness
(a) Our pay policies and practices are highly effective. Current
Should be
(b) Management is very happy with the way the compensation system contributes to the achievement of overall organisational goals. Current
Should be
(c) All things considered, the compensation strategies used in our organisation truly give shareholders ‘their money’s worth’. Current
Should be
(d) Our pay policies and practices appear to enjoy widespread acceptability among employees. Current
Should be
(e) Our pay policies and practices greatly contribute to retention, attraction, and motivation of employees. Current
Should be
A review and analysis of compensation practices in the Caribbean
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Other questions •
Does your organisation have a policy for the pay and benefits? Please describe.
•
What non-monetary compensation does your organisation offer and how does it vary by classification of employees?
•
With whom does the primary responsibility lie for major policy decisions on the pay and benefits? (HR, Line Manager, Senior Executive, etc.) Please also explain the rationale.
•
Does your organisation offer tuition reimbursement? Is there a maximum? Is there a contract?
•
Has the responsibility of line management changed over the last 3 years for pay and benefits? What are the primary reasons for the changes (if any)?
•
Has there been a change in the share of the variable pay and non-money benefits in the total rewards package in the last three years?
•
Do you offer any of incentive payments? Please describe (how and why).
•
•
Profit-sharing
•
Gain-sharing
•
Group bonus schemes
•
Merit
•
Other performance related pay
Do you offer any benefits to working mothers and fathers? •
Workplace childcare
•
Childcare allowances
•
Parental leave
•
Pension scheme
•
What is the role of the trade union in the compensation practices at your organisation?
•
Please describe the influence of the national culture on the compensation philosophy of your organisation?
•
What are the major compensation laws in your country?
•
How do you view compensation as a means of creating competitive advantages for your organisation and enabling general business success?
•
What changes would you recommend to enhance the effectiveness of your organisation’s current compensation practices?