Compensation may refer to the act of awarding benefits to employees, for the services they render to the company. It is essential for an organization to reward its workers in order to develop a mutual relationship with them and improve organizational productivity. Compensation involves a process in which a company provides workers with different forms of benefits to motivate and develop their relationship with the business. Catherine Hakim1 observes that the process may entail a set of diverse programs that come as benefit packages for workers. Companies may employ the compensation design as a tool for attracting the best staff to the organization. The strategy may be necessary in motivating workers to increase their input to the business. In addition, compensation may also be valuable in enhancing employee retention and motivation over a long period.
Major beneficiaries of this paper include students and researchers as the study may act as a significant contributor to the human resource body of knowledge. Business organizations may find this research useful as they may employ the ideas reviewed in this paper. Government agencies can also adopt the practices discussed in this study. Lewis Saunders2 advances that the state continues to be one of the biggest employers in many countries across the globe. Non-profit making organizations may find this research invaluable because they employ many people to work as volunteers and regular staff.
The Company: Inditex Group
The Industria de’ DisenoTextil (Inditex) refers to a fashion and clothing business that integrates the Zara Fashion Company. The Inditex Group is the biggest fashion business in terms of profit margins. The company produces fast-selling wear. The nature of the organization’s commodities is strategic because they move fast in the markets. The Spanish retailers incorporate recent technology and expert designers to create fast, attractive and cheap products. The Inditex Group disposes its commodities on a global scale. It owns various outlets across the globe. The business operates in 76 states with a chain of 4,700 distribution outlets. The group offers its clients several fashion brands in order to capitalize on dynamic consumer tendencies. The organization manufactures 8 brands with the major ones being Massimo Dutti and Zara. The Zara brand makes the biggest sales in the UK.
The Massimo Dutti brand sells mostly in the cities of Manchester and London. A majority of fashion brands associated with the Inditex Group enjoy huge sales in the American Continent especially in the USA. The Inditex Group adopts a uniform policy that governs its compensation programs. The clothing and textile sectors face many challenges. The challenges relate to the production and marketing of products. Textile companies are at times compelled to wait for 6 months between the time experts design the clothes and their delivery to the outlets. This form of delay reduces the performance of textile industries. Manufacturers and retailers may be forced to deliver only 2 or 3 collections annually. Clothing companies may not be able to determine customer needs. The complexity of the markets leads to failure by fashion industries to exhaust their stocks.
One of Spain’s wealthiest business personalities, Amancio Ortega Gaona, inaugurated the Zara brand in 1975. His mission was to make it easy for clients to access fast wears by eliminating lengthy manufacturing processes. Amancio advanced the notion that the textile industry was capable of responding to the needs of customers through regular changes to customer tastes and wants. The investor was thus able to revolutionize the fashion industry by inventing new trends in the sector. Gaona’s efforts helped to enhance the operational management of the Inditex Group. The company began to surpass its targeted profit margins.
The Inditex Group started to take a big lead over its business rivals in terms of sales in the global markets. The business incorporated a policy that enabled it to re-invest its profits in the expansion of the organization. It integrated a self-sustaining business program to promote its operations in the world. Financial reports show that the Inditex Group accrued $20.65 billion in 2012. This figure reflected a 15% increment in profit margins from the previous year. The Inditex Group faces many challenges in contemporary times due to growing market competition, unpredictable client preferences and socio-economic factors.
The Inditex Group invests a lot of monetary resources in the recruitment, development and training of workers in order to enhance the attainment of organizational objectives. Various companies in the textile and clothing sectors must promote the welfare of their employees because workers are the key factors of production. This point means that the success of textile and fashion companies relates to the development of employees. Business managers ought to conduct needs assessments of their employees with a view of understanding their motivational requirements and consequently designing a compensation mechanism for them. A competitive reward program for employees may not be the sole factor that motivates them to work hard to achieve organizational goals. Other dimensions of organizational management that enhance the productivity of employees comprise of employee friendly leadership styles, planning, good working environment and other strategic decisions.
The sustenance of competitiveness against business rivals remains to be the biggest challenge facing many textile companies. The Inditex Company is not exempted from market competition by other big fashion businesses. The competitiveness of the companies in the market manifests in the way in which the organizations treat their workers in order to receive maximum gains from them. A workable compensation design must incorporate social and ethical considerations of employees. In addition, it is difficult to maintain social, ethical and employee concerns. Human resource management observes the need to engage several staff compensation mechanisms to sustain the unique needs of workers in various professions. The Inditex Group comprised of 120,315 workers in the year 2011. The numbers of workers of the company continued to grow due to the rapid expansion of the company in various parts of the world.
Systems of compensation
Companies utilize compensation designs that are relevant to their situations. Forms of compensations include base, variable, and supplementary rewards. Base compensation is a category in which an employee receives competitive salaries and wages. This form of compensation may be constant regardless of the differences in production performance. Base compensation is the most common form of employees rewards. It does not depend on factors like performance. Diverse elements may affect base compensation. These factors may include demand and supply in the labour market. The elements of demand and supply refer to availability and need for employees that specialize in a given professional line.
Pressure from labour unions may also affect basic compensation. Unions often demand a minimum wage for all employees working for organizations. Financial experts calculate the minimum wage based on the status of the economy. The nature of the job may be used to determine the basic reward package. The job description can also be employed in the determination of a compensation structure.
Other factors that can be used to determine a compensation design for workers include the size and ability of the organization to pay employees. Social and psychological factors like employee security and satisfaction may be employed in the evaluation of the basic package. Organizations may also consider the salaries and wages that rival firms offer their employees. In addition, government policies on the wage determination and the cost of living may play a role in the calculation of basic compensation.
The other system of employee compensation entails variable rewards and benefits. This point implies that employees receive benefits according to the amount of work they do or their production levels in the organization. Employees who work hard to produce magnificent results receive higher compensation packages than workers who contribute poorly to the company.
The other form of employee compensation consists of supplementary benefits. This program entails a procedure in which the employer gives the employees certain privileges in accordance to their wishes. Supplementary compensation is not a compulsory routine for an organization. It is also not consistent. It remains a reservation of the employer to decide when to grant the reward. Organizations use the different designs of compensation reviewed to retain and motivate employees.
Importance of employee compensation
Employees require appropriate reward structures in order to retain and motivate them. Human resource management as a profession caters for the functions and roles of employees in organizations. Employee compensation is a necessary part of human resource development. It is essential to organizations in diverse ways. Compensation helps businesses to improve employees’ innovation. Workers perform their roles efficiently due to the nature of their compensation. Companies need to recognize and reward creativity in their workforce. A poor reward framework leads to low production levels among workers.
Employee compensation thus determines whether organisations achieve their goals or not. The process of employee compensation is also essential in the implementation of the company’s business objective, strategic management, and policy making. The intervention increases staff motivation, operations management, retention and other objectives within the organization. An appropriate reward design improves the strategy of the business and develops loyalty of employees to the organization. Employee compensation can lead to the creation of new brands of commodities that penetrate markets easily.
Economic experts derive a positive correlation between a competitive reward program for employees and their propensity to innovate. Employee compensation ensures the enactment of relevant practices in organizations and development of talented employees. A reliable reward scheme compels the company to initiate best practices in the industry by setting high standards to counter business rivalry. Employee compensation provides a supportive environment for the success of a company. It provides a basis for responding to variations within the market and development of new products and services. It motivates a company to become the market leader through creative programs.
Employee retention factors
Different factors may evaluate whether a company can motivate and retain workers. Compensation provides the best opportunity for a business to retain its workers. For example, a company needs to offer workers bonuses or link their wages and salaries to their tenure. Employers need to motivate employees to work hard for the organization and improve trust. This aspect can lead to better performances of workers in difficult tasks. An organization should recruit, reward and promote employees to achieve the best services from them. This point can secure the future of the organization.
Motivating factors may be monetary, affiliation, status or meaningful functions. However, workers may present various wants due to variations in their backgrounds, ambitions and abilities. The motivational approach of human resource management links workers to reservoirs of raw abilities. The theory postulates that the goal of the human resource official is to find the workable balance of enhancing the capacity of the employees. Several real life contexts reveal the necessity of the motivational theory of human resource. For example, determination of wages provides human resource officers with an opportunity to compensate workers in respect to their efforts. In addition, disaster rewards may provide the opportunity to reward workers. Challenging tasks may encourage employees to work hard in their functions to achieve organizational goals.
How Inditex’s compensation system motivates and retains employees
Employees provide the Inditex Group with an advantage over its business rivals in the fashion sector. The organization uses different dimensions to involve workers in the manufacturing process, reward them with leadership positions and provide a reliable working environment. Autonomy and ability to assume responsibility are parts of the initiatives of Inditex in helping its workers to grow. Inditex uses reliable reward designs to motivate and sustain valuable workers. However, business managers encounter difficulties in maintaining workers within the context of multiculturalism. For example, workers of the Inditex Group come from 131 different nationalities and speak 46 different languages. The employees have an average age of about 33 years.
The Inditex Group enhances the motivation of its employees through diverse programs. The company promotes personal and corporate reconciliation of employees through remuneration systems, permanent dialogues, social institutions and good working relationships.
Inditex’s compensation policy
Different organizations use compensation policies that suit their objectives and goals. The Inditex Group has a relevant compensation policy for its workers. The company utilizes policies under the departments of central services, stores, and logistics platforms to vary the compensation system. The compensation design contains a link to the different indices and objectives of the organization. Therefore, the organization’s varied compensation policy can be associated with its commercial objectives and financial results.
Salary and wages
The Inditex Group offers competitive salaries and wages to its employees. Managers determine the salaries and wages in the form of monetary scales. Employees receive stipulated wages and salaries according to their ranks within the organization. This system is consistent and does not depend on the output of the employees. This aspect enables the company to motivate employees and improve their chances of retention.
In addition to competitive remuneration, the Inditex Group offer benefits to employees as a form of motivation. The benefits include health care, safety, car parking and discounts on products. These benefits increase the motivation of the employees and the chances that Inditex Group may retain them in the long term.
Health insurance and life assurance
It is a legal requirement for companies to provide their employees with health insurance policies. This aspect enables the Inditex Group to attract talented staff to work for it. In addition, the Inditex Health Insurance Plan provides a competitive policy for its staff in the various countries in which the company operates. The policy gives the company a competitive advantage against its rivals in the textile industry. The Inditex Group employees receive life assurance covers as part of the organization’s policy. This fact acts as a motivating factor and helps in the retention of the workers.
Retirement is a crucial element of any employee. It can be a lucrative incentive for employees. The Inditex Group provides a comprehensive retirement program for its employees. The organization offers a flexible and attractive retirement structure for workers. This aspect is necessary in motivating and improving employee retention chances. Employees aspire to retire and spend the rest of their lives comfortably. The Inditex Group helps its employees to save finances for retirement through an attractive compensation project.
Stocks and profit sharing
The Inditex Group employees have the liberty to buy stocks and share profits from organizations and other entities. This aspect gives them a sense of ownership of the company. Stocks options provide employees with a perception of deferred compensation. In addition, the company directors complement stocks by attractive tax benefits that employees can enjoy. Employees of the Inditex Group acquire a sense of loyalty to the company because it gives them the right to profit sharing. This fact can motivate employees to work hard and deliver their objectives by increasing the efficiency of the company. In addition, stocks and dividends may improve the probability of long term employee retention for the company.
Paid time offs
A paid-time-off is one of the aspects that improve the motivation of workers in businesses. These benefits can be in the form of workshops and conferences. The Inditex Group regularly improves its employee motivation through facilitation of workshops to enhance their skills.
Telecommuting and flex time
The Inditex Group offers the employees flexibility in terms of working hours. The company allows employees in various stores to work in shifts that are convenient for them. Allowing employees to work in a flexible manner is an essential form of compensation and motivation. It allows employees to perform different tasks while discharging their mandate with the business. This point can improve employee retention.
Employee assistance plans (EAPs)
Employee Assistance Programmes (EAPs) are confidential and short term counselling services for workers with individual challenges that may affect their productivity. Research indicates that organizations can help in reducing the stress of employees by providing counselling support to them. These programmes can reduce workplace absenteeism and overall employee turnover.
The Inditex Group offers one-on-one counselling sessions to employees with individual problems. The efforts are types of problems that EAPs can help to resolve. A number of the issues that the Inditex Group can tackle include dependent care matters, dealing with stress and serious personal and professional issues.
Vacation and sick leaves
The Inditex Group offers its employees vocational leave opportunities. The organization provides its employees with the opportunity to take leave of vacation and sickness. This aspect can be a motivating factor and may increase retention chances of employees. Employees prefer organizations that care for their welfare. In addition, the organization provides workers with holiday opportunities.
Employee welfare programs are essential because they enhance organizational performance. They also enhance motivation and retention of workers. The Inditex Group’s welfare plans for staff include retirement, long term disability and counselling care.
Relationship with employees
The Inditex Group upholds employees as important assets to the organization. The business observes and promotes human and labour rights in its relationship with employees. It enforces the best practices in human resource management. The company notes that it is crucial for employees to work in a favourable environment. The group’s employees relate with each other with dignity, respect and justice. The organization recognizes the varying multicultural backgrounds of its employees and maintains a commitment to promote respect and non-discrimination of any form.
The Inditex Group does not allow involuntary labour in its chains. This aspect may act as an attractive incentive to employees. The organization maintains a good relationship with the Global Framework Agreement and the International Garment, Textile and Leather Workers’ Federation (ITGLWF) on maintaining proper standards of employees. Inditex seeks to monitor the working conditions of its employees to ensure that they provide quality services. The company monitors its enterprises through employee audits to monitor the conditions of work.
The Inditex Group guarantees the safety of its employees. The company developed a robust policy towards employee safety in 2012. The policy addressed issues of health and safety in the workplace.
The Inditex Group encourages its workers to take part in charity work. The company helps the society to grow and develop economically and technologically.
Retention of talent
About 86% of employees of the Inditex Group work in different stores across the world. These employees represent the core of the group’s business model. This fact enables the business to retain valuable employees.
The human resource department undertakes this activity through the in-talent initiative. This program has been in operation in the Inditex Group since the year 2010. Talent retention provides employees with chances of delivering their profile information and providing descriptions of the ranks they would like to work within the company. This initiative enables about 50,000 of Inditex’s employees to provide their profiles to the company through this project. The project runs in about 12 European countries. The Inditex Group identifies potential staff in each country of its operation in order to attract the best pool of human resource talent. The group achieves this objective through different initiatives like the Career Designer in Poland, and the Store Manager Development Initiative in Turkey. These programmes involve employee meetings, workshops, training and conferences to develop skills to fill complex positions within the company.
Jan Van Mieghem3 illustrates that internal promotion is also a compensation system that the Inditex Company uses to motivate and retain hard working employees. It is a basis of the Inditex employees’ team development. The group has programmes that focus on improving strategic employee profiles like the managerial development programme.
Employee training acts as a motivator to employees and can improve the chances of staff retention. Employees prefer organizations that improve their skills and chances of rising in job hierarchies. An organization may improve motivation and retention chances of employees by offering opportunities like tuition reimbursements, employee seminars, workshops, conferences to improve skills and networks.
The Inditex Group motivates and retains employees through the training program. The group has training projects to reinforce the skills of its employees for future success of the organization. Training opportunities motivate and empower employees with new ideas to keep high productivity. In the year 2012, Inditex granted technical and personal skills to a total of about 13,374 employees. The company has offered training to about 7, 044 employees regarding matters of stores. The Inditex Group achieves this fact through different initiatives like the e-fashion distance learning course. This course trains stores’ employees in matters relating to the management of a fashion business.
The Instuto Europeo di Design (IED) facilitates this course. This college is among the most prestigious ones across the globe. The other initiative that helps the Inditex Group to train and motivate employees is the pilot edition. About 90 employees receive training through this program from different chains of the Inditex Group. The Inditex Group has been organizing training programs in Spain where about 3,511 employees have received training. The group’s training in 2012 focused on workers’ safety. Inditex’s employees learn diverse skills on their safety like appropriate postures to adopt to reduce musculoskeletal injuries. They also learn how to handle machines, gender equality approaches and communication skills. The training has been an initiative of the organization’s Zaragoza Logistic Platform.
Development and promotion of talent
The Inditex Group focuses on attracting and maintaining valuable employees. The strategy of the company involves the join-fashion platform through the internet and the hiring centres. The channels help the Inditex Group to centralize employment opportunities in the company. The platform identifies the best employees through the Inditex Philosophy and Commercial Model. In addition, the group manages its training centres to promote the recruitment of the best employees. Centres that promote competitive recruitment for the group include Paris, Milan and Moscow. The group also replenishes existing talent with a group of young employees. This aspect motivates existing employees to work hard and deliver the mandate of the Group.
The Inditex Group has a staff of 78% women and 22% men. The group initiated an equality policy in 2006 to rectify the gender deviation among employees. The objective of the initiative was to promote measures of developing an equality policy for gender in accessing employment opportunities. This policy can be an incentive for employees. It may motivate employees when they learn that the business has a commitment towards equality.
Safe and hygienic working conditions
The Inditex Group provides a safe and hygienic environment for its employees. The business ensures that the working environment is pleasant for employees to discharge their duties. The Inditex Group’s stores have light conditioners, hygiene, safety measures, ventilation, and access to safe drinking water. In certain occasions, the group provides housing facilities and temporary accommodation for employees. In addition, the organization takes necessary precaution measures to curb accidents and injuries when they happen through minimizing injury risks in the workplace. Human resource experts observe that employee compensation and motivation are critical factors that influence retention. Salaries and wages are the most common forms of employee compensation.
Companies operate in dynamic environments. They compete to acquire the best human resource talents from the job market. Most organizations invest large amounts of resources in the advertisement and hiring of appropriate job applicants. Compensation is one of the critical concepts that can motivate and improve the level of employee retention. This paper demonstrates how the compensation system that the Inditex Group contributes to employee motivation and retention. It is evident that the compensation systems that the Inditex companies use are effective in promoting the motivation of the groups’ employees and overall employee retention.
Judith Merkle4 suggests that companies need to improve the overall capacity of application of human resource compensation systems and approaches to improve motivation and retention of employees. It is evident that organizations need to develop a structure for organizing and implementing human resource policies within an organization. Employee compensation enhances the prospects of the realization of organizational objectives and retention of employees.
Hakim, C, Lifestyle and Work Choices in the 21st Century: Preference Theory, Oxford University Press, Oxford, 2010. Web.
Merkle, J, Management and Ideology, University of California Press, California, 2008. Web.
Saunders, L, Research methods for business students, Pearson Education, New Jersey, 2009. Web.
Van Mieghem, J, Operations Strategy: Principles and Practice, Dynamic Ideas, Belmont, 2008. Web.
- C Hakim, Lifestyle and Work Choices in the 21st Century: Preference Theory, Oxford University Press, Oxford, 2010, p.16. Web.
- L Saunders, Research methods for business students, Pearson Education, New Jersey, 2009, p.18. Web.
- J Van Mieghem, Operations Strategy: Principles and Practice, Dynamic Ideas, Belmont, 2008, p.27. Web.
- J Merkle, Management and Ideology, University of California Press, California, 2008, p.34. Web.