According to history, the notion of compensation for work pre-dates to sometime between 10,000 BC and 1,000 BC during the Neolithic Revolution (Wikipedia). Back then, salt was used as payment till around 560 BC when coins came into circulation and money was invented (Wikipeida). Money became widely used as the payment for labour. To date, money is still the main medium of exchange between employer and employee. In today’s highly competitive market, organisations are often faced with increased competition from both domestic and foreign markets. To be able to stay competitive, attract and retain quality employees, it is imperative that the organisation have a compensation package that is valuable to its employees (Naresh 1998).
Although between employer and employee there is an exchange of money for labour, there is a driver which enables the employee to do the required task. The driver is called Motivation. Motivation is defined as the processes that account for an individual’s intensity, direction and persistence of effort towards attaining a goal (Cummings and Staw 1997). Relating motivation and compensation packages is Frederick Herzberg’s two-factor theory. There are two components to motivation and they are intrinsic motivation and extrinsic motivation (Calder and Staw 1975). Extrinsic motivation is motivation gained by externally influenced needs and is therefore for example stimulated by monetary rewards (Frey 1997). Intrinsic motivation indicates that under certain conditions, employees are prepared to undertake a task for immediate need satisfaction or for its own sake (Calder and Staw 1975). For the purpose of this report, the writer shall focus on extrinsic motivation as it links to compensation packages.
Employees typically receive three kind ...