Determinants of employee compensation in an organisation : an exploratory study

Abstract

Compensation is a discretionary concept whose determinants may not necessarily be the same in all organisations. This study reports on the extent to which a limited number of determinants of compensation, as identified in this study, namely job performance, external equity, job families, organisational tenure and employee skill, predict employee compensation in an organisation.

A convenience sample was drawn from the target population in the Gauteng area. Three small and medium-sized organisations were included in the sample, which consisted of a state-owned organisation in the aviation sector, a parastatal company in the finance development sector, and a private company in the banking sector. A categorical multiple regression analysis was conducted.

The findings of this study reflect a greater consistency in four of the six variables as strong predictors of employee compensation, namely employee skill, employee performance, job family and job grade. These factors are strongly related to employee compensation and are regarded as strong predictors of it. The other predictors, namely external equity and tenure, can be considered to be of marginal significance as predictors of employee compensation. However, the results also indicate that these predictors may be more significant in state-owned and parastatal companies, in comparison to private companies. In addition, the determinants of employee compensation may also depend on the type and size of the organisation.