A Conceptual Framework on Organizational Commitment and Compensation

Abstract

This research paper attempts to provide an exploration of the conceptual literature on the subject of Organizational Commitment. The relationship between human resources and organizational commitment plays a crucial role in the development of any organization. A primary objective of this research is to investigate theoretical perspectives in order to explain organizational commitment with particular reference to telecommunication sector. The paper suggests that organizations need to pay attention to the relationship that prevails in the organizational culture. Previous literature has shown the framework of organizational factors and organizational commitment but this paper aims to relate the different factors of compensation and their impact on organizational commitment.

This study also provides a road map to guide the future research scholars.

Introduction

The commitment of the entire workforce is significantly more important in today's era than past. Organizations focus on sustained competitive advantage through continuous improvement in order to increase market and retain customer satisfaction. To retain better customers requires having better workforce.

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The concept of organizational commitment has also been used as a forecaster of employee retention. It has also become the prime point of managers in many organizations in order to maintain competitive advantage as far as manpower is concerned. Employers want to have contributions from employees in order to target new markets and distinguish their products and services from the competitors. However many times employees feel lack of confidence and insecurity regarding their job due to which they are less loyal to the organization. If employees are paid well and provided with the better incentive schemes they are likely to be retained by the organizations.

Concept of Organizational Commitment

Organizational Commitment (OC) is referred as, “the relative strength of an individual’s identification with and involvement in a particular organization” (Mowday et.al., 1979). OC also states to an identification of an employee working in an organization as a human capital. OC has been distinguished by the three forms of commitment: affective, continuance and normative.

Affective commitment means emotional attachment of employees towards the organization. Continuance commitment is related to the intention to remain with the organization because the cost of leaving could be high or sometimes the rewards and recognition helps employees to stay in the organization. The third commitment is the normative that reflects an obligation or sense of belongingness among the employees to remain as a member of an organization (Allen and Meyers 1991). John (2011) stated in his research paper, as in the case of BSNL, trustworthiness, image and relationship are the main factors which influence the loyalty of the employees. From the factor analysis, it was found that trustworthiness was the key factor that motivated the employees to remain loyal with their organization.

Concept of Compensation

(DeNisi and Griffin, 2001) reviewed compensation as a reward system that an organization provide to its employees in return for their willingness to perform various tasks and jobs within the organization. Compensation is associated with the performance measures. An employer should design compensation in such a way so as to induce employees with necessary information to remain with the firm for long run (Greg Clinch 2015). In this study key variables are taken from the existing literature. They are:

Basic Pay

It is an important resource to satisfy employees’ needs. Therefore, it is one of the hygienic factors associated with the behaviour of employee at workplace (Spring et.al., 1997). Organizational performance gets induced by the committed employees and commitment of employees come when they are paid well. Pay packages are one of the main factors to stimulate employees and retain them in the organization (Terera, et.al., 2014)

Flexible pay

Flexible pay includes bonuses, which help a firm to align wage bill with fluctuations in business cycle. Bonuses are more variable than fixed pay (Nakamura 1998). A bonus system is defined as a reward scheme given to employees in addition to fixed compensation ( Llanos et.al., 2016).

Merit-Based Pay

Merit-based pay is a mechanism for workers to receive additional pay, based on their performance. It consists of three vital dimensions: performance evaluation, communication and participation ( Llanos et.al, 2016). Merit based pay system help the employees to focus on their work in order to enhance their effectiveness in their performance.

Framework

The framework focuses on organizational commitment through the various components of compensation such as basic pay, merit-based pay and flexible pay.

Statement of the Problem: A number of studies have been conducted by several authors regarding the organizational commitment in various sectors to highlight the importance of loyal workforce for organizational growth. However, the literature on organizational commitment has gone through various insights by different studies. Through this study researcher intends to put in an honest effort to provide a sincere contribution in this regard. Compensation (basic pay, flexible pay and merit-based pay) enables to organizational commitment which in order to have qualitative workforce. The variables chosen for this paper after the study of previous literature sheds light on different compensation variables with reference to organizational commitment. This gap has not been undertaken by anybody till date.

Proposition

Proposition 1:

Basic pay is positively associated with organizational commitment.

(Clare L. 2003) suggested that employees were satisfied with their salary. In this paper it is proposed that basic pay is associated with organizational commitment. As the employees got satisfied with the salary, they are likely to remain in the organization for the longer duration.

Basic Pay

Merit-Based Pay

FLEXIBLE PAY

COMPENSATION

Organizational Commitment

Proposition 2:

Merit based pay is positively related to organizational Commitment.

It involves the incentives schemes. It affects the design structure of responsibility accounting framework... Incentives help to build team work and co-operative behavior (Indjejikian 1999). Co-operative behavior helps to build better working environment which induces employees to remain with the organization. Therefore, helps to build commitment among employees towards the organization.

Proposition 3:

Flexible pay is associated to organizational commitment

Flexible pays are associated with bonus and all other perks and benefits that an organization gives to an employee. This enables an employee to feel satiation which enables to remain committed with the organization. Nakamura (1991) identified that bonus are related to an individual worker. It is described as a profit-sharing scheme between workers and employers by which both absorb some of the business profit in the form of flexible payments in return for long-term employment. It also encompasses risk-sharing scheme.

Conclusion

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