Running head: INCENTIVE PAY, BENEFITS, CHEVRON Incentive Pay, Benefits, Chevron: A Compensation Strategy that Motivates Terra Pegram Strayer University Chevron at a Glance With operations in more than 100 countries, more than 62,000 employees and 5,000 service stations, Chevron is one of the largest integrated energy companies in the world. The company operates across the entire supply chain, from exploration and production to refining, marketing, and transportation of an assortment of petroleum products – crude oil, natural gas, and coal (www. chevron. com).
Chevron’s success is owed to a string of divestures, acquisitions and mergers dating back to the early 1980’s. In more recent years, policies to promote renewable energy have multiplied around the world. Both Secretary of State Hillary Clinton and President Barack Obama campaigned on renewable energy or the creation of green jobs as essential to their energy plans. Chevron has responded by investing in renewable and advanced technologies, such as non food based biofuels, hydrogen fuel systems, geothermal, solar and wind power protect and sustain the environment.
These investments coupled with accusations of pollution create the need for environmental engineers to assist in the prevention, control and remediation of environmental health hazards. Motivation Employers want employees to perform in ways that lead to better organizational performance (Milkovich & Newman, 2008, p. 256). According to Milkovich and Newman (2008), incentive pay and other rewards should be used to reinforce desired behavior, but compensation alone will not attract and retain top performing employees (p. 258).
Improving motivation is the key to managers at Chevron attracting the best environmental engineers, retaining them and getting them to develop new skills in a rapidly changing environment/workplace and be more skillful and productive in doing so. Two theories in particular that are suggested by organizational theorist as instrumental to employee motivation are Maslow’s Hierarchy of Needs and the Equity Theory. Maslow’s Hierarchy of Needs Maslow’s theory of motivation proposes that basic needs drive the behavior of people.
These needs are structured like a pyramid or hierarchy with the basic needs on the bottom and the higher needs on the top. Once the lowest need, the physiological need for food, water, and air is satisfied, people are motivated by the higher needs –safety, social, esteem, and self actualization. This theory can be instrumental in determining what type of reward is most effective in motivating individual behavior because it gauges where an employee is in the hierarchy, thereby providing a way for managers at Chevron to tailor rewards to meet individual needs (Buhler, 2003, p. 21). However, employee needs are not stagnate, they change.
Recognizing the employee’s position within the hierarchy and catering to it is the challenge for manager at Chevron. Equity Theory According to the equity theory, employees are motivated when outcomes from a job (pay, prestige, benefits) and inputs to a job (effort, educational level, experience) are perceived as being equal. Employees compare these outcomes/inputs to other employees to determine equitability; consequently, this theory implies that both dissatisfaction and reduced performance will occur when employees perceive an over reward or under reward for his or her job performance (Kilduff & Baker, 1994, p. 9). Chevron’s use of broadbanding is one way to dispel perceived inequity because employees know pay grades and the salary ranges for positions within the company (Buhler, 2003, p. 22). Furthermore, in a broadbanding system, an employee receives incentive pay and rewards based on his or her own skills, competencies and/or job performance. Accordingly, high performing employees are paid for performance and can move to the top of a pay band faster. A Compensation Strategy that Motivates Attracting good people is a major priority, but keeping them is the challenge.
The first step has been identified as understanding what motivates employees to perform well. Traditional merit systems that include pay, stock and bonuses are not motivating employees to change behavior (Hartley, 2008, p. S5). In this regard, financial incentives seem unimportant and as such, are being replaced with distinct ideas about the types of environment and cultures employees deem desirable (Sheriff, 2007, p. 39). Therefore, it has become increasingly more important for organizations to acknowledge incentive pay as well as reward programs as beneficial to achieving organizational goals.
In fact, according to Hartley (2008), better approaches to motivating employees exist when compensation strategies tie organizational goals with individual performance and flexible incentive pay and reward programs (p. S5). Organizational Goals Chevron management recognizes human capital as a critical component in the attainment of organizational goals and has processes in place that motivate people to support and work towards short- and long-term goals. Their organizational strategy is to be 1) the most efficient and reliable supplier, 2) the best at product application and development; and 3) a great company to work for (www. hevron. com). Individual Performance Chevron’s training and development program begins the first day of employment and continues throughout the employee’s career. The company has a year-long process for new hires that is designed to build confidence and provide on-the-job training. Furthermore, Chevron has a performance management process (PMP) that sets goals for professional development and is aligned with the employee’s work unit objectives (www. chevron. com). The work objective of environmental engineers at Chevron is to facilitate compliance with regulations, prevent environmental damage, and to clean up hazardous sites.
Flexible Incentive Pay and Reward Program According to the 2008-2009 Occupational Outlook Handbook, environmental engineers should experience an employment growth of 25 percent from 2006-2016 (Bureau of Labor and Statistics [BLS], 2008). This growth will continue to provide job opportunities even as more students earn degrees. The average median income of all environmental engineers is $74, 020 with an average mean of $80, 010 for environmental engineers specializing in managerial, scientific and consulting services (BLS, 2008). To sustain a competitive advantage, a total compensation strategy that 1) consist of lexible policies 2) leads the competition in pay, 3) enhances motivation, 4) rewards top performers; and 5) is cost effective is recommended as following: • Base Pay 55 % or $84012 • Benefits 19% or $29022 • Options 16% or $24440 • Bonus 10% or $15275 The total compensation package is worth $152, 749. See Appendix for review of actual incentive pay and benefits designated for environmental engineers at Chevron. Impact According to Menefee and Murphy (2004), preferences and differences characteristic of top performers are no different than those found among non-top performers (p. 6). Thus, if the recommended compensation strategy enhances employee motivation, the impact includes increased employee productivity and job performance of low performers, increased retention of high performers, and increased overall ability to achieve organizational goals. Conclusion Managers know the importance of compensation to organizational success, but they are still challenged with designing incentive pay and benefits that contribute to employee retention and impacts employee motivation as well. Managers use theories of motivation to help achieve this end.
Yet, nothing is more conducive to employee retention and motivation than providing the right amount, at the right time, for the right reason to the right people (Gross & Freidman, 2009 p. 8). A total compensation package must tie organizational goals with individual performance and flexible incentive pay and reward programs to be effective. A compensation strategy that 1) consist of flexible policies 2) leads the competition in pay, 3) enhances motivation, 4) rewards top performers; and 5) is cost effective is a good start. References Buhler, P. (2003). Managing in the new millennium. Supervision, 64(12), 20.
Retrieved from MasterFILE Premier database. Gross, S. , & Friedman, H. (2004). Creating an effective total reward strategy: Holistic approach better supports business success. Benefits Quarterly, 20(3), 7-12. Retrieved from Academic Search Premier database. Hartley, L. (2008). Can pay really make the difference?. Workforce Management, 87(17), S5. Retrieved from Academic Search Premier database. Kilduff, M. , & Baker, D. (1984). Getting down to the brass tacks of employee motivation. Management Review, 73(9), 56. Retrieved from MasterFILE Premier database. Milkovich, G. & Newman, J. (2008).
Business 525: Reward systems: theory & administration; second custom edition (9th ed). Boston: McGaw-Hill Menefee, J. , & Murphy, R. (2004). Rewarding and retaining the best: Compensation strategies for top performers. Benefits Quarterly, 20(3), 13-20. Retrieved from Academic Search Premier database. Sheriff, D. (2007). Understanding their motivation helps retain staff. Lawyer, 21(26), 39. Retrieved from Academic Search Premier database. U. S. Department of Labor, Bureau of Labor Statistics. (2009, November 27). Engineers. Retrieved from http://www. bls. gov/oco/ocos027. htm Appendix A Table 1: Compensation by Category Annual Salary (5% over mean) |$84012 | |Benefits: |29022 | |Insurance (Medical, Dental, Life) | | |Paid Time Off (Vacation, Holiday | | |Sick) | | |Defined Benefits (Retirement) | | |Options |24440 | |Defined Contribution – (401(k), stock | | |options, profit sharing) | |Bonus and Miscellaneous Pay |15275 | |(Bonus, Fitness Plan, Discounts, Child Care, | | |Tuition Reimbursement, Expense | | |Reimbursement, Clothing Stipend) | | | Total Compensation |$152749 | Note Actual percentages are Base 55%, Benefits 19% Options 16% and Bonus 10%. Appendix B Figure 1: Pay-Mix [pic] Note. This bar graph represents a lead pay mix policy designed for market compatibility, flexibility, and performance.