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Compensation & Benefits Review
43(1) 52­–60
© 2011 SAGE Publications
Reprints and permission: http://www.
sagepub.com/journalsPermissions.nav
DOI: 10.1177/0886368710390489
http://cbr.sagepub.com
Keywords
strategic compensation, international compensation
strategies, compensation in Saudi Arabia, HR strategy
Human resource (HR) management practices in general1,2
and compensation systems in particular1,3,4
have been
shown to be highly related to organizational performance.
Given the quest of organizations across the world to com-
pete more effectively in the global economy, there is an
urgent need to review current compensation practices
in various economies and to determine how the practices
align with enhancing organizations’ competitiveness.
Consistently, research findings are supportive of con-
gruency notions that suggest that the effectiveness of the
compensation system is partly a function of the fit between
pay strategies and organizational strategies.5
The purpose
of this article includes identifying current compensation
practices in Saudi Arabia, relating the practices to the
local culture and comparing the results to practices in the
United States.
With the continuous changes in the global economy,
SaudiArabian organizations, like others around the world,
continue to search for strategies that will foster higher
levels of competitiveness and enable organizations to gain
sustainable competitive advantages. Many authors6-8
have
articulated the need for changes in HR management prac-
tices around the world. As these authors have highlighted,
changes in the global economy continue to have a profound
impact on the nature and structure of the labor markets,
forcing organizations to assess the effectiveness of the
respective HR practices.
The research documented here examined and analyzed
compensation practices in SaudiArabia, compared current
practices and the extent to which HR professionals think
the current practices should be used in driving firm perfor-
mance and compared current compensation practices in
Saudi Arabia with those in the United States. The findings
not only provide a vital understanding of the effectiveness
of current practices but also provide critical insights as to
how local organizations can become more competitive
through compensation strategies. As Lawler notes9
, pay is a
promising and largely untapped source of competitive
advantage, because it can reinforce behaviors that best
serve a company’s business strategy and thereby improve
performance and profitability.
Furthermore, an awareness of the gap between current
practices and what the practices should be enables firms to
design compensation philosophies and strategies that will
maximize employees’ motivations to engage in behav-
iors consistent with organizational strategies.10
In addi-
tion, this study’s findings provided valuable information
to researchers and practitioners around the world, espe-
cially those with an interest and market in Saudi Arabia.
As observed by Datta, Guthrie and Wright,11
there has
been growing interest in the degree to which HR systems
contribute to organizational effectiveness, yet limited
research attention has been paid to the contextual conditions
that moderate the efficacy of these practices.Gomez-Mejia12
390489CBR43110.1177/0886368710390489Ra
mlall et al.Compensation & Benefits Review
Corresponding Author:
Sunil Ramlall, 13807 Crosscroft Place, Rosemount, MN 55068, USA
Email: sramlall@kaplan.edu
Compensation Practices and Plan
Effectiveness in Saudi Arabia
Sunil Ramlall, Faculty, Kaplan University School of Business
and Management, Khalid Maimani, Professor, King Abdulaziz
University, and Abdulhameed Diab, Chair of Business Administration
Department,Associate Professor, King Abdulaziz University
Abstract
This article identifies current compensation practices in Saudi Arabia, relates these practices to the local culture and
compares the results with practices in the United States. The authors collected data from 130 human resources
professionals. This study provided concrete insights about employees’ views of compensation systems and highly
useful information about compensation practices for organizations across the world with business interests in Saudi
Arabia and other Arab nations.
COMPENSATION/Saudi Arabia
Ramlall et al.	 53
highlighted that research findings generally support the
notion that a firm’s compensation strategies make a greater
contribution to firm performance.
In general, firms are continuing to internationalize their
operations to gain larger market share through available
international markets, forming partnerships and ventures
with organizations in different countries and even seeking
qualified labor from the international market.13
The inter-
nationalization of operations is typically motivated by a
desire to exploit unique assets in overseas markets, to gain
access to lower cost or higher quality inputs (labor, raw
materials, intermediate goods, specialized skills, etc.), to
build scale economies and other efficiencies and to pre-
empt competitors that may seek similar advantages in stra-
tegic markets.14,15
According to Lowe et al. three factors make effective
HR management critical in the quest for global competi-
tiveness: increased emphasis on multinational trade and
the growth of foreign subsidiaries, expansion of the inter-
national workforce (bringing increased capabilities) and
the traditional factors of production.16
In addition, it is
argued that HR management capabilities serve to attract,
retain, motivate, develop and use human capital in a firm.17-19
With the move toward Free Trade Area of the Americas
and becoming more vibrant competitors arises the criti-
cal issue of compensation. Compensation as defined by
Geringer and Frayne20
includes the monetary and non-
monetary and direct and indirect forms of compensation
that an organization exchanges for the contributions of its
employees’ performance and personal contributions.
In examining the national or regional models of compen-
sation, national borders significantly define contextual fea-
tures, such as national economic, demographic and cultural
conditions, and must be considered when developing com-
pensation systems that align with organizational, national
and regional strategies.21
As Hofstede22
explains, “most of
a country’s inhabitants share a national character” (p. 89).
Furthermore, it is commonly believed that compensation
and reward systems, because of their social and economic
significance, portray and reinforce cultural norms.23
Nevertheless, Bloom and Milkovich21
explain that
organizations developed their own social norms and that
the compensation practices and systems of these companies
are related to their own social norms. In addition, firms
can structure compensation policies that are consistent
with the firm’s culture and simultaneously attract, moti-
vate and retain employees who fit with the organization.
After years of poor economic management, many
countries are experiencing a process of structural reform
that places them on the path to a superior economic per-
formance.25
Change, as described by Lawler,26
should be
facilitated through the use of pay systems, given that
changes in an organization’s pay system usually have
high impact and high visibility. Therefore, this article
addresses current compensation practices in Saudi Arabia
and compares responses with what the practices should
be in enabling organizations to compete more effec-
tively in the global economy. Many research findings
have found the direct relationships between specific HR
strategies such as compensation systems and labor
productivity.27,28
An effective compensation system can lead to organi-
zational competitiveness, higher levels of profitability
and productivity and higher levels of employee motiva-
tion. It can help attract qualified applicants, retain skilled
employees and maintain workforce stability.29-32
With the
knowledge of the outcomes of effective compensation
practices, and given the aspiration of Saudi Arabian orga-
nizations to achieve such outcomes, the compensation
practices and the congruence to the organizational and
regional initiatives are reviewed and analyzed.
Method
The sample comprised primarily HR leaders in the
selected Saudi Arabian organizations. The surveys were
sent via e-mail and/or hand delivered and included an
explanation of the purpose of the research and briefly
explained the value of the participants’ input. A total of
130 surveys were returned.
The survey was developed using a modified version of
an instrument29,33
that was originally used to identify the
relationships between various compensation practices
and organizational outcomes including firm performance.
In addition, multiple open-ended questions were asked as
a means of gathering participants’ perspectives on the
role of compensation in achieving the strategic business
objectives of the organization and what role HR played in
the decision-making process for deciding compensation
practices. The open-ended questions sought input on the
impact of culture, national laws and the role of unions in
compensation practices at the respective organizations.
The questions inquired about the extent to which
1.	 compensation is aligned to business strategies,
2.	 the importance and effectiveness of benefits as
part of the total compensation,
3.	 pay incentives are important,
4.	 the compensation practices are competitive
compared with other organizations,
5.	 variable compensation is an integral part of the
total compensation,
6.	 pay raises and level of compensation are based
on performance,
7.	 long-term performance is valued over short-
term performance and
8.	 compensation practices help achieve the organi-
zation’s goals and objectives.
54		 Compensation & Benefits Review 43(1)
These questions reveal current practices (“now”) and the
extent to which the practices should be changed in driving
firm performance (“should be”). Where applicable, results
from these Saudi Arabian companies were compared with
responses from U.S. firms as identified in a previous
study.16
The survey instrument was pretested by HR executives
in Saudi Arabia with responsibility for compensation to
ensure that the relevant questions were being asked and
the instrument was clear and easy to follow. Furthermore,
all questions were developed from relevant articles found
from an exhaustive literature review.
Results
The results compared the current compensation practices
in Saudi Arabia and the desired type and level of prac-
tices viewed to be necessary in enhancing firm competi-
tiveness. Results are also compared with practices in the
United States through the findings of Lowe et al.16
and
other studies.
Pay Package Design
and Market Positioning
This category examined (a) the relative importance of the
base salary as an important component of the total compen-
sation package, (b) relevance of base salary to other forms
of pay, (c) the relative important importance of benefits
of the total pay package, (d) current nature of the benefits
package, (e) whether pay incentives are an important part
of the compensation strategy and (f) whether pay incentives
are designed to provide a significant of an employee’s total
compensation.
Salary. Participants were asked to rate their view of the
relative importance of base salary as an important component
of total compensation. The average score was 3.54.
Figure 1 provides a graphical summary of the pay pack-
age design practices based on current practices.
Quite notable is the average of 3.54 for Question 1a.
Respondents indicated that their companies’ philosophy
on base pay enables their organizations to be competitive
in this area and, furthermore, that there is high emphasis on
base pay. This is especially interesting given that partici-
pants stated that there is more of a need to focus on incen-
tive compensation as a means of driving firm performance.
Currently, incentive compensation is reported at 2.72 and
2.82, respectively, for questions relating to the importance
of incentive compensation and incentives as a significant
source of total compensation.
Benefits. It is quite evident that organizations in the
Saudi Arabia feel that their benefits are a critical part of
their total compensation. The mean score for the question
as to whether benefits are an important part of total pay
package was 3.78. Even though this was a high score,
respondents did not view benefits as being extremely
generous. The mean score for current view of the benefits
package being generous was 2.82.
Incentives. Compared with data collected by a U.S. study16
and as indicated in Figure 2, Saudi Arabian organizations
view incentive compensation in a relatively similar manner
to organizations in the United States.
Similar to American organizations, Saudi Arabian
organizations view incentive compensation as a sig-
nificant way to foster higher levels of productivity and
think that incentive compensation should be used more
extensively within organizations. The mean score for the
question as to whether pay incentives are an important
.00
.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Base Salary
Importance -
1a
Base Salary
is High - 1b
Benefits
Importance -
2a
Benefits are
Generous
- 2b
Incentive
Importance
- 3a
Incentives
as a
Component
of Total
Comp - 3b
Figure 1. Pay package design practices
Ramlall et al.	 55
part of compensation strategy was 2.72 for current
practices.
Pay Policy Choices
This category examined multiple perspectives of the com-
pensation philosophy and practices, the role of employees
in formulating compensation strategies and the factors that
most significantly affect the respective strategies decided
on by the organization. As explained by Milkovich and
Newman,34
pay systems translate the organization’s strat-
egy into practice to achieve the desired organizational
objectives. Table 1 provides a summary of the mean scores
of current practices among the organizations participating
in the study.
Risk sharing. Respondents to the survey clearly indicated
that pay is not strongly tied to group or organizational per-
formance. Furthermore, with scores of 2.61 for the view
on current practices and 2.32 as to how organizations in the
Saudi Arabia viewed this issue, there is not a clear urgency
in having at-risk compensation. As reported by Lowe
et al.,16
current state of practice was rated at 2.46 and
4.00 for should be. Based on Hofstede’s22
research on
cultural dimensions, Saudi Arabian cultures, as exempli-
fied by the report on Saudi Arabia, are much more col-
lective as compared with the United States. Hence, one
would expect more of an emphasis being placed on orga-
nizational and group performance versus an emphasis
on individual performance in a more collectivist culture.
In this case, Saudi Arabian organizations had lower
mean scores than the U.S. firms for the question on whether
an employee’s earnings are contingent on group or orga-
nization performance.
Internal consistency in pay relationships. Except for inter-
nal pay equity, participants of the study seem relatively
satisfied with the measures taken to ensure relative equity
within the respective organizations. Nevertheless, the per-
ception exists that organizations still need to give additional
attention to ensure there is internal equity among depart-
ments and positions with relatively equal importance to
the organization.
Pay for performance. There was not a strong indication
for a more direct linkage between pay and performance.
With scores in the median of the range, there appears a
comfort level in not changing current practices. Based on
the study conducted by Lowe et al.,16
the U.S. scores were
2.42 and 4.22 for “is now” and “should be,” respectively.
It must be noted that there is significant difference in the
power distance and uncertainty avoidance indexes mea-
sured by Hofstede.22
As can be easily inferred by some studies,10,22
collective
cultures such as those in Saudi Arabia have historically
emphasized seniority rather than individual performance.
The results from this study show a shift and willingness
from employees to be paid based on their performance
rather than merely seniority.
Pay participation. Employees stated that there is little
input by the general employee population in the decision
on designing and implementing a compensation strategy.
It is typically an autocratic process with senior man-
agement deciding how employees should be rewarded.
Employees clearly indicated a preference and a desire to
be included in the decision-making process or at least be
able to share thoughts on features of the reward system.
Pay Effectiveness
Compensation is a powerful way to attract, motivate and
retain employees as a means to furthering an organiza-
tion’s strategic goals.25,34
Furthermore, compensation is a
critical strategy that reinforces the behaviors, attitudes and
skills necessary to achieve organizational capability.35
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Incentives are
Important-
Current
Incentives are
Important-
Should be
Incentives
as a
Perentage of
Total Comp.-
Current
Incentives
as a
Perentage of
Total Comp.-
Should be
USA
Saudi Arabia
Figure 2. Incentive compensation: Views and practices within Saudi Arabia and the United States
56		 Compensation & Benefits Review 43(1)
With Saudi Arabia facing intense competitive challenges
in the global economy, one component of this study sought
to determine how effective the compensation systems of
Saudi Arabian organizations are in enhancing organiza-
tional competitiveness.
In responding to the question asking if their organi-
zations’ pay policies and practices are highly effective,
managers and other employees responded with a mean
score of 2.69. One can easily infer that employees are con-
vinced that their current compensation practices are not
highly effective and desire significant changes to the cur-
rent compensation system.
Similarly, the response on current compensation prac-
tices does not give shareholders “their money’s worth,” as
indicated through mean scores of 2.75 for current practices.
From a strategic and even ethical perspective, employees
feel that there is more to be done to maximize the interest
of shareholders and other stakeholder groups. Employees
also felt that the current pay practices did not appear to
enjoy widespread acceptability among the workforce.
Table 2 provides a detailed summary of the mean scores of
all questions asked in the survey.
On the critical question as to whether pay policies and
practices greatly contribute to retention, attraction and moti-
vation of employees, the response clearly indicated that
the current compensation system is ineffective in achiev-
ing the intended outcomes. Given the harsh reality of
compensation systems being a core strategy in attracting,
motivating and retaining employees, and also the signifi-
cant percentage of an organization’s expenditure on labor
cost, this information provides compelling insights for
Saudi Arabia organization on the nature of current com-
pensation systems.
Many scholars have explained the necessity of effec-
tive compensation systems in enabling organizations to
be successful.25,28,29
Similar to the findings of Von Glinow,
Drost andTeagarden36
on global HR best practices, employ-
ees in Saudi Arabia viewed benefits, an emphasis on indi-
vidual performance and a reduced emphasis on seniority
as ways of enhancing the effectiveness of the compensa-
tion system.
Discussion and Conclusion
In their efforts to becoming more competitive in the global
economy, Saudi Arabian organizations continuously seek
ways to enhance organizational effectiveness. This study
provides concrete insights about employees’views of com-
pensation systems and also provides highly useful informa-
tion about compensation practices for organizations across
the world with business interests in Saudi Arabia and other
Arab nations.
Clearly, because Saudi Arabian culture is viewed as
more collective, one would have expected more of an
emphasis on organizational or team outcomes versus indi-
vidual performance and rewards as being strategies to cre-
ating more effective reward systems. There is some desire
from employees to have their rewards linked to individual
performance.
The biggest influence that local cultures have on com-
pensation philosophy is in terms of pay for performance.
Table 1. Pay Policy Choices
Pay Policy Choices Mean
Risk sharing  
  Pay is at least partially tied to group or organization
Performance—5a
2.63
  Compensation system is designed to facilitate partial
variable pay—5b
2.61
  Employees should take some risks with pay—5c 2.32
Internal consistency in pay relationships  
  Internal pay equity is important—6a 2.88
  Efforts are made to maintain internal equity—6b 2.69
  Internal equity is priority over external equity—6c 2.88
Pay secrecy  
  Pay is kept secret from employees—7a 3.35
  Formal policies in place to discourage divulging pay
information—7b
2.85
  Does not disclose administrative procedures on pay
systems—7c
2.82
Pay for performance  
  Strong commitment to merit pay—8a 2.54
  Pay increases tied to performance—8b 2.63
  Seniority not tied to pay decisions—8c 2.78
Pay decentralization  
  Pay policy is not centralized—9a 2.68
  Human resource staff in each business unit has
flexibility to develop compensation—9b
2.13
  Minimum interference from headquarters on pay
decisions—9c
2.61
Egalitarian pay  
  Compensation system reflects low hierarchy—10a 3.27
  Special pay packages and privileges are offered—10b 3.41
  Pay system is as egalitarian as possible—10c 2.82
Pay participation  
  Employee input is considered by top
management—11a
2.18
  Many different groups of employees have input—11b 2.44
  Pay decisions are autocratic—11c 3.15
Job-based pay  
  Have a job-based system—12a 2.78
  Have a skill-based system—12b 2.45
  Job is more important than incumbent’s ability—12c 2.63
Long-term pay  
  Pay system has a futuristic orientation—13a 2.48
  Pay system rewards for short-term
accomplishments—13b
2.47
Ramlall et al.	 57
Table 2. Overall Results Sorted by Difference: Descriptive Statistics
N Minimum Maximum M SD
1a The base salary is an important part of the total compensation package. 130 1 5 3.54 1.307
1b The base salary is high relative to other forms of pay that an employee may
receive in this organization.
130 1 5 2.84 1.193
2a The benefits are an important part of the total pay package. 130 1 5 3.78 1.209
2b The employee benefits package is very generous compared with what it
could be.
130 1 5 2.82 1.186
3a Pay incentives such as a bonus or profit sharing are an important part of
the compensation strategy in this organization.
130 1 5 2.72 1.330
3b Pay incentives are designed to provide a significant amount of an
employee’s total earnings in this organization.
130 1 5 2.82 1.267
4a Preferred position of organization’s salary levels with respect to
competitors.
130 1 5 3.12 1.179
4b Preferred position of organization’s benefits level with respect to
competitors.
130 1 5 3.17 1.169
5a In this organization, a portion of an employee’s earnings is contingent on
group or organization performance goals being achieved.
130 1 5 2.63 1.301
5b We designed our compensation system so that a portion of our
compensation cost is variable.
130 1 5 2.61 1.242
5c We believe that employees should be risk takers with some of their pay. 130 1 5 2.32 1.331
6a Internal pay equity is an important goal of our pay system. 130 1 5 2.88 1.294
6b We try hard to achieve comparable pay relationships across different parts
of the organization.
130 1 5 2.69 1.263
6c In our organization we give a higher priority to internal pay equity than we
do to external market factors.
130 1 5 2.88 1.205
7a We keep pay information secret from the employees. 130 1 5 3.35 1.374
7b We have formal policies that discourage employees from divulging their pay
to coworkers.
130 1 5 2.85 1.426
7c Our organization does not openly disclose the administrative procedures
on how pay levels and pay raises are established.
130 1 5 2.82 1.493
8a We have a strong commitment to a merit pay system. 130 1 5 2.54 1.289
8b In this organization pay raises are determined mainly by an employee’s job
performance.There is a large pay spread between low performers and
high performers in a given job.
130 1 5 2.63 1.365
8c An employee’s seniority does not enter into pay decisions. 130 1 5 2.78 1.520
9a Pay policy is not centralized in this organization. 130 1 5 2.68 1.580
9b The personnel staff in each business unit has freedom to develop its own
compensation programs.
130 1 5 2.13 1.235
9c There is a minimum of interference from corporate headquarters with
respect to pay decisions made by line managers.
130 1 5 2.61 1.439
10a Our compensation system reflects a low degree of hierarchy. In other
words, we try to give a minimum of perks.
130 1 5 3.27 1.579
10b We offer special pay packages and privileges as status symbols to the higher
echelons in the organization.
130 1 5 3.41 1.434
10c We try to make our pay system as egalitarian as possible.There are
very few perks or specific rewards available to any “elite” groups of
employees.
130 1 5 2.82 1.368
11a Employees’ feelings and preferences for various pay forms (e.g., bonus vs.
profit sharing) are taken very seriously by top management.
130 1 5 2.18 1.267
11b Many different kinds of employees (individual contributors, managers,
personnel) have a say on pay policies.
130 1 5 2.44 1.220
11c Pay decisions in this organization are made on an autocratic basis.We tend
to “follow the book” very closely.Very few employees have any input into
pay decisions.
130 1 5 3.15 1.409
12a We have a job-based pay system.That is, factors within the job are key
determinants of the amount of pay.
130 1 5 2.78 1.325
(continued)
58		 Compensation & Benefits Review 43(1)
One of the observations was that some organizations are
trying to move toward a pay for performance system, but
culturally, many of the Saudi markets are not used to this
or ready to make progress in this respect. Saudi Arabia is
a low-risk and low change–tolerant culture. New projects
will be carefully analyzed to assure that whatever risk they
represent is thoroughly understood and addressed.
For change to take hold, the idea needs to be perceived
as good for the group and be accepted by the group.
Intercultural sensitivity is important given SaudiArabia’s
attitude toward risk, which is dramatically impacted by
the negative ramifications of failure on both the individ-
ual and the group.
Stockholders, society in general, managers and employ-
ees all have a deep interest in compensation. Although the
perspectives may differ among the respective stakeholder
groups, the relative importance is extremely high. For
example, from a society perspective, pay can be viewed as
a measure of justice in ensuring men and women are paid
on a relatively equal scale. Stockholders can view pay as a
means to maximize investments in the company. Managers
may view pay as a major labor cost and hence use pay
to influence behaviors and attitudes that will achieve
organizational outcomes. Employees may view pay as a
reward or even an entitlement for work performed in the
organization.
As Milkovich and Newman34
state, the objectives of
compensation systems are to “translate the strategy into
practice to foster efficiency, fairness, and compliance” (p. 15).
Based on responses in this study, Saudi organizations are
far from maximizing the investment in their pay systems.
There is a clear gap in aligning the pay systems to achieve
the behaviors and skills that enable their respective orga-
nizations to be more competitive in the global economy.
Participants strongly indicated that the compensation sys-
tems are not providing a full return on their investment
and are generally failing to attract, motivate and retain
employees.
Saudi Arabia has a relatively high uncertainty avoid-
ance score,22
thus prompting the opinion that changes
aligning rewards to performance might be a bit of a chal-
lenge but are nonetheless possible. To create more com-
petitive organizations, greater emphasis should be placed
onthealignmentofthecompensationsystemswithemployee
and firm performance. In addition, organizations have to
be able to measure the effectiveness of their compensation
strategies and make necessary changes. The results pro-
vided by managers and employees within Saudi Arabian
organizations are profound and provide new knowledge
on the level of effectiveness and direct feedback and rec-
ommendations on strategies for enhancing the effective-
ness of compensation practices.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interests with respect
to the authorship and/or publication of this article.
Funding
The author(s) received no financial support for the research
and/or authorship of this article.
N Minimum Maximum M SD
12b We have a skills-based pay system.That is, individuals are rewarded in part
on their mastery of job skills.
130 1 5 2.45 1.135
12c The job is a more important factor than an incumbent’s ability or
performance in the determination of pay rates in this organization.
130 1 5 2.63 1.295
13a The pay system in this organization has a futuristic orientation. It focuses
employees’ attention on long-term (2 or more years) goals.
130 1 5 2.48 1.240
13b The pay system in this organization rewards employees for short-term
accomplishments during a fixed time period.
130 1 5 2.47 1.426
13c Our pay policies recognize that long-term results are more important than
short-term results.
130 1 5 2.73 1.287
14a Our pay policies and practices are highly effective. 130 1 5 2.69 1.269
14b Management is very happy with the way the compensation system
contributes to the achievement of overall organizational goals.
130 1 5 2.73 1.275
14c All things considered, the compensation strategies used in our organization
truly give shareholders “their money’s worth.”
130 1 5 2.75 1.337
14d Our pay policies and practices appear to enjoy widespread acceptability
among employees.
130 1 5 2.73 1.293
14e Our pay policies and practices greatly contribute to the retention,
attraction and motivation of employees.
130 1 5 2.45 1.264
  Valid N (listwise) 130  
Table 2. (continued)
Ramlall et al.	 59
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Lowe, K., & Kim, N. (1995). In search of best strategic
pay practices:An exploratory study of Japan, Korea, Taiwan,
and the United States. Advances in International Compar-
ative Management, 12, 157-183.
11.	 Datta, D., Guthrie, J., & Wright, P. (2005). Human resource
management and labor productivity: Does industry matter?
Academy of Management Journal, 48, 135-145.
12.	 Gomez-Mejia, L. R. (1992). Structure and process of diver-
sification, compensation strategy, and firm performance.
Strategic Management Journal, 13, 381-397.
13.	 Palich, L., & Gomez-Mejia, L. (1999). Theory of global
strategy and firm efficiencies: considering the effects of
cultural diversity. Journal of Management, 25, 587-606.
14.	 Kim, W. C., Hwang, P., & Burgers, W. P. (1993). Multina-
tionals’diversification and the risk-return trade-off. Strategic
Management Journal, 14, 275-286.
15.	 Mitchell, W., Roehl, T., & Slattery, R. (1995). Influences
on R&D growth among Japanese pharmaceutical firms.
Journal of High Technology Management Research, 6,
17-32.
16.	 Lowe, K., Milliman, J., De Cieri, H., & Dowling, P.
(2002). International compensation practices: A ten-coun-
try comparative analysis. Human Resource Management,
41, 45-66.
17.	 Coff, R. W. (1997). Human assets and management dilem-
mas: Coping with hazards on the road to resource-based
theory. Academy of Management Review, 22, 374-402.
18.	 Kamoche, K. (1996). Strategic human resource manage-
ment within a resource-capability view of the firm. Jour-
nal of Management Studies, 33, 213-233.
19.	 Mueller, F. (1996). Human resources as strategic assets: An
evolutionary resource-based theory. Journal of Manage-
ment Studies, 33, 757-875.
20.	 Geringer, J. M., & Frayne, C. A. (1990). Human resource
management and international joint venture control:Aparent
company perspective. Management International Review,
30, 103-120.
21.	 Bloom, M. & Milkovich, G. 1999. A SHRM perspective on
international compensation and reward systems. In Wright
P. M., Dyer L. D., Boudreau J. W. & Milkovich G. T. (Eds.),
Research in Personnel and Human Resources Management,
Supplement 4: 283-303.
22.	 Hofstede, G. (1980). Culture’s consequences: International
differences in work-related values. Beverly Hills, CA: Sage.
23.	 Mahoney, T. A. (1979). Compensation and reward perspec-
tives. Homewood, IL: Irwin.
24.	 Edwards, S. (1995). Crisis and reform in Latin America.
New York, NY: Oxford University Press.
25.	 Lawler, E., III. (2000). Rewarding excellence: Pay strate-
gies for the new economy. San Francisco, CA: Jossey-Bass.
26.	 Arthur, J. (1994). Effects of human resource systems on
manufacturing performance and turnover. Academy of
Management Journal, 37, 670-687.
27.	 Guthrie, J. (2001). High-involvement work practices, turn-
over, and productivity: Evidence from New Zealand. Acad-
emy of Management Journal, 44, 180-190.
28.	 Huselid, M. (1995). The impact of human resource man-
agement practices on turnover, productivity, and corporate
financial performance. Academy of Management Journal,
38, 635-672.
29.	 Gomez-Mejia, L. R., & Balkin, D. (1992). Compensation,
organizational strategy, and firm performance. Cincinnati,
OH: Southwestern.
30.	 Milkovich, G. T., & Newman, J. M. (1993). Compensation
(4th ed.). Homewood, IL: Irwin.
31.	 Wright, P., McMahan, G., & McWilliams, A. (1994).
Human resources and sustained competitive advantage: A
resource-based perspective. International Journal of Human
Resource Management, 5, 301-326.
60		 Compensation & Benefits Review 43(1)
32.	 Lawler, E., III. (2003). Reward practices and perfor-
mance management system effectiveness. Organizational
Dynamics, 32, 396-405.
33.	 Balkin, D., & Gomez-Mejia, L. (1990). Matching compen-
sation and organization strategies. Strategic Management
Journal, 11, 153-169.
34.	 Milkovich, G., & Newman, J. (2005). Compensation (8th ed.).
New York, NY: McGraw Hill-Irwin.
35.	 Ulrich, D., & Beatty, D. (2001). From partners to players:
Extending the HR playing field. Human Resource Manage-
ment, 40, 293-308.
36.	 Von-Glinow, M. A., Drost, E., & Teagarden, M. (2002).
Converging on IHRM best practices: Lessons learned from
a globally distributed consortium on theory & practice.
Human Resource Management, 41, 123-140.
Bios
Sunil Ramlall is a faculty member at the Kaplan University
School of Business and Management. Prior to Kaplan, he taught
at Hamline University and the University of St. Thomas. His
PhD is from the University of Minnesota. His research focuses
on international human resources, positive organizational behav-
ior and the impact of layoffs on employees.
Khalid Maimani is a professor in the College of Economics &
Administration, King Abdulaziz University, Saudi Arabia.
Abdulhameed Diab is chair of the Business Administration
Department and associate professor, Department of Business
Administration,FacultyofEconomics,KingAbdulazizUniversity,
Saudi Arabia.

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Compensation practices and plan effectiveness compensation and benefits review

  • 1. Compensation & Benefits Review 43(1) 52­–60 © 2011 SAGE Publications Reprints and permission: http://www. sagepub.com/journalsPermissions.nav DOI: 10.1177/0886368710390489 http://cbr.sagepub.com Keywords strategic compensation, international compensation strategies, compensation in Saudi Arabia, HR strategy Human resource (HR) management practices in general1,2 and compensation systems in particular1,3,4 have been shown to be highly related to organizational performance. Given the quest of organizations across the world to com- pete more effectively in the global economy, there is an urgent need to review current compensation practices in various economies and to determine how the practices align with enhancing organizations’ competitiveness. Consistently, research findings are supportive of con- gruency notions that suggest that the effectiveness of the compensation system is partly a function of the fit between pay strategies and organizational strategies.5 The purpose of this article includes identifying current compensation practices in Saudi Arabia, relating the practices to the local culture and comparing the results to practices in the United States. With the continuous changes in the global economy, SaudiArabian organizations, like others around the world, continue to search for strategies that will foster higher levels of competitiveness and enable organizations to gain sustainable competitive advantages. Many authors6-8 have articulated the need for changes in HR management prac- tices around the world. As these authors have highlighted, changes in the global economy continue to have a profound impact on the nature and structure of the labor markets, forcing organizations to assess the effectiveness of the respective HR practices. The research documented here examined and analyzed compensation practices in SaudiArabia, compared current practices and the extent to which HR professionals think the current practices should be used in driving firm perfor- mance and compared current compensation practices in Saudi Arabia with those in the United States. The findings not only provide a vital understanding of the effectiveness of current practices but also provide critical insights as to how local organizations can become more competitive through compensation strategies. As Lawler notes9 , pay is a promising and largely untapped source of competitive advantage, because it can reinforce behaviors that best serve a company’s business strategy and thereby improve performance and profitability. Furthermore, an awareness of the gap between current practices and what the practices should be enables firms to design compensation philosophies and strategies that will maximize employees’ motivations to engage in behav- iors consistent with organizational strategies.10 In addi- tion, this study’s findings provided valuable information to researchers and practitioners around the world, espe- cially those with an interest and market in Saudi Arabia. As observed by Datta, Guthrie and Wright,11 there has been growing interest in the degree to which HR systems contribute to organizational effectiveness, yet limited research attention has been paid to the contextual conditions that moderate the efficacy of these practices.Gomez-Mejia12 390489CBR43110.1177/0886368710390489Ra mlall et al.Compensation & Benefits Review Corresponding Author: Sunil Ramlall, 13807 Crosscroft Place, Rosemount, MN 55068, USA Email: sramlall@kaplan.edu Compensation Practices and Plan Effectiveness in Saudi Arabia Sunil Ramlall, Faculty, Kaplan University School of Business and Management, Khalid Maimani, Professor, King Abdulaziz University, and Abdulhameed Diab, Chair of Business Administration Department,Associate Professor, King Abdulaziz University Abstract This article identifies current compensation practices in Saudi Arabia, relates these practices to the local culture and compares the results with practices in the United States. The authors collected data from 130 human resources professionals. This study provided concrete insights about employees’ views of compensation systems and highly useful information about compensation practices for organizations across the world with business interests in Saudi Arabia and other Arab nations. COMPENSATION/Saudi Arabia
  • 2. Ramlall et al. 53 highlighted that research findings generally support the notion that a firm’s compensation strategies make a greater contribution to firm performance. In general, firms are continuing to internationalize their operations to gain larger market share through available international markets, forming partnerships and ventures with organizations in different countries and even seeking qualified labor from the international market.13 The inter- nationalization of operations is typically motivated by a desire to exploit unique assets in overseas markets, to gain access to lower cost or higher quality inputs (labor, raw materials, intermediate goods, specialized skills, etc.), to build scale economies and other efficiencies and to pre- empt competitors that may seek similar advantages in stra- tegic markets.14,15 According to Lowe et al. three factors make effective HR management critical in the quest for global competi- tiveness: increased emphasis on multinational trade and the growth of foreign subsidiaries, expansion of the inter- national workforce (bringing increased capabilities) and the traditional factors of production.16 In addition, it is argued that HR management capabilities serve to attract, retain, motivate, develop and use human capital in a firm.17-19 With the move toward Free Trade Area of the Americas and becoming more vibrant competitors arises the criti- cal issue of compensation. Compensation as defined by Geringer and Frayne20 includes the monetary and non- monetary and direct and indirect forms of compensation that an organization exchanges for the contributions of its employees’ performance and personal contributions. In examining the national or regional models of compen- sation, national borders significantly define contextual fea- tures, such as national economic, demographic and cultural conditions, and must be considered when developing com- pensation systems that align with organizational, national and regional strategies.21 As Hofstede22 explains, “most of a country’s inhabitants share a national character” (p. 89). Furthermore, it is commonly believed that compensation and reward systems, because of their social and economic significance, portray and reinforce cultural norms.23 Nevertheless, Bloom and Milkovich21 explain that organizations developed their own social norms and that the compensation practices and systems of these companies are related to their own social norms. In addition, firms can structure compensation policies that are consistent with the firm’s culture and simultaneously attract, moti- vate and retain employees who fit with the organization. After years of poor economic management, many countries are experiencing a process of structural reform that places them on the path to a superior economic per- formance.25 Change, as described by Lawler,26 should be facilitated through the use of pay systems, given that changes in an organization’s pay system usually have high impact and high visibility. Therefore, this article addresses current compensation practices in Saudi Arabia and compares responses with what the practices should be in enabling organizations to compete more effec- tively in the global economy. Many research findings have found the direct relationships between specific HR strategies such as compensation systems and labor productivity.27,28 An effective compensation system can lead to organi- zational competitiveness, higher levels of profitability and productivity and higher levels of employee motiva- tion. It can help attract qualified applicants, retain skilled employees and maintain workforce stability.29-32 With the knowledge of the outcomes of effective compensation practices, and given the aspiration of Saudi Arabian orga- nizations to achieve such outcomes, the compensation practices and the congruence to the organizational and regional initiatives are reviewed and analyzed. Method The sample comprised primarily HR leaders in the selected Saudi Arabian organizations. The surveys were sent via e-mail and/or hand delivered and included an explanation of the purpose of the research and briefly explained the value of the participants’ input. A total of 130 surveys were returned. The survey was developed using a modified version of an instrument29,33 that was originally used to identify the relationships between various compensation practices and organizational outcomes including firm performance. In addition, multiple open-ended questions were asked as a means of gathering participants’ perspectives on the role of compensation in achieving the strategic business objectives of the organization and what role HR played in the decision-making process for deciding compensation practices. The open-ended questions sought input on the impact of culture, national laws and the role of unions in compensation practices at the respective organizations. The questions inquired about the extent to which 1. compensation is aligned to business strategies, 2. the importance and effectiveness of benefits as part of the total compensation, 3. pay incentives are important, 4. the compensation practices are competitive compared with other organizations, 5. variable compensation is an integral part of the total compensation, 6. pay raises and level of compensation are based on performance, 7. long-term performance is valued over short- term performance and 8. compensation practices help achieve the organi- zation’s goals and objectives.
  • 3. 54 Compensation & Benefits Review 43(1) These questions reveal current practices (“now”) and the extent to which the practices should be changed in driving firm performance (“should be”). Where applicable, results from these Saudi Arabian companies were compared with responses from U.S. firms as identified in a previous study.16 The survey instrument was pretested by HR executives in Saudi Arabia with responsibility for compensation to ensure that the relevant questions were being asked and the instrument was clear and easy to follow. Furthermore, all questions were developed from relevant articles found from an exhaustive literature review. Results The results compared the current compensation practices in Saudi Arabia and the desired type and level of prac- tices viewed to be necessary in enhancing firm competi- tiveness. Results are also compared with practices in the United States through the findings of Lowe et al.16 and other studies. Pay Package Design and Market Positioning This category examined (a) the relative importance of the base salary as an important component of the total compen- sation package, (b) relevance of base salary to other forms of pay, (c) the relative important importance of benefits of the total pay package, (d) current nature of the benefits package, (e) whether pay incentives are an important part of the compensation strategy and (f) whether pay incentives are designed to provide a significant of an employee’s total compensation. Salary. Participants were asked to rate their view of the relative importance of base salary as an important component of total compensation. The average score was 3.54. Figure 1 provides a graphical summary of the pay pack- age design practices based on current practices. Quite notable is the average of 3.54 for Question 1a. Respondents indicated that their companies’ philosophy on base pay enables their organizations to be competitive in this area and, furthermore, that there is high emphasis on base pay. This is especially interesting given that partici- pants stated that there is more of a need to focus on incen- tive compensation as a means of driving firm performance. Currently, incentive compensation is reported at 2.72 and 2.82, respectively, for questions relating to the importance of incentive compensation and incentives as a significant source of total compensation. Benefits. It is quite evident that organizations in the Saudi Arabia feel that their benefits are a critical part of their total compensation. The mean score for the question as to whether benefits are an important part of total pay package was 3.78. Even though this was a high score, respondents did not view benefits as being extremely generous. The mean score for current view of the benefits package being generous was 2.82. Incentives. Compared with data collected by a U.S. study16 and as indicated in Figure 2, Saudi Arabian organizations view incentive compensation in a relatively similar manner to organizations in the United States. Similar to American organizations, Saudi Arabian organizations view incentive compensation as a sig- nificant way to foster higher levels of productivity and think that incentive compensation should be used more extensively within organizations. The mean score for the question as to whether pay incentives are an important .00 .50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 Base Salary Importance - 1a Base Salary is High - 1b Benefits Importance - 2a Benefits are Generous - 2b Incentive Importance - 3a Incentives as a Component of Total Comp - 3b Figure 1. Pay package design practices
  • 4. Ramlall et al. 55 part of compensation strategy was 2.72 for current practices. Pay Policy Choices This category examined multiple perspectives of the com- pensation philosophy and practices, the role of employees in formulating compensation strategies and the factors that most significantly affect the respective strategies decided on by the organization. As explained by Milkovich and Newman,34 pay systems translate the organization’s strat- egy into practice to achieve the desired organizational objectives. Table 1 provides a summary of the mean scores of current practices among the organizations participating in the study. Risk sharing. Respondents to the survey clearly indicated that pay is not strongly tied to group or organizational per- formance. Furthermore, with scores of 2.61 for the view on current practices and 2.32 as to how organizations in the Saudi Arabia viewed this issue, there is not a clear urgency in having at-risk compensation. As reported by Lowe et al.,16 current state of practice was rated at 2.46 and 4.00 for should be. Based on Hofstede’s22 research on cultural dimensions, Saudi Arabian cultures, as exempli- fied by the report on Saudi Arabia, are much more col- lective as compared with the United States. Hence, one would expect more of an emphasis being placed on orga- nizational and group performance versus an emphasis on individual performance in a more collectivist culture. In this case, Saudi Arabian organizations had lower mean scores than the U.S. firms for the question on whether an employee’s earnings are contingent on group or orga- nization performance. Internal consistency in pay relationships. Except for inter- nal pay equity, participants of the study seem relatively satisfied with the measures taken to ensure relative equity within the respective organizations. Nevertheless, the per- ception exists that organizations still need to give additional attention to ensure there is internal equity among depart- ments and positions with relatively equal importance to the organization. Pay for performance. There was not a strong indication for a more direct linkage between pay and performance. With scores in the median of the range, there appears a comfort level in not changing current practices. Based on the study conducted by Lowe et al.,16 the U.S. scores were 2.42 and 4.22 for “is now” and “should be,” respectively. It must be noted that there is significant difference in the power distance and uncertainty avoidance indexes mea- sured by Hofstede.22 As can be easily inferred by some studies,10,22 collective cultures such as those in Saudi Arabia have historically emphasized seniority rather than individual performance. The results from this study show a shift and willingness from employees to be paid based on their performance rather than merely seniority. Pay participation. Employees stated that there is little input by the general employee population in the decision on designing and implementing a compensation strategy. It is typically an autocratic process with senior man- agement deciding how employees should be rewarded. Employees clearly indicated a preference and a desire to be included in the decision-making process or at least be able to share thoughts on features of the reward system. Pay Effectiveness Compensation is a powerful way to attract, motivate and retain employees as a means to furthering an organiza- tion’s strategic goals.25,34 Furthermore, compensation is a critical strategy that reinforces the behaviors, attitudes and skills necessary to achieve organizational capability.35 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Incentives are Important- Current Incentives are Important- Should be Incentives as a Perentage of Total Comp.- Current Incentives as a Perentage of Total Comp.- Should be USA Saudi Arabia Figure 2. Incentive compensation: Views and practices within Saudi Arabia and the United States
  • 5. 56 Compensation & Benefits Review 43(1) With Saudi Arabia facing intense competitive challenges in the global economy, one component of this study sought to determine how effective the compensation systems of Saudi Arabian organizations are in enhancing organiza- tional competitiveness. In responding to the question asking if their organi- zations’ pay policies and practices are highly effective, managers and other employees responded with a mean score of 2.69. One can easily infer that employees are con- vinced that their current compensation practices are not highly effective and desire significant changes to the cur- rent compensation system. Similarly, the response on current compensation prac- tices does not give shareholders “their money’s worth,” as indicated through mean scores of 2.75 for current practices. From a strategic and even ethical perspective, employees feel that there is more to be done to maximize the interest of shareholders and other stakeholder groups. Employees also felt that the current pay practices did not appear to enjoy widespread acceptability among the workforce. Table 2 provides a detailed summary of the mean scores of all questions asked in the survey. On the critical question as to whether pay policies and practices greatly contribute to retention, attraction and moti- vation of employees, the response clearly indicated that the current compensation system is ineffective in achiev- ing the intended outcomes. Given the harsh reality of compensation systems being a core strategy in attracting, motivating and retaining employees, and also the signifi- cant percentage of an organization’s expenditure on labor cost, this information provides compelling insights for Saudi Arabia organization on the nature of current com- pensation systems. Many scholars have explained the necessity of effec- tive compensation systems in enabling organizations to be successful.25,28,29 Similar to the findings of Von Glinow, Drost andTeagarden36 on global HR best practices, employ- ees in Saudi Arabia viewed benefits, an emphasis on indi- vidual performance and a reduced emphasis on seniority as ways of enhancing the effectiveness of the compensa- tion system. Discussion and Conclusion In their efforts to becoming more competitive in the global economy, Saudi Arabian organizations continuously seek ways to enhance organizational effectiveness. This study provides concrete insights about employees’views of com- pensation systems and also provides highly useful informa- tion about compensation practices for organizations across the world with business interests in Saudi Arabia and other Arab nations. Clearly, because Saudi Arabian culture is viewed as more collective, one would have expected more of an emphasis on organizational or team outcomes versus indi- vidual performance and rewards as being strategies to cre- ating more effective reward systems. There is some desire from employees to have their rewards linked to individual performance. The biggest influence that local cultures have on com- pensation philosophy is in terms of pay for performance. Table 1. Pay Policy Choices Pay Policy Choices Mean Risk sharing     Pay is at least partially tied to group or organization Performance—5a 2.63   Compensation system is designed to facilitate partial variable pay—5b 2.61   Employees should take some risks with pay—5c 2.32 Internal consistency in pay relationships     Internal pay equity is important—6a 2.88   Efforts are made to maintain internal equity—6b 2.69   Internal equity is priority over external equity—6c 2.88 Pay secrecy     Pay is kept secret from employees—7a 3.35   Formal policies in place to discourage divulging pay information—7b 2.85   Does not disclose administrative procedures on pay systems—7c 2.82 Pay for performance     Strong commitment to merit pay—8a 2.54   Pay increases tied to performance—8b 2.63   Seniority not tied to pay decisions—8c 2.78 Pay decentralization     Pay policy is not centralized—9a 2.68   Human resource staff in each business unit has flexibility to develop compensation—9b 2.13   Minimum interference from headquarters on pay decisions—9c 2.61 Egalitarian pay     Compensation system reflects low hierarchy—10a 3.27   Special pay packages and privileges are offered—10b 3.41   Pay system is as egalitarian as possible—10c 2.82 Pay participation     Employee input is considered by top management—11a 2.18   Many different groups of employees have input—11b 2.44   Pay decisions are autocratic—11c 3.15 Job-based pay     Have a job-based system—12a 2.78   Have a skill-based system—12b 2.45   Job is more important than incumbent’s ability—12c 2.63 Long-term pay     Pay system has a futuristic orientation—13a 2.48   Pay system rewards for short-term accomplishments—13b 2.47
  • 6. Ramlall et al. 57 Table 2. Overall Results Sorted by Difference: Descriptive Statistics N Minimum Maximum M SD 1a The base salary is an important part of the total compensation package. 130 1 5 3.54 1.307 1b The base salary is high relative to other forms of pay that an employee may receive in this organization. 130 1 5 2.84 1.193 2a The benefits are an important part of the total pay package. 130 1 5 3.78 1.209 2b The employee benefits package is very generous compared with what it could be. 130 1 5 2.82 1.186 3a Pay incentives such as a bonus or profit sharing are an important part of the compensation strategy in this organization. 130 1 5 2.72 1.330 3b Pay incentives are designed to provide a significant amount of an employee’s total earnings in this organization. 130 1 5 2.82 1.267 4a Preferred position of organization’s salary levels with respect to competitors. 130 1 5 3.12 1.179 4b Preferred position of organization’s benefits level with respect to competitors. 130 1 5 3.17 1.169 5a In this organization, a portion of an employee’s earnings is contingent on group or organization performance goals being achieved. 130 1 5 2.63 1.301 5b We designed our compensation system so that a portion of our compensation cost is variable. 130 1 5 2.61 1.242 5c We believe that employees should be risk takers with some of their pay. 130 1 5 2.32 1.331 6a Internal pay equity is an important goal of our pay system. 130 1 5 2.88 1.294 6b We try hard to achieve comparable pay relationships across different parts of the organization. 130 1 5 2.69 1.263 6c In our organization we give a higher priority to internal pay equity than we do to external market factors. 130 1 5 2.88 1.205 7a We keep pay information secret from the employees. 130 1 5 3.35 1.374 7b We have formal policies that discourage employees from divulging their pay to coworkers. 130 1 5 2.85 1.426 7c Our organization does not openly disclose the administrative procedures on how pay levels and pay raises are established. 130 1 5 2.82 1.493 8a We have a strong commitment to a merit pay system. 130 1 5 2.54 1.289 8b In this organization pay raises are determined mainly by an employee’s job performance.There is a large pay spread between low performers and high performers in a given job. 130 1 5 2.63 1.365 8c An employee’s seniority does not enter into pay decisions. 130 1 5 2.78 1.520 9a Pay policy is not centralized in this organization. 130 1 5 2.68 1.580 9b The personnel staff in each business unit has freedom to develop its own compensation programs. 130 1 5 2.13 1.235 9c There is a minimum of interference from corporate headquarters with respect to pay decisions made by line managers. 130 1 5 2.61 1.439 10a Our compensation system reflects a low degree of hierarchy. In other words, we try to give a minimum of perks. 130 1 5 3.27 1.579 10b We offer special pay packages and privileges as status symbols to the higher echelons in the organization. 130 1 5 3.41 1.434 10c We try to make our pay system as egalitarian as possible.There are very few perks or specific rewards available to any “elite” groups of employees. 130 1 5 2.82 1.368 11a Employees’ feelings and preferences for various pay forms (e.g., bonus vs. profit sharing) are taken very seriously by top management. 130 1 5 2.18 1.267 11b Many different kinds of employees (individual contributors, managers, personnel) have a say on pay policies. 130 1 5 2.44 1.220 11c Pay decisions in this organization are made on an autocratic basis.We tend to “follow the book” very closely.Very few employees have any input into pay decisions. 130 1 5 3.15 1.409 12a We have a job-based pay system.That is, factors within the job are key determinants of the amount of pay. 130 1 5 2.78 1.325 (continued)
  • 7. 58 Compensation & Benefits Review 43(1) One of the observations was that some organizations are trying to move toward a pay for performance system, but culturally, many of the Saudi markets are not used to this or ready to make progress in this respect. Saudi Arabia is a low-risk and low change–tolerant culture. New projects will be carefully analyzed to assure that whatever risk they represent is thoroughly understood and addressed. For change to take hold, the idea needs to be perceived as good for the group and be accepted by the group. Intercultural sensitivity is important given SaudiArabia’s attitude toward risk, which is dramatically impacted by the negative ramifications of failure on both the individ- ual and the group. Stockholders, society in general, managers and employ- ees all have a deep interest in compensation. Although the perspectives may differ among the respective stakeholder groups, the relative importance is extremely high. For example, from a society perspective, pay can be viewed as a measure of justice in ensuring men and women are paid on a relatively equal scale. Stockholders can view pay as a means to maximize investments in the company. Managers may view pay as a major labor cost and hence use pay to influence behaviors and attitudes that will achieve organizational outcomes. Employees may view pay as a reward or even an entitlement for work performed in the organization. As Milkovich and Newman34 state, the objectives of compensation systems are to “translate the strategy into practice to foster efficiency, fairness, and compliance” (p. 15). Based on responses in this study, Saudi organizations are far from maximizing the investment in their pay systems. There is a clear gap in aligning the pay systems to achieve the behaviors and skills that enable their respective orga- nizations to be more competitive in the global economy. Participants strongly indicated that the compensation sys- tems are not providing a full return on their investment and are generally failing to attract, motivate and retain employees. Saudi Arabia has a relatively high uncertainty avoid- ance score,22 thus prompting the opinion that changes aligning rewards to performance might be a bit of a chal- lenge but are nonetheless possible. To create more com- petitive organizations, greater emphasis should be placed onthealignmentofthecompensationsystemswithemployee and firm performance. In addition, organizations have to be able to measure the effectiveness of their compensation strategies and make necessary changes. The results pro- vided by managers and employees within Saudi Arabian organizations are profound and provide new knowledge on the level of effectiveness and direct feedback and rec- ommendations on strategies for enhancing the effective- ness of compensation practices. Declaration of Conflicting Interests The author(s) declared no potential conflicts of interests with respect to the authorship and/or publication of this article. Funding The author(s) received no financial support for the research and/or authorship of this article. N Minimum Maximum M SD 12b We have a skills-based pay system.That is, individuals are rewarded in part on their mastery of job skills. 130 1 5 2.45 1.135 12c The job is a more important factor than an incumbent’s ability or performance in the determination of pay rates in this organization. 130 1 5 2.63 1.295 13a The pay system in this organization has a futuristic orientation. It focuses employees’ attention on long-term (2 or more years) goals. 130 1 5 2.48 1.240 13b The pay system in this organization rewards employees for short-term accomplishments during a fixed time period. 130 1 5 2.47 1.426 13c Our pay policies recognize that long-term results are more important than short-term results. 130 1 5 2.73 1.287 14a Our pay policies and practices are highly effective. 130 1 5 2.69 1.269 14b Management is very happy with the way the compensation system contributes to the achievement of overall organizational goals. 130 1 5 2.73 1.275 14c All things considered, the compensation strategies used in our organization truly give shareholders “their money’s worth.” 130 1 5 2.75 1.337 14d Our pay policies and practices appear to enjoy widespread acceptability among employees. 130 1 5 2.73 1.293 14e Our pay policies and practices greatly contribute to the retention, attraction and motivation of employees. 130 1 5 2.45 1.264   Valid N (listwise) 130   Table 2. (continued)
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  • 9. 60 Compensation & Benefits Review 43(1) 32. Lawler, E., III. (2003). Reward practices and perfor- mance management system effectiveness. Organizational Dynamics, 32, 396-405. 33. Balkin, D., & Gomez-Mejia, L. (1990). Matching compen- sation and organization strategies. Strategic Management Journal, 11, 153-169. 34. Milkovich, G., & Newman, J. (2005). Compensation (8th ed.). New York, NY: McGraw Hill-Irwin. 35. Ulrich, D., & Beatty, D. (2001). From partners to players: Extending the HR playing field. Human Resource Manage- ment, 40, 293-308. 36. Von-Glinow, M. A., Drost, E., & Teagarden, M. (2002). Converging on IHRM best practices: Lessons learned from a globally distributed consortium on theory & practice. Human Resource Management, 41, 123-140. Bios Sunil Ramlall is a faculty member at the Kaplan University School of Business and Management. Prior to Kaplan, he taught at Hamline University and the University of St. Thomas. His PhD is from the University of Minnesota. His research focuses on international human resources, positive organizational behav- ior and the impact of layoffs on employees. Khalid Maimani is a professor in the College of Economics & Administration, King Abdulaziz University, Saudi Arabia. Abdulhameed Diab is chair of the Business Administration Department and associate professor, Department of Business Administration,FacultyofEconomics,KingAbdulazizUniversity, Saudi Arabia.