COMPENSATION MANAGEMENT

MAY / 2018

BBCM4103

NO. MATRIKULASI : 831209145612001

NO. KAD PENGNEALAN : : 831209145612
NO. TELEFON : 0162305487
E-MEL : emilyn@oum.edu.my

PUSAT PEMBELAJARAN : PETALING JAYA

Contents
1. INTRODUCTION ................................................................................................................... 3

1.1. Organization chosen ......................................................................................................... 3

2. INTRODUCTION ................................................................................................................... 6

2.1. Indirect compensations ..................................................................................................... 6

2.1.1. Employer provident fund (EPF)................................................................................ 7

2.1.2. SOCSO...................................................................................................................... 7

2.1.3. Paid holidays and annual leaves ............................................................................... 7

2.1.4. Medical insurance coverage ...................................................................................... 8

2.1.5. Training ..................................................................................................................... 8

3. How indirect compensation can motivate and retain the employees ....................................... 9

3.1. Enhance organizational performance ............................................................................... 9

3.2. Increase morale ................................................................................................................ 9

3.3. Increase productivity ...................................................................................................... 10

4. Suggestions and recommendation to improve indirect compensations in APEX ................. 11

4.1. Developing the objectives of employee benefits: .......................................................... 11

4.2. Assessment of the environmental factors: ...................................................................... 12

4.3. Assessment of competiveness: ....................................................................................... 12

4.4. Communicating information about benefits to employees: ........................................... 12

4.5. Monitoring employee benefit cost and evaluation: ........................................................ 13

5. Conclusion ..............................................................................Error! Bookmark not defined.

6. References ............................................................................................................................. 15

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1. INTRODUCTION

Employees are the organization’s key resource and the success or failure of organizations heavily
depends on the ability of the employers to attract, retain, and reward appropriately talented and
competent employees. Employees’ willingness to stay on the job largely depends on
compensation packages of the organization [1]. In an attempt to ensure employees optimal
performance and retention, organizations need to consider a variety of appropriate ways to
reward the employees to get the desired results [2]. It has been argued that the degree to which
employees are satisfied with their job and their readiness to remain in an organization is a
function of compensation packages and reward system of the Organization [3]. This paper aims
to evaluate the various types of compensation that can be used to motivate and retain the
employees. For the purpose of this paper, an organization was chosen to become an example to
further discuss this topic.

1.1. Organization chosen

APEX GLOBAL ENGINEERING

Founded in August 2008, is a locally

registered Malaysian Bumiputera company.
Teamed up with its affiliated company,
Westralian Engineer-ing Services Pty. Ltd.
in Perth, West Australia and Kelington
Group Berhad, Apex Global Engineering
has the capabilities to provide a number of
industry services for oil and gas, mining, petrochemical, chemical, power plant and marine
industries engineering requirements. With all this combined, Apex Global Engineering can lay
claim to be an expert in the heavy engineering, manufacturing, servic-ing and projects in the oil
and gas, petrochemical, marine and resource sectors on a global presence. Currently, Apex
Global Engineering has expanded its business to Apex Trading and Apex Medical. [4]

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VISION

 To be a leading and well-diversified high-technology Company in Asia Pacific region

 Our vision serves as a strategic intend and guides in every aspect

 Our business describing the desire long-term future state of “The Company”

MISSION

 To deliver our quality services to our customer to their satisfaction, in a cost effective
with safe & sound

Our corporate values committed to customer through:

 Building Partnership

 Technological Innovations

PRODUCT & SERVICES

• Marine & Offshore Vessel Services

• Offshore & Onshore Marine Maintenance

• Crane Manufacturing and Installation Services

• Process Plant Installation & Maintenance

• Industrial Gases Delivery System

• Gas & Chemical Skids Fabrication

• Marine, Onshore & Offshore Trading

• Onshore & Offshore Engineering

• Medical Supply & Services

No of employee: 25

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2. INTRODUCTION

Compensation is the human resource management function that deals with every type of reward
individuals receive in exchange for performing organizational tasks, with a desired outcome of
an employee who is attracted to the work, satisfied, and motivated to do a good job for the
employer [5]. According to the American Compensation Association’s (1995) definition,
“compensation is the cash and non-cash remuneration provided by an employer for services
rendered” (ACA). It could be financial rewards which refer to any monetary rewards that go
above and beyond basic pay. These rewards are separate and not added into basic salary.
Examples of these include financial incentives, bonuses, and recognition. Compensation can be
described as direct and indirect compensation received by employees in an organization

2.1. Indirect compensations

Indirect Compensation is the indirect financial and nonfinancial payments employees receive for
continuing their employment with the company which are an important part of every employee’s
compensation [6]. Other terms such as fringe benefits, employee services, supplementary
compensation and supplementary pay are used. Indirect Compensation or Employee benefits are
elements of remuneration given in addition to the various forms of cash pay [5]. They also
include items that are not strictly remuneration such as annual holidays. Management uses it
ostensibly to facilitate its recruitment effort or influence the potential of employees coming to
work for a company, influence their stay or create greater commitment, raise morale, reduce
absenteeism in general and improve the strength of the organization by instituting a
comprehensive programme in this area [7].

Examples of indirect compensations given by APEX to their employees:

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 2.1.1. Employer provident fund (EPF)

The EPF is intended to help employees from the private sector save a fraction of their salary in a
lifetime banking scheme, to be used primarily as a retirement fund but also in the event that the
employee is temporarily or no longer fit to work. The EPF also provides a framework for
employers to meet legal and moral obligations to their employees. As of 2012, the EPF functions
by requiring a contribution of at least 11% of each member's monthly salary and storing it in a
savings account, while the member's employer is obligated to additionally fund at least 12% of
employee's salary to the savings at the same time (13% if salary is below RM5,000). While in
savings, a member's EPF savings may be used as investments for companies deemed profitable
and permissible by the organisation, from which dividends are banked to respective members'
accounts. Alternately, members may use their EPF savings in their own investments, although
such activities are not covered by the EPF and the members are to bear any losses made.

2.1.2. SOCSO

SOCSO (Social Security Organization), also known as PERKESO (Pertubuhan Keselamatan

Sosial), was established in 1971 under the Ministry of Human Resources (formerly known as
Ministry of Labour) to provide social security protections to all employees/workers in Malaysia.
SOCSO provide assistance both medically and financially to employees that have had their
abilities reduced or incapacitated due to accidents or illness. They also provide assistance to the
dependents of the employees if they die through pensions.

2.1.3. Paid holidays and annual leaves

Every year, an APEX staff is allocated 14-20 day of paid annual leaves for them to use with
discretion from the employer. Other than that there is also a 15 days of national public holiday
every year. An additional 7 days of medical leave is also available but only with the support of an
official medical leave provided by recognize health practitioner. APEX does not have a panel
clinic so the staff is free to take their medical assistance from any clinic.

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 2.1.4. Medical insurance coverage

Staffs will receive medical and life insurance as part of their compensation. Medical insurance in
APEX although doesn't extend as group / family insurance, they provide enough coverage for the
staff to feel secured. Other than that, APEX also provide dental insurance for their staff but with
an annual limit.

2.1.5. Training

For many people, especially the younger generations, the ability to develop both personally and
professionally is highly valued and a key consideration in deciding where to work. Access to
training and development on the job and through courses or conferences were among the benefit
APEX provide for their staff. Another variation of this was receiving reimbursement for courses
taken on the employee’s own time - most commonly reimbursed were courses that aligned with a
professional designation in the employee’s current role. Most of the time, APEX staff will join
courses and trainings by CIDB for free.

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3. HOW INDIRECT COMPENSATION CAN MOTIVATE AND RETAIN THE
EMPLOYEES

Indirect compensation help organizations to attract and retain highly competitive employees
which are seen as strategic resources in getting competitive advantage [9]. One can expect that
through benefits offerings the overall attractiveness of organization can be increased and the
loyalty and satisfaction of that employee will also be increased. As a result, it will increase
employee motivation and performance.

3.1. Enhance organizational performance

Higher indirect compensation may enhance organizational performance by attracting and

retaining competitive labor. In another words, indirect compensation play a moderating role and
increase the positive impact of labor input on an organization’s output with the retention and
recruitment of high quality employees. The fact that many small organization do, that give some,
if not all, of these supplementary benefits to the lower-wage employees, it demonstrate that they
view the investments valuable for purposes of enhancing recruitment, performance, and retention
[10]..

3.2. Increase morale

Great indirect compensations schemes from employer indicates how important it is for
organizations to appreciate their employees with appropriate fringe benefits (in addition to
salaries and wages) and make sure that the elements of their offer letter are properly
implemented. This will increase employee morale and make the quality of goods and services
better at low prices and also increase profit. Performance is an economic measure of
effectiveness which summarizes and indicates the amount of the outcome produced by an
individual, organization, industry or economic system comparative to the amount of the inputs
used to produce them [11].

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 3.3. Increase productivity

Organizations all around the world have identified the importance of performance to compete
and also to survive in the market. Moreover, actual performance improvement takes an important
comprehensive approach which relies on the employees, it is important to provide them with the
essential supplementary benefits to encourage them to perform their best. At the end of the day,
Great performance and good morale will push the company’s productivity to the better.

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4. SUGGESTIONS AND RECOMMENDATION TO IMPROVE INDIRECT
COMPENSATIONS IN APEX

To increase employee morale, performance and productivity, organization should adopt the
following steps:

 Provide value to the people as human beings and define rules and procedures to deal with
employees fairly.
 Design a support system for identifying and rewarding good performance.
 Develop an environment of trust and indicate that management has confidence on the
employees.
 Develop a natural, fun (recreation centers or club houses), collaborative friendly
atmosphere (end of year parties) which foster innovation.

People are the most essential elements of the organizations. They demand high respect by their
organizations, be provided with necessary recognition and good environment for work. Once the
above steps are taken by organizations, the goal of high performance and high quality would be
achieved and this will help the organization to achieve success.

Suggestion to improve the selected type of compensations:

4.1. Developing the objectives of employee benefits:

No benefit plan is properly developed unless it does not meet the employer’s objectives.
Managers should make sure that the organizations have clearly defined written objectives that
have been recommended by the board of directors or by the owners of the firm. It is necessary to
ensure the commitment and sense of belonging to the organisation of the employees. This is
being attained by the organisations through floating some novel schemes (objectives) for the
benefit of the employees. Some objectives that can be apply to APEX are:

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  To attract and retain the best employees in the organisation.
 To fulfill the needs of the employees which he himself cannot provide such as protection
against accidents and hazards by giving good medical coverage
 Enhances the image of the organisation in the eyes of the people in general and the
consumers in particular.
 Improving the working conditions are provided.

4.2. Assessment of the environmental factors:

Both internal and external factors have an impact on organization's indirect compensation
program. External factors include government taxes rules, regulations and policies, unions and
economic factors. Internal factors include organizational strategies, policies and objectives,
employee preferences and demographics. Assessment of these factors is important for managers
to develop useful indirect compensation programmes.

4.3. Assessment of competiveness:

It means how organization compares its benefits to the competitors. Managers should ensure that
their organization is offering benefits to match with benefits offered by competitors. The benefit
packages of competitors could be assessed from market surveys which are conducted by
professional consultants and associations.

4.4. Communicating information about benefits to employees:

The Benefit of these program can be communicated to employees via booklets, brochures,
presentations and regular employee meetings. A useful technique is to use employee calendars
that may communicate the total salary components. The calendar of the month will show the
company employee receiving a benefit, for example one month calendar may show a photo of an
employee building a new home that becomes possible through the company's savings plan.
Communication helps to increase employees (and of employers too) knowledge about indirect

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compensation. Moreover, organization may be able to increase the performance and the
advantages of good supplementary compensation by informing employees about what the
company does for them which does not appear on their pay slips.

4.5. Monitoring employee benefit cost and evaluation:

One method of determining the effectiveness of fringes benefits is to discover how much the
indirect financial schemes have really benefited the employees. In this point Managers need to
determine whether the income of employees have improved or not, benefits are capable to attract
and retain high quality people and if the morale of employees has increased or not.

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5. CONCLUSION

This paper has evaluate how indirect compensation can be use to motivate and retain employees.
An organization was chosen for the purpose of this paper which is APEX GLOBAL
ENGINEERING. This is the organization that the author is currently employed at. The company
was described in detail in chapter 1. Indirect compensation was chosen for this paper and was
described in chapter 2. Some examples of indirect compensation that is currently applied at
APEX is EPF, SOCSO, annual and medical leaves, training and medical insurance. The
implementation of these benefit has been proven to motivate and retain the employees in APEX.
It can be said that, these benefit can increase organizational performance, employers moral and
efficiently boost productivity.

However, there are some areas which the company can improve in order to further reap the
benefit of these compensations. Apex should develop objective of these benefits, assess
environmental factor and competitiveness, improve communication with the employees with
regards to the compensation and monitor the benefit’s cost and evaluation.

In conclusion, indirect compensation is a great way to motivates and retain employees in APEX
GLOBAL ENGINEERING.

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6. REFERENCES

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3. Osibanjo A.O., Abiodun A.J., Fadugba, A.O., Executive perception of the impact of
flexitime on organisational performamce: evidence from the Nigeria Private Sector,
International Journal of Applied Behavioural Economics, IJABE, 2012, 1(3), p. 16-27.

4. Overview. (n.d.). Retrieved from http://apexge.com/about-us/overview/

5. Armstrong, M., Strategic human resources management: A guide to action, UK:

KoganPage, 2003.

6. Dessler, Gary (2004): Human Resource Management, 10th Ed., Englewood Cliffs, New
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8. Chhabra, T. N. (2001): Human Resource Management, Concepts and Issues, 2nd Revised
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9. Tsai, K.-H., Yu, K.-D., & Shih-Yi, F. (2005). Do Employee Benefits really offer no
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10. Bond, J. T., & Galinsky, E. (2006). HOW CAN EMPLOYERS INCREASE THE
PRODUCTIVITY AND RETENTION OF ENTRY-LEVEL, HOURLY EMPLOYEES?
Research Brief No. 2 .

11. De Nissi, A. S., & Griffin, R. W. (2001). Human Resource Management. New York:
Houghton Mifflin .
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