In today’s business world, skilled and experienced employees are hard to come by. There are many organizations that are lacking properly skilled and experienced workers. For these reasons, many organizations train their workers to fit the job description they require to be filled. A lot of costs and resources are utilized by the organization in training employees to be skilled and experienced. Due to this factor, institutions have to ensure they have laid proper employee retention mechanisms where employees are well positioned and satisfied. These mechanisms ensure that employees are not constantly shifting or moving to other organizations. The current business world is filled with information regarding operations and functions that an organization should meet. There is global market awareness due to the advances that have been made in the technological industry. For these reasons, organizations have to ensure they are able to retain the key employees within an organization, this is done through the development of a reward system that meets most of the employee expectations. Amongst these reward system is a structure that addresses risks and uncertainty within the workplace.
Accidents, injuries, illness and death are events that occur in every institution. Employees entrust the organization to ensure there are proper safety measures placed in the work environment. However, even with these measures, the risk of uncertainty is still factored in, hence the importance of rewards or other compensation mechanisms. Employees expect compensation for any accidents that may occur or are likely to occur at one point in time. This is one of the strategies organizations utilize in the development of a proper reward system. Many scholars have argued on the importance of properly developed compensation structures. These Compensation structures are important as they serve as an attractive feature to employees which ultimately determine whether they will accept the job or be repelled by it (Zingheim, Schuster, & Dertien, 2009). The development of such structures is present in all institutions whether public or private. With this resolve, the purpose of this study is to determine the correlation between total compensation and employee retention with a focus on South Dakota.
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According to the iCIMS Hire Expectations Institute, more employees are open to the opportunity of new job opportunities that offer better salaries and benefits. The study observed that 66 percent of the persons who are employed in the United States are open to migrating to these job opportunities. iCIMS Hire Expectations Institute observed that the rate of employees moving to other jobs had increased to 17 percent within the last 12 months (iCIMS, 2015). There is a clear competition in the current employment market, with the compensation packages being at the centre of this competition. The challenge most organizations are facing is the need to improve and promote loyalty and retention of their employees. The survey determined that a major factor considered by employees is the compensation packages they are being offered. 56 percent of employees stated that the salary offered is not as important as the compensation packages offered by the organization. They stated the ease with which they would transfer to a less paying organization with better compensation packages is higher than staying where they are paid a high salary with little compensation (iCIMS, 2015).
Compensation Packages and Total Compensation
A compensation package is defined as the combination of salary and fringe benefits which an employer provides to an employee. These packages are either financed by the employees or by the employer. As outlined by Gupta and Shaw (2014), one of the key tasks of the human resources department is compensation management. Employee compensation refers to all the returns that the employees are awarded due to their employment. Compensation management is a complex task that occurs periodically and demands a lot of accuracies. It is a task that should not be delayed as it highly determines the satisfaction levels of employees. The task requires that the department integrates the employee processes and information with those of the business process and strategies. Where the compensation structure is well developed, the employee's attention shifts from movement to other better employment opportunities to loyalty and retention. There are various compensation packages which can be offered when a person is employed. Employees identify the following packages: salaries, bonuses, incentives, allowances, pension plans, stock ownership plans, health insurance, dental insurance, eye insurance, life insurance and other incentives. These incentives have a large impact on their satisfaction within the firm (Zingheim et al., 2009). In the state of South Dakota, state employees are entitled to a variety of compensation packages. These packages are in direct correlation with the state’s budget. The compensation packages to be offered are classified according to the current job or rank which a person holds within an institution. The pay of employees who occupy any civil service positions are determined by the commission and are according to the pay range a person occupies (South Dakota Legislature, 2018).
Total Compensation is defined as the various statements which depict what an employee is being awarded on an annual basis. Total compensation issues a detailed list of both direct and indirect compensation that is being offered by the state. In this case, direct compensation refers to the payments that are made directly to the employee, it is the base salary and/or incentive pay (SHRM, 2012). Indirect compensation is defined as the compensation that is not paid directly to the employee and is an addition to the base salary or pay that is being offered by the institution. The Total compensation statement can include a variety of items such as the salary, medical benefits coverage, paid leave (which may include sick leave, vacation, holiday, personal, bereavement, military pay or jury duty), disability insurance, life insurance, educational assistance programs, retirement benefits, relocation expenses, and many more (SHRM, 2012).
In the United States, compensation for state employees has become a major policy issue. The governments are currently struggling to balance their budgets and ensure that employees are well satisfied with their employment packages. There have been many controversies on this front as more people believe that government employees are receiving excessive compensation with a focus on retirement and healthcare benefits. Biggs and Richwine (2014) conducted a research study where they identified the total compensation offered to state employees giving findings based on state-to-state. The study was important as it showcased the position different employees are in employment and aids other researchers to identify the reasons for job migration in many different states. The study held that in the public sector, a person who was considered to be underpaid is one who is currently receiving a total compensation package less than one who is in the private-sector. An employee who is receiving a compensation package that exceeds the value of the private-sector is considered to be overpaid. All the state have varying compensations as observed in the study (Biggs & Richwine, 2014).
The states within the United States all have their own structure of issuing compensations to their employees. However, each of these structures differs in the values of the packages and not the content of the packages. All the states provide wages to their employees, health coverage for the active employees, retirement programs, retiree health coverage, paid leave, unemployment insurance premiums, and employer contributions to Social Security and Medicare (Biggs & Richwine, 2014). The three largest sources of non-salary compensation that were identified ware health coverage, retirement income, and retiree health benefits.
Health coverage for the active employees refers to the employer premiums that are offered to employees. These health premiums are a contribution made by the employer to the employee based on employee wages. These health coverage premiums vary from state to state each state holds different costs of living. The employee health contributions that are made consists of various benefits such as tests, drugs and treatments services offered at any healthcare institution. In South Dakota, employees are offered health care for individuals, family or spouses. These covers are however under different plans for different pay rates (Biggs & Richwine, 2014).
Retirement programs/ Pension Compensation packages refer to the calculations comprising of defined benefit (DB) pensions, defined contribution (DC) plans and social security. In the public sector, these retirement benefits are said to be more generous as in most cases they are equivalent to over half the employee salaries (South Dakota Legislature, 2018). These pension compensation packages are defined as schemes or arrangements which are established under a written law or through any other instruments. These schemes provide individuals with benefits I the form of payments. These payments are determined based on age, the length of time they have been employed and the earnings they made during their service period. These packages are offered to the employees upon retirement, termination of service, death, or any other unforeseen event that may foster the need to offer these payments.
Employees also consider the kind of Retiree Health Coverage offered by the organization. As employees age, they have higher numbers of health problems and thus require health packages that are able to cover more medical, hospital and prescription drug benefits than in the present (Mazo, Rappaport, & Schieber, 1994). The retirement health coverage is a policy that can either come from a group plan or through the current health insurance plan an individual is on. They are a form of social insurance payments that are made by the United States Social Security administration based on the attainment of old age. Life Insurance coverage is divided into two categories, basic and optional. Basic Life insurance is provided to eligible employees at no cost in the United States across all states through the State Employees Group Insurance program. Optional life insurance, on the other hand, is where employees purchase their life insurance coverage premiums at their own expense. Additionally, an employee is eligible for total wage and benefit compensation packages. These are defined as the sum of salaries and fringe benefits. In the United States, the employee’s state employees receive a slightly higher rate of benefits compared to those employees in the private sector (Biggs & Richwine, 2014). There is a very distinct relationship between the health insurance plans an employment. If there are any reforms that are made to health insurance plans, then the employment structure, or labour market is ultimately affected either positively or negatively (Madrian, Burtless, & Gruber, 1994).
In the state of South Dakota state employees are eligible for the above-mentioned compensation packages. The state offers its employees various compensation packages as issued in different plans (South Dakota State, 2017). The state government prepares a schedule which shows the rates for each plan and what they are entitled to in a given year. The state has also developed policies which assist the employees to be better acquainted with their work through the various benefits that are provided, aside for health insurance packages alone. The state has tried to ensure that compensation packages are well valued in the state in accordance with the state's package. Within South Dakota, the state has made large implementations to guide the flow of operations. However, compared to other states, the compensation packages offered are at better rates (Biggs & Richwine, 2014).
In a study conducted by David Montgomery (2014) they identified that the health plan for state employees in South Dakota State is amongst the least expensive in the country. The study found that the health care within the State is relatively inexpensive compared to other states and hence can afford to pay for an average of 89 percent of the employees’ health care costs. This rate is slightly lower than the national average standing at 92 percent (Montgomery, 2014). It currently also pays for 65 percent of the costs for dependents. The study found that South Dakota pays an average of 89 percent of costs which is less compared to most of the other states.
Employee Retention
Employee retention and total compensation can be seen as an implementation of the reinforcement theory. Gerhart, Minkoff and Olsen (1995) identified the reinforcement theory as a response that is followed by a reward which yields a recurrence in the future. Applied to the correlation, it shows that where the employees are properly awarded for their work within an organization, they are likely to continue working and improving their motivation and performance levels while at it. Similarly, the expectancy theory shows the relationship between rewards and behaviours. It gives a relationship between the two that is applicable to employee retention. Reward equals loyalty (Gerhart et al., 1995).
In a study conducted by (Zingheim et al., 2009), they identified the relationship between fast growing companies and talent retention. Thy compared the various growing companies within the United States and the consequent influences these organizations had on employee retention. In the study, they identified that many leaders in start-ups viewed talent management as an essential factor in the growth of their firm. Where these firms were unable to manage their employees, they ended up losing well developed talent. Hence, proper adoption of total rewards strategies is developed to ensure they are able to retain talents within the institution as it’s grows from a start-up to a more developed firm (Zingheim et al., 2009). Similarly, in public institutions, there was a need to continually implement development strategies that would see the institutions flourish, however, these developments were directly tied to the number of competent and qualified staff that is present in the institutions.
Employee retention refers to policies and practices that companies use in order to prevent valuable employees from leaving the organization. According to Branham (2012), employee retention is not an activity that only considers one element or factor, it is a practice which considers multiple factors that could result in retention or employee migration from the organization. Employee retention policies require development of proper policies and practices (Branham, 2012). These policies and practices involve the development of measures that are able to encourage the employees to continue working within the organization for the maximum period of time that they can. South Dakota Legislature (2018) identified seven factors issued by Walker in 2001 as the main components that influence the retention levels within any organization. They included: compensation and appreciation to employees for the work done, provision of more challenging work, opportunities to advance in their chosen career, the atmosphere within the organization, relationships with other employees and a healthy balance between professional and personal life.
Currently, the state of South Dakota is unable to adequately hold on to all its employees. There are various challenges that are being faced with issuing of compensation packages. The first is lack of delivery. Though the state has promised well-developed structures for compensation, there are still employees who are unable to access their employment compensation packages. In a recent study conducted by Joe Sneve (2018), he identified that there was an increase in competition in the job market. Employees holding state positions have begun to migrate to other jobs that are within the private sector.
Sneve (2018) also identified that the state was unable to retain its employees due to lower salary packages. The private sector in South Dakota is currently able to pay its employees more than the state is able to pay the state employees. However, the rates for both of the sectors are considerably lower than rates in other states within the nation. The current turnover rate has reduced between the year 2016 and 2017. The rates of compensation are also tied to the motivation levels of employees within the state. The state has hired a consultant to keep track of the changes in wage rates to ensure that they are not falling too far behind the private sector. The current strategy that is being employed is in an effort to ensure that even though the state is unable to provide better wage rates, they are not completely trapped and unable to afford anybody to work in the state developed job positions (Sneve, 2018).
Conclusion
The development of any society or state requires organizations to be well equipped with skilled and experienced workers. There is a lot of dedication utilized by organizations to ensure that they are holding the right human resource. A lot of resources are placed to train and develop the personnel, however, where the organization is unable to provide better incentives, these employees are likely to migrate to other institutions that offer better wages and compensation rates. Compensation packages are very important to the ensuring employees are satisfied with their current position and line of work. Studies spanning to other countries and nations have proven that the type of compensation packages that are offered highly determine how well the employees respond to employment within a given institution.
There is a direct correlation between the presence of compensation packages and the employee retention rates. In this study, it is clear and evident that provision of total compensation does not ensure employee retention unless the rates of these packages are favourable and beneficial to the employee. Total compensation packages are not limited to those listed, but can also include other components not presently listed in this study. For instance, motor vehicle insurance, housing allowance, and many other elements. In this respect, it is clear that total compensation is directly correlated with employee retention. Higher compensation packages improve rates of retention whereas lower compensation rates reduce the rate of employee retention.
References
Biggs, A. G., & Richwine, J. (2014). Overpaid or Underpaid? A State-by-State Ranking of Public-Employee Compensation . United States of America: American Enterprise Institute for Public Policy Research. Retrieved from https://www.aei.org/wp-content/uploads/2014/04/-biggs-overpaid-or-underpaid-a-statebystate-ranking-of-public-employee-compensation_112536583046.pdf
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Madrian, B. C., Burtless, G., & Gruber, J. (1994). The effect of health insurance on retirement. Brookings Papers on Economic Activity , 1994 (1), 181–252.
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Montgomery, D. (2014). S.D. employee health care plan costs rank among lowest. Retrieved March 29, 2018, from https://www.argusleader.com/story/news/2014/08/13/sd-employee-health-care-plan-costs-rank-among-lowest/13988967/
SHRM. (2012, December 11). Communication: What should be included in a total compensation statement? Retrieved March 29, 2018, from https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/totalcompensationstatement.aspx
Sneve, J. (2018). City Hall’s employee turnover rate rises in 2017, still below national average. Retrieved March 29, 2018, from https://www.argusleader.com/story/news/city/2018/02/01/city-halls-employee-turnover-rate-rises-2017-still-below-national-average/1087295001/
South Dakota Legislature. (2018). SDLRC Rule: 55:10:11:01 - Compensation. Retrieved March 29, 2018, from http://sdlegislature.gov/rules/DisplayRule.aspx?Rule=55:10:11:01&Type=Rule
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Zingheim, P. K., Schuster, J. R., & Dertien, M. G. (2009). Compensation, reward and retention practices in fast-growth companies. World at Work Journal , 18 (2), 22–39.
