Understanding The Interconnectedness Of Work Environment, Employee Motivation And Compensation Policies For Organizational Success

Strong Built Construction Company Case Study

Question:

Explain The case scenario of Strong Built Construction Company.

The case scenario of Strong Built Construction Company elucidates a detailed understanding of the intertwined nature of work environment, employee motivation and compensation policies that together triggers organisational success. The company’s profitability as well as compensation has also been analysed to understand its present as well as future prospects of growth and sustainability perspectives in the global world. When other companies under construction industry were suffering from massively declining revenues, Strong Built Construction Company seemed to be in a better position, although a massive fall was witnessed in its profit before tax. According to the case study, the employees of the company lacked motivation by a large extent. One of the most significant steps taken by the CEO to reward efficient employees and motivate them under the scenario was to provide them with the company’s shares as a basic compensation.

Compensation packages emerged with the principle purpose of retaining potential employees within the work environment. According to the case study, it has been evaluated that Strong Built Construction Company was suffering from fall in profit before tax, which could have been the result of lack of employee motivation. To motivate employees, the company needs to implement an effective compensation plan for the existing workers. The typical compensation packages mostly rely on the increase of ‘base salary’, ‘annual bonus’, ‘long-term incentives’, ‘perquisites’ and ‘employee benefit programs’ among the most prominent ones (Beaudoin, Cianci & Tsakumis, 2015; Gerhart, Minkoff & Olsen, 1995). These packages offer certain benefits, as illustrated below in the table:

The traditional agency theory indicates a set of financial statistics, which focuses on the conflicts of interests observed between assets and people in the work-environment. This agency theory can define the relationship between principals (higher authority), agents (managers) and employees of a company. The relationship between principals and agents is considerably complex as compared to that of the other contractual corporate relationships. In terms of ethicist point of view, agency theory can assume principals and agents’ actions according to their own interests, which might get influenced due to their personal motives. Moreover, the agency theory focuses on conflicting interests as well as goals of the company’s stakeholders and the manner in which it aligns with the employees’ compensation process as well (Foss & Stea, 2014; Forbes-Pitt, 2011; Kosnik & Bettenhausen, 1992).

Contextually, as per the traditional theory there are several assumptions that can affect the compensation procedure of the company, as depicted in table below:

Extrinsic and intrinsic motivations are two different perspectives of motivating people. Intrinsic motivation deals with people’s passions, self-esteem and job satisfaction, while extrinsic motivation deals with the monetary and subjective factors. Although both the perspectives are able to motivate people, for long term effectiveness, it is the intrinsic ways that help in enriching individuals’ performances, as compared to the extrinsic motivating factors (Ims, Pedersen & Zsolnai, 2014).

Employees’ attitude is a key aspect for a company’s work environment and motivational factors as well. There are certain risks associated to the work atmosphere of a company that the employees have to face in order to deal with their allotted job roles. With respect to this context, there are two types of employees’ attitudes observable in an organisational environment, which indicates to their risk aversion or risk seeking nature. Risk-averse employees try to avoid the risks, while the risk-seekers tend to accept the challenges associated to their job-process. Contextually, risk-seeker employees are capable enough to productively use their abilities, skills and advancements through their performance in front of the managers and higher authorities, while risk-averse employees depict a higher degree of reluctance in taking up responsibilities and accept changes in their job roles. As a result, managers as well as the higher authorities are often observed to build their trust on risk seekers rather than on risk-averse employees, reflected apparently from the compensation structure offered to both these groups (Pepper & Gore, 2014).

Compensation Packages and its Elements

Financial benefits, such as bonus, increase of wages, medical facilities and insurances are offered to employees to enhance their financial abilities and help them raise their living standards. With respect to the financial benefits, it can be stated that if these facilities are provided at a certain time-being, such as at the time of different festivals (Christmas), retirement and starting of a vacation among others, it might effectively motivate the employees to work efficiently. Due to the appropriate timings of financial benefits, employees can be influenced more towards the completion of their allotted job roles and thereby, satisfying their additional financial needs (Pepper & Gore, 2014; Cheng and Warfield, 2005; Gjesdal, 1982).

Fairness consideration reflects an equal deliberation among all the employees for similar allotted job roles within a work environment. This situation is not only applicable for same kind of work, but for the compensation policies as well. Job-related risk adherence, complicated situation handling associated with allotted job roles can be referred as some of the effective conditions for employee compensation or remuneration. At these conditions, employees are liable for compensation benefits according their skills, experiences and performances. For certain compensation incorporation, the management of the company has to implement a fair consideration among those employees, who are capable for compensation standards in terms of their motivational purposes (Pepper & Gore, 2014; Jolls, 2002).

Strong Built Construction Company requires incorporating an executive compensation committee, which will be responsible to act according to its compensation philosophy. The executive committee will be capable of recommending a compact planning for employee compensation and re-examining the procedures for assured employee benefits. The executive committee can support the organisation’s overall mission, attract and retain potential employees through shared objectives and values in alignment with the company’s goals, which would allow the employees to obtain the required compensation opportunities, as per their skills and performances and in a reasonable manner (WPI, 2015; O’Reilly et. al. 2014; Hermanson et. al., 2012; Suh & Han, 2003; Xie, Davidson, & DaDalt, 2003).

To build an effective executive committee, Strong Built Construction Company will require a potential structure, through which it can re-examine the drawbacks of company’s compensation policies and reinforce new policies within it. The following aspects are needed to construct the committee:

Conclusion

From the analysis of the company’s present scenario, it was observed that Strong Built Construction Company was suffering from lack of employee motivation. Thus, based on the above discussion related to the different compensation policies and executive compensation committee, it can be recommended that implementation of effective compensation systems are most required for motivating existing employees of the company. Through the executive compensation committee, the company can re-examine its existing policies and can introduce new remuneration systems for employee benefits. In addition to it, the assistance of intrinsic motivation from committee members will enable the employees to enhance their loyalty and morale towards their assigned job roles and attain job satisfaction in the long run.

The research by Gold, Gronewold & Pott (2012), aims at testing the explanations officially proposed as per the revised version of the ISA 700 report by the auditor for the evaluation of its expected gaps.

Agency Theory and its Impact on Compensation

All participants were requested to read the short description detailing about a ‘fictitious stock-listed company’ and its financial information for two successive years, with their results listed in the following table:

The purpose of conducting the manipulation checks was to analyse, if manipulation was effective in bringing about any kind of difference between the presence as well as absence of the explanations, as provided by the auditors. This was possible only with the support of the responses gathered regarding the issue of concern (Gold, Gronewold & Pott, 2009).

The aim of the research conducted by Agyei, Aye & Owusu-Yeboah (2013) is to examine the presence of expectation gaps in the audit reports of Ghana. In addition, the research also aimed at the assessing the roles played by the professional auditors in reducing the audit expectation gaps.

From both the studies, it can be highlighted that gaps in audit expectation has evolved due to over-expectations in respect to the auditor’s functional roles and inadequate knowledge of people regarding auditor’s job roles and responsibilities. Audit expectation is however a changing element that is often critical to measure. In this context, to gain an in-depth understanding regarding the projected aim of the research, Agyei, Aye & Owusu-Yeboah (2013) selected qualitative methodology, through which they gathered and analysed primary and secondary data. The researchers utilised five-point Likert scale for assessing the primary data through questionnaire survey, which were then analysed with the help of the SPSS tool. On the other hand, Okafor & Otalor (2013) utilised hypotheses to gain a comprehensive understanding regarding the objective of the research and test the validity of the assumptions made. The study has utilised a mixed method for analysing the primary as well as the secondary data.

Comparatively, the research conducted by Okafor & Otalor (2013) was more in-depth than the research by Agyei, Aye & Owusu-Yeboah (2013). Further to be noted in this regard, Okafor & Otalor (2013) analysed the gathered data with the assistance of ANOVA, logit coefficient, z-statistics, probit coefficient, t-ratio and so forth. These statistical analysis tools largely contributed in making the research approach feasible and retaining the reliability as well as validity of the data gathered.

Agyei, Aye & Owusu-Yeboah (2013) had utilised purposive as well as convenience sampling technique in their study to select the respondents among stockbrokers and auditors of Ghana. The purposive sampling technique had assisted the researchers in their selection of financial statement user groups, while the convenience sampling technique helped them in selecting the specific respondents from the user groups. From this perspective, it can be stated that both the sampling techniques of this research implied a high dependence on the researchers’ perspectives and their present skills. However, Okafor & Otalor (2013) selected their respondents through random sampling technique from the groups of accounting teachers along with their students. These respondents were accessed from the University of Benin, Benson Idahosa University and Ambrose Alli University. The process of random sampling has enabled the researchers in considering 94 self-administered questionnaires among 130 responses for determining the reliability of gathered data.

Importance of Intrinsic and Extrinsic Motivation

From both the above stated perspectives, it can be inferred that purposive as well as convenience sampling techniques reflect biasness in samples and information, while random sampling technique is free from partiality. In this context, unbiased, feasible sampling technique of Okafor & Otalor (2013) was more appropriate as compared to Agyei, Aye & Owusu-Yeboah (2013).

Agyei, Aye & Owusu-Yeboah (2013) used hundred questionnaires among the selected groups of respondents. The researchers had distributed fifty questionnaires, each among the auditors as well as among stockholders. From both the groups, researchers had returned thirty and thirty-five questionnaires respectively. Ultimately, from those returned questionnaires, researchers found a total of forty questionnaires useful for the research. Okafor & Otalor (2013) conducted questionnaire survey among 130 respondents and lastly selected 94 questionnaires for the research.

Among these two researches, the study by Okafor & Otalor (2013) was able to obtain satisfying data range, while Agyei, Aye & Owusu-Yeboah (2013) conducted their research based on only 40 responses. From this perspective, it can be inferred that Okafor & Otalor (2013) had based the research on a larger and sufficient data range but Agyei, Aye & Owusu-Yeboah (2013) lacked a comprehensively valid range.

Agyei, Aye & Owusu-Yeboah (2013) had utilised a descriptive data analysis tool, such as SPSS in their research, to attain the projected goals. On the other hand, Okafor & Otalor (2013) conducted a descriptive statistical analysis through SPSS. In this research, to accomplish the objective of the research, Okafor & Otalor (2013) implemented the techniques of ANOVA test, logit coefficient, z-statistics, probit coefficient and t-ratio. From the discussion of both the researches, it can be inferred that the approach taken by Okafor & Otalor (2013) was better than the approach used by Agyei, Aye & Owusu-Yeboah (2013).

Flaws in the research by Agyei, Aye & Owusu-Yeboah (2013):

• The study has only utilised selected stockbrokers as users of the published financial statements
• The method implemented in the study was based on only descriptive statistics on a relatively small data range, which might have produced bias results in the course of attaining the determined objective

Flaws in the research by Okafor & Otalor (2013) study:

• The study has used accounting students and teachers of different universities as samples, whose responses cannot be considered reliable enough to determine the results as per the issue of expectation gaps observed in the auditor’s report
• The result might be strong enough as per the descriptive and statistical analysis shown in this study, but it cannot be compared with the collected secondary information, which fails to enhance the validity of the results obtained

References

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