1.

INTRODUCTION Against the backdrop of a global economy driven by technology, knowledge and

skills, the ability to attract and retain the right talent and more importantly, drive employee commitment is crucial for organizations to remain competitive. With the needs and priorities of employees changing over time, organizations are looking beyond providing the standard staff benefits of leave, transport and housing allowances. In support of work-life balance for employees, family-friendly employers are providing a wide range of benefits which include compassionate leave, marriage leave and paternity leave. Some also encourage their employees efforts at upgrading themselves by granting study and examination leave. Today, our employment landscape is much different for many reasons. New generations of workers dont stay as long as their parents or grandparents, and constantly seek greener pastures. Literally, to keep anyone under the age of 40 interested in staying, companies must offer more than just pay. Sure, a wage is a necessity, but there is much more to compensation than just the money. Unfortunately, many companies and organizations sour on new compensation plans when they dont obtain the results they were expecting after implementing a best-practices plan, one which takes benchmarks and uses those as best practices. Instead of achieving desired results, their "best practice" ends up as just another ineffective human resources program. The basic concept of compensation administration compensation management is rather simple: employees perform tasks for employers and so companies pay

employees wages for the jobs they do. Consequently, compensation is an exchange or a transaction, from which both partys employers and employees benefit: both parties receive something for giving something. Compensation, however, involves much more than this simple transaction. From the employer's perspective, compensation is an issue of both affordability and employee motivation. Companies must consider what they can reasonably afford to pay their employees and the ramifications of their decisions: will they affect employee turnover and productivity? In addition, some employers and managers believe pay can influence employee work ethic and behavior and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet important part of managing a business. 1.1 Background of Malaysian Assurance Alliance (MAA) Berhad MAA Assurance Malaysia was incorporated in 2nd September 1968. The companys strength and success is a result of doing what were really good at, which is operating a life and general insurance company, managing innovative and profitable products and actively managing our investments. The vision of the company is to make every Malaysian will be protected by an MAA insurance policy, where the company set new standards for operating efficiency and product innovation which will deliver peace of mind for the customers by introducing products to help preserve, grow and protect the wealth that the customer build, supported by fast, personal and reliable service. The MAA agents, is the goal to deliver a true partnership that recognizes special and important role in providing an invaluable professional service to policyholders and 2

at the same time, the long term commitment to earning objective of the business and organization are constantly striving to improve the services to further enhance this partnership. MAA Assurance set high standards to achieve the company objectives which from the products that company sell to the services were provided and that is the underlying motivation that moves the organization to be excellent. The organization believes their assets which are products and people also together with the financial strength and integrity of MAA, thus, the aim is become the number one insurance company in Malaysia. From the organization vision, the MAA Assurance is concerned on their employees performance in an achieving the company objective. The MAA Assurance also has energized, develop, retain and attract the best individuals who have the ability and drive to deliver competitive advantage. MAA Assurance strongly believes that employees are its best asset. It therefore strives to obtain quality, trainable employees required to satisfy its manpower needs. It also strives to retain a cohesive and motivated team of employees by providing them with competitive remuneration, benefits and a conducive work environment.

2.0

COMPENSATION According to (J. M. Ivancevich 2010) indirect financial compensation or employee

benefits and services can defined as all employer provided rewards and services, other than wages or salaries, arising from the following categories: legally required social insurance payments, private insurance, and retirement plans; payment for time not worked; extra cash payments other than bonuses based on performance; and costs of services like subsidized cafeterias, clothing allowances, and so on. An addition, most benefits and services are available to workers as long as they are employed by an organization regardless of seniority or performance. Employee compensation includes all forms of pays given to the employees arising from their employment (Dessler, 2008). Compensation management is one of the well-built feature that organizations use to attract and retain its most valuable and worthy assets. Compensation includes financial as well as non-financial rewards. Recently, employees not only require money to fulfil their basic needs but they also need various non-financial rewards and benefits, often known as the fringe benefits. These fringe benefits include bonus, retirement benefits, gratuity, educational and medical facilities etc. Employee compensation plays such a key role because it is at the heart of the employment relationship, being of critical importance to both employees and employers. Employees typically depend on wages, salaries, and so forward to provide a large share of their income and on benefits to provide income and health security. For employers,

compensation decisions influence their cost of doing business and thus, their ability to sell at a competitive price in the product market. In addition, the compensation decisions influence the employers ability to compete for getting the employees in the labor market in ways to attract and retain the right employees. The employers also use employee benefits to create an appropriate balance of wage and nonwage compensation. Currently, many employers continue to shift away from traditional pension plans and shift health care costs, they are, at the same time, offering new benefits as needed to be competitive in the labor market. Although it makes sense to think of benefits as part of total compensation, benefits have unique aspects (R.A. Noe, J.R. Hollenbeck, B. Gerhart and P.M. Wright, 2008). First, there is the question of legal compliance. Although direct compensation is subject to government regulation, the scope and impact of regulation on benefits is far greater. The heavy involvement of government in benefits decisions reflects the central role benefits play in maintaining economic security. Secondly, the unique aspect of benefits is that organizations so typically offer them that they have come to be institutionalized. Providing medical and retirement benefits of some sort remains almost obligatory for many employers. A large employer that did not offer such benefits to its full time employees would be unusual, and the employer might well have trouble attracting and retaining a quality workforce. Thirdly, the unique aspect of benefits is compared with other forms of compensation, is their complexity. It is relatively easy to understand the value of a dollar as part of a salary, but not as part of a benefit package.

Compensation is comprised of wages, incentives, rewards and other benefits given to the workers. The employees of 21st century work not only for the monetary rewards but also for something extra and in Human Resource Management this is referred to as Benefits. Intrinsic rewards are those that are self-initiated rewards. These rewards are based on the self contentment arising from the job itself. Intrinsic rewards are often known as intangible rewards, for example being part of a group, a feeling arising from accomplishment of goals and pride and satisfaction arising from ones own work. The extrinsic rewards are the benefits provided by the managers also known as tangible rewards such as salary increment, bonus, sales commission etc. These rewards include monetary rewards, promotions of employees and other different kinds of benefits. Financial rewards are those which are given to the employees in the form of money and help to improve the employees financial position. Non-financial rewards comprise of inexpensive rewards to enhance an employees morale. Organizations also offer rewards to its employees on the basis of their membership or high performance (DeCenzo and Robbins, 2006). The employers offered the benefits and services because they had the employees welfare at heart or because they wanted to keep a union out. In an organization the employees are the manpower to assigned the jobs and task that required by the organization. Thus, as the employers they have to attract and retain the employees by provide benefit program as to caring about employees welfares. The employers provide the benefits to keep the organization competitive in recruiting and retaining employees and they want to increase employees performance. An addition, the benefits may increase the job satisfaction level of employees as they feel 6

appreciated an employed in the organization. This may increase competitive in recruiting and retaining the employees in labor market. Compensation management is used to motivate and retain employees and ultimately it aims at improving the overall effectiveness of an organization. An organization develops its compensation structures in accordance with its goals, objectives and strategies. Rizwan (2010) explored that the modern organizations try to integrate employee commitment and the performance level of any organization. To keep the employees self-esteem and sense of worth elevated, rewards are the most contingent factors that are being used by the management of the organization. The performance evaluation and rewards are the two factors which are considered to be the cornerstone for the performance evaluation programs. So rewards are an essential part of compensation management as well as of performance evaluation program. 2.1 Objective of Compensation Plan. There are few objectives when planning for employee benefit. For MAA Bhd, the main objective is to attracting and retaining employees, to gain external competitiveness, to provide recognition for individual performance and as a compliance with government regulations. 2.1.1 Attracting and Retaining Employees The mission of MAA Assurance is to improve the quality of life of the people and the communities they serve through highly qualified and skilled employees. MAAs ability to attract and retain highly qualified and

skilled employees is dependent upon many competitive factors, such as pay programs, benefits, work environment, quality supervision, and the desire of applicants to work at a leading Insurance organization. The management of MAAs pay programs (ranges, merit, etc.) must be within their approved operating budgets. The objectives of pay programs, such as base pay, merit pay increases, differential pay, overtime pay: competitive with the appropriate labor markets, internally equitable linked to individual performance, linked to insurance/service, organization goals, consistent system wide if the market dictates, cost-effective, easy to administer and understandable. 2.1.2 External Competitiveness External competitiveness (MAAs jobs compared to the market) determines their ability to recruit and retain employees in the current labor market. They compare their job duties, scope of responsibility and pay ranges with similar jobs at other local insurance organizations and general industry employers in the market. They use local, regional or national pay information for jobs that they recruit locally, regionally and nationally. If market information is not available, then jobs are compared with similar jobs within MAA that do have adequate market data. The MAA compensation department participates in many published salary surveys during the year and continually monitors the local Insurance market. This ensures that our jobs have the same pay opportunities as other local,

regional,

and

national

insurance

systems.

Along

with

external

competitiveness, internal equity (how current positions are slotted in relation to each other) is considered when comparing positions in similar job families. 2.1.3 Recognition of Individual Performance Most pay increases are based on individual performance. Each individual should be rewarded based on his or her contributions in sales, meeting individual, team and organizational objectives. MAA believes in delivering quality Insurance and recognizes the value of employees working together to provide service excellence and good quality. The criteria used to measure individual performance are based on the achievement of job competency standards and achievement of long-term and short-term objectives. 2.1.4 Compliance with Government Regulations MAA Assurance complies with all government regulations regarding employment and pay practices. The Malaysia Employment Act 1955 provides provisions to determine a jobs eligibility to receive overtime pay and time of payment of wages or wage period must not exceeding a month . Other federal and state laws ensure that all employees pay opportunities are provided without regard to age, race, color, religion, national origin, gender or disability.

2.2

The Objectives of Executive Compensation The dominant total compensation strategy is, as any total compensation strategy must be if it seeks to maximize the wealth of current shareholders, an attempt to balance four conflicting objectives: 2.2.1 Alignment: giving management an incentive to choose strategies and investments that maximize shareholder value 2.2.2 Leverage: giving management sufficient incentive compensation to motivate them to work long hours, take risks, and make unpleasant decisions, such as closing a plant or laying off staff, to maximize shareholder value 2.2.3 Retention: giving managers sufficient total compensation to retain them, particularly during periods of poor performance due to market and industry factors; and 2.2.4 Shareholder cost: limiting the cost of management compensation to levels that will maximize the wealth of current shareholders. Each of these objectives is critical to the success of total compensation strategy, but every total compensation strategy must make trade-offs between leverage, retention risk, and shareholder cost. A strategy that relies on large stock grants can achieve substantial leverage with minimal retention risk, but only by accepting higher shareholder cost than a strategy that relies on stock option grants. A strategy that relies on large stock option grants can achieve substantial leverage with limited shareholder cost, but only by accepting

10

greater retention risk than a strategy that relies on stock grants. A strategy that relies on a high proportion of guaranteed compensation can achieve limited retention risk and limited shareholder cost, but only by accepting modest leverage. Most companies and directors believe that the dominant total compensation strategy provides a reasonable balance between the four conflicting objectives of executive compensation. Indeed, the rationale for the dominant corporate compensation practice can be summarized as follows: It provides alignment because bonus and stock compensation is tied to operating and market measures of shareholder value; It provides substantial leverage because a large proportion of pay is at risk and gives the executive incentives comparable to those of an owner who holds a large proportion of his wealth in company stock; It provides retention because it gives the executive competitive compensation opportunities every year; and It controls shareholder cost because compensation opportunities are limited to a given percentile of the competitive pay distribution. 2.3 Determination of Compensation Plan. Every business knows the importance of offering its staff the right salary. Effective base salary systems can help organizations: align rewards with individual and team performance as well as work culture, provide clear frameworks to manage career development, provide a basis for a competitive and differentiated reward package that reflects the internal and external value of work, ensure that roles are effectively differentiated and leveled within the organization, manage the needs of 11

different demographic categories of employees: the younger and the older, for example, offer reward programs that provide parity among and between employee groups, and provide a link between performance management systems and how employees are paid. There are three important components in setting the compensation system. The components consider are: internal equity, external equity, and individual equity. 2.3.1 Achieving Internal Equity: Work Evaluation The element in this first process is work evaluation to determine the relative value of a certain job. The goal of work evaluation is to achieve internal equity during the salary system formation. Work evaluation is a systematic method to determine the relative value of a certain job compared to other jobs to ensure different jobs are given a different wage rate. Work evaluation focuses on the high or low of a certain job on a few pre-determined work factors. Information on work evaluation is set as a basis to the formation of a fair salary system. Theoretically, work evaluation utilities information in job analysis to categories jobs according to a relative value hierarchy of a specific job compared to other jobs. (DeCenzo, 1999). For example, the post of an account manager needs more skills and responsibilities as compared to an account trainee post. By this, the account managers salary will be higher than the account trainees salary. Work evaluation conducted 12

focuses on three main questions, which are; what does the employee know?, what can the employee do? And what are the results shown by the employee? There are four steps involved in determining internal equity, which are: Step 1: Carrying Out Job as analysis. The purpose of a job analysis is to gather information on tasks, obligations and responsibilities on a particular job. Through the information obtained, job descriptions and specification are formed to identify the activities that need to be carried out by the person holding the post. Step 2: Determine Relative Values The next step is to determine the relative values of a specific job before arranging them according to their importance. In evaluating a specific job, a few basic elements are utilized to determine the relative value of a specific job, which are: skills, responsibilities, efforts and work environment. Step 3: Arranging Job according to Hierarchy After determining the relative values of a specific job, the next step is to prepare a list of jobs according to their importance to the organizations, starting from high to low. The job hierarchy is arranged according to types of tasks in the same group. For example, a secretarys

13

position, a senior clerk, a clerk, a typist, a receptionist, a computer operator can be categorized in one group, which is a clerical position. Step 4: Classifying Jobs According to GRADES The final step in the work evaluation component is categorizing jobs according to the pre-determined grades. Table below illustrates four basic methods to categories jobs and determines the relative value of a specific job. The four methods used to evaluate jobs are as follows: job arrangement, job classification, score systems, and factor comparison.

COMPARISON BASIS Work vs work Work vs Scale

QUALITATIVE METHOD Job Arrangement Method Job classification Method

QUANTITATIVE METHOD Factor Comparison Method Score System

(i)

Job Arrangement Method A sample qualitative method to evaluate jobs by listing tasks and

responsibilities of a particular job according to the importance of the job, from high to low (DeCenzo, 1999). A job comparison will be evaluated based on importance or difficulty of performing a particular job. Even through this method is easy, one of the restrictions faced is difficulty in accurately arranging jobs if there are many types of jobs in a particular organization.

14

Furthermore, there is no standard and consistent evaluation to explain the importance of a particular job compared to another job which duties and responsibilities are similar. An example of the job arrangement method is shown in table: ORDER 1 2 3 4 5 6 7 8 JOB General Manager Marketing Manager Operations Manager Accounts Manager Engineer Accountant Sales Representative Supervisor

(ii)

Job Classification Method A method, where each job will be categorized in certain groups or

grades. The first step is the formation of group or grade which is determined by the job factors such as knowledge, experience, responsibilities, skills and abilities. The next step is to create a job description that can be benchmarked for each grade or group. After that, the relative value of a particular job will be determined by comparing the job with benchmark description to determine whether they are categorized under the same grade or group. The most prominent restriction for this method is the difficulty to write an accurate grade classification description and to categorize a

15

particular job which can be included in many grades which have been created. (DeCenzo, 1999). (iii) Score System Method This quantitative method involves evaluation based on main job factors such as education level, skills, knowledge, efforts and

responsibilities, and the scores which are allocated for each mentioned factor. The next step is to divide the main factors into sub factors. Each sub factor will be given a specific score to determine the relative value of a particular job. For example, education level factor such as the one shown in the table below has been graded with identified scores. Education level Doctorate (PhD) Masters Degree Bachelors Degree Secondary School Primary School (iv) Level/Grade 5 4 3 2 1 Source: Stone (1998), pg 435 Score 250 200 150 100 50

Factor Comparison Method This is a quantitative method where a few jobs that are already well

known in the market are benchmarked or set as a standard when compared to other jobs which will be evaluated (DeCenzo, 1999). Jobs which are benchmarked have to have these characteristics: the importance of a particular job towards employees and the organization, the job requirements differ from other jobs, the job chosen has a relatively stable work content and is utilized in salary research to determine wage rate. A few criteria for 16

comparison will be pre-determined such as mental requirements, skills, physical, responsibilities, and work environment. The restriction in the factor comparison method is the difficulty in using the pre-determined criteria to compare all jobs against the chosen benchmark. 2.3.2 Achieving External Equity: Market Survey External equity can be achieved by using market survey. The purpose of a market survey is to identify the wage range for each grade formed. The steps involved in market survey are benchmarking and the establishment of wage policy Step1: Benchmark of Key job Benchmark of key job is utilized to connect job evaluation which has been conducted to market fee. Basically, the comparison of identified key jobs in a payments grade is done inter-organizationally to determine the relative job value according to other employees opinions. Next, the organization determines the wage rate of other jobs in the same grade and categories the jobs in the same wage range with key jobs of the same grade. Step 2: Establishment of Payment Structure Information from the market survey will show the wage differences which are apparent between one to another. Therefore, organizations

17

have to determine the wage structure for a particular job based on the internal and external information present. Work evaluation prepares an internal equity that can be used as a basis to establish wage rate. A wage structure must be developed by creating different wage levels and this wage structure takes into account these following components: jobs with similar relative values will be categorized under the same grade and wage range for each grade is formed by considering market survey information and compensation administration strategies. 2.4 Compensation Plan Selection Method Each method has its strengths and weaknesses. According to Stone (1998), since there is no one methods that can be said as being the best, human resource managers have to evaluate a few factors prior to selecting. These factors are organizations strategic objectives, size, and resources, Information on the use of specific methods, corporate culture, and employee behavior. The method chosen has to be in line with the organizations strategic objectives. It is because small organization will utilize a simple method such as job classification whereas a large organization will utilize an expensive method such as factor comparison or score system. Furthermore, the organizations need to consider cost and time to carry out the method chosen.

18

Organizations are able to request their own employees or use the services of a consultant to conduct a job evaluation. Besides that, information obtained on organizations need to be utilize on specific method. The selection of a job evaluation has to be in line with the existing corporate culture so that it is conducted effectively. For example, a small organization need not choose a complex method which is utilized by most large organizations. It also needs to inform to all employees the method chosen so that it can be accepted by them and the chosen method is perceived as just and fair. 2.5 Setting-up Compensation Systems The right compensation programs can make the difference between retaining key staff and watching them go to your competitors. So that MAA consult with Hay Groups consultants, drawing on the consultants extensive knowledge of pay and rewards across the globe, can help MAA put in place the right compensation systems for their business strategy. Hay Group can help them approach these questions methodically and develop salary systems that are not only competitive but which reflect their business and employee performance. Their systems are based not only on a detailed understanding of their business, but also an understanding of how the work of their staff does create value for the organization. Then Hay Group program design balances out the various components of reward, base salaries, short- and long-term incentives, and benefits. Alongside this, Hay Group are able to draw on the worlds most comprehensive databank of employee rewards information Hay 19

Group PayNet which enables them to help MAA benchmark their structures and individual employee remuneration against competitors. This isnt just based on comparing rewards for people with the same job title, but actually on the content of the job they do. Crucially, too, the information Hay Group put together is linked to MAA business goals and ensures that MAA are offering salaries that reflect those goals, and the organizations ability to pay. Hay Group also utilizes MAA employee diagnostic capability to study employee diagnostics and the needs of different groups. Other firms view salary management as more of a technical design exercise. Hay Group programs are aligned with MAA business, practical to implement, and ROI focused. 2.6 Determining Rates of Pay Compensation strategy involves considering to adopt any of several ways in setting rates of pay. Pay increase based on employee's length of time spent on the job. This is seniority-based pay that is a good motivator in employee retention. But here it is not to rewarding performance. Performance-based pay is intended to motivate employees to perform better. Such a plan is becoming more common whereby the manager and employee agree on the job goals and performance criteria at the beginning of a specified period, usually at the beginning of the year. The effect of this as a motivator can vary from time to time and from situation to situation. Pay increases can be based on job-related skills and knowledge. This is intended to 20

motivate employee to gain additional skills, acquire new competencies and knowledge. Under this method, employers do not pay employees for the job they are-doing, their job title or seniority. This is competency-based pay. To determine rate of pay, few factor need to be consider which is: salary increases, size of merit increase, pay increase on promotion and general salary adjustment. For salary increasement, compensation strategy needs to align with company compensation objectives to organizational business objectives. Hence, salary increases are part of this plan. By this, employer is recognizing employees' contribution to the accomplishment of your organization's objectives. Salary is normally reviewed annually and an increase is given if the employee merits it. There are times when employer feels that the organization cannot afford to give any pay increase. In increasement of size of merit, it usually consists of payment in respect of performance level. A merit increase that is perceived as significant by employees can motivate them to perform better. Make sure that the best employees are duly rewarded, the amount being sufficient enough to motivate. Ensure that performance review is effective to reduce any possibility of wrong or biased decisions made. When pay increase on promotion, organization may or may not give a significant pay increase. It is not justified to pay an overpaid employee a significant promotional increase. Consider all relevant matters before make a decision. One important thing to consider is the pay parity with people in the same category and performing similar tasks. In the general salary adjustment, employer should not give across-the-board increases. Differentiate between outstanding, average and non-performers. If not, the employees will 21

lose trust in the system, resulting in little or no motivational impact. Paying the right salary has impact on employee performance and organizational effectiveness. MAA used Union Collective Agreement as their components in determining employee base pay. Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions. Collective agreements usually set out wage scales, working hours, training, health and safety, overtime, grievance mechanisms and rights to participate in workplace or company affairs. The union may negotiate with a single employer (who is typically representing a company's shareholders) or may negotiate with a group of businesses, depending on the country, to reach an industry wide agreement. A collective agreement functions as a labor contract between an employer and one or more unions. Collective bargaining consists of the process of negotiation between representatives of a union and employers (generally represented by management, in some countries by an employers' organization) in respect of the terms and conditions of employment of employees, such as wages, hours of work, working conditions and grievance-procedures, and about the rights and responsibilities of trade unions. The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA). A collective workplace agreement is a written agreement that sets out terms and conditions of your employment. A collective agreement may cover 22

businesses run by more than one employer. An employee collective agreement is made between your employer and the employees employed at the time who will be covered by the agreement. A union collective agreement is made between your employer and a union or unions. A union collective agreement must first be signed by the employer and the relevant union or unions. After that happens, the employer must take the following steps, within a reasonable time. For both a union and an employee collective agreement, your employer must give all employees employed at the time, and who will be covered by the agreement, a reasonable opportunity to decide whether they want to approve the agreement. The agreement is approved when: the employer conducts a vote, and a majority of those employees that make a valid vote decide to approve the agreement; or another approach is used, with a majority of employees deciding they want to approve the agreement. 2.7 Employee Compensation Plan. 2.7.1 Annual Leave Annual leave is intended to provide the opportunity for a period of rest and recreation, so employees are expected to take leave within the leave year, when leave is due. Leave may be taken at any time convenient to the employee. Business needs and personal needs should be carefully balanced. The annual leave is paid time off work granted by employers to employees to be used for whatever the employee wishes. Depending on 23

the employer's policies, differing number of days may be offered, and the employee may be required to give a certain amount of advance notice, may have to coordinate with the employer to be sure that staffing is adequately covered during the employee's absence, and other

requirements may have to be met. Under Malaysian law, workers are given several different categories of leave and vacation time, in addition to annual leave. The number of days allocated to employees during the respective leave is determined by the amount of time an employee has worked for their present company. Table: Annual Leave Entitlements Tenure Less than 2 years Between 2 and 5 years Over 5 years Days Allotted for Leave 8 days 12 days 16 days

Source: Ministry of Human Resources, Social Security Organization

The MAA Assurance may offered the annual leave where the executive who have completed 12 months continuous service shall be entitled to annual leave as follows unless otherwise specified in the Executives letter of appointment provided it is no lesser than the number of days as specified which those who up to 10 years service they will offered of 20 working days. For those their service after 10 years in the organization they get offered of 25 working days. We can conclude that, 24

the MAA Assurance have followed the Malaysian rule on employment act that meet the employees welfare. An addition, the company will make every effort to grant leave as required by any executive, provided this does not jeopardise the efficient operations of the company, it reserves the right at any time to recall him or cancel his leave if his service is required to attend to emergencies. It shows that the company will granted the cancellation the leave of executive if their services required by the organization on that time executive applied for leave. Furthermore, the MAA Assurance may offer granted automatically an additional days leave if a gazetted public holiday falls during the period when an executive is on annual leave. According to Arnolds et al. (2007) explored in their study that the utmost reward for the blue collar or labor workers is paid holidays whereas for the frontline employees working in an organization the most valued rewards are the retirement plan. The most important rewards that help to motivate blue collar and frontline employees are fringe benefits including bonus, retirement benefits, gratuity, housing loans, paid holidays, educational and medical facilities etc. So the benefit of granted public holiday to one day leave can make a source of motivation for all levels of employees. However an Emergency Leave other than those specified in the policy of company, thus, it shall be deducted from the Annual Leave Entitlement. If leave taken without prior consent of the company exceed ten per centum (10%) of the total working days during an executives 25

twelve (12) months of continuous service, he will not be entitled to Annual Leave for that year. Any such leave taken shall be deemed Unpaid Leave. However, if an executive was to go on leave immediately prior to or after any public holiday without prior approval from the company, he will not be entitled to any holiday pay for that particular holiday unless a reasonable excuse for the absence is given. If an executive becomes ill or is injured while on annual leave, he may have his leave extended by one day for each working day he is certified unfit for work by a company doctor. In such cases, the executive must inform or attempt to inform the company of the extended leave prior to taking such extended leave. Where no company doctor is available, the certificate issued by any medical officer will be accepted by the company. 2.7.1.1 Accumulation of Annual Leave In MAA Assurance, the annual Leave must be taken in the year in which it is earned. However, it may only be accumulated on a working day basis with the prior agreement of the company and subject to the following conditions: The annual Leave that up to a maximum of one (1) years entitlement can be carried forward to the following year and must be utilised within that year. However under special circumstances and upon application in writing with 26

due approval from the Department/Divisional Head or Managing Director, leave shall be accumulated for a period of not exceeding two (2) years. Where an executives first year of service is less than a calendar year, he shall be entitled to take his Annual Leave the following year on a prorate basis and thereafter, his Annual Leave shall be calculated on a calendar year basis :-

Eg.

Date of appointment

1st July 2009

Period Served from

1/7/2009 to 31/12/2009

6 months

-rate Leave entitlement 2010 (for leave earned for calendar year 2009

6 x 20 = 10

12 working days

Full Leave entitlement 2011 (for leave earned for calendar year 2010)

20 working days

(Sources: MAA Assurance)

27

2.7.1.2

Payment in lieu of Annual Leave Annual Leave not taken including proportionate

leave entitlement in the last year of service prior to an Executives resignation or retirement should be utilised prior to his resignation or retirement. It is not the companys policy to encash Annual Leave. However, annual leave applied for and not granted by the company may be encashed at the sole discretion of the management of the company. Payment will be made at the ordinary rate of pay for each day of annual leave not taken. This does not apply in cases of dismissal for misconduct. The formula for payment of encashment is as follows:

Rate per day =

Monthly Salary x 12

) no. of working

(52 weeks x no. of working hours/week) x hours/day

28

2.7.2 Medical Leave Furthermore, MAA Assurance may offer the employees on the medical leave. Sick leave (or paid sick days or sick pay) is time off from work that workers can use during periods of temporary illness to stay home and address their health and safety needs without losing pay. The employers have to pays the employee for time not spent working, receiving no tangible production value in return. The medical leave means that an exception to this policy is state and federal employees, who can accrue sick leave and get paid for the balance of unused leave upon termination. This sick leave is always funded entirely by the employer (J.M. Ivancevich, 2010). Sick leave programs often provide full salary replacement for limited period of time, usually not exceeding 26 weeks. The amount of sick leave is often based on length of service, accumulating with service (one day per month, for example) stated by R. A. Noe et.al., (2008). Under Malaysian law, employees are permitted an allocation of sick days per year, which is based on tenure. Workers that have worked longer with their current company are entitled to additional sick days. Workers must have a certification from a doctor and provide advanced notice when taking sick leave. If these conditions are not met, then the employee is considered absent and the day off counts against annual leaves days. 29

Table: Sick Leave Entitlement Tenure Less than 2 years Between 2 and 5 years Over 5 years Number of Allowed Sick Days 14 days 18 days 22 days Source: Ministry of Human Resources In MAA Assurance, all executives on the recommendation of a registered Medical Practitioner appointed by the company or in the case of an emergency of any Government Medical Officer, or any registered Medical Practitioner, shall be entitled to paid medical leave as follows where 30 days medical leave each year if no hospitalisation is necessary and in addition where 60 days medical leave each year if hospitalisation is necessary. However, any extension of this period of medical leave as recommended by the companys doctor shall be considered by the company on the merit of each case. Based on the information, we can conclude that MAA Assurance is implemented the medical leave which meet the Malaysian law on employment act. 2.7.3 Prolonged Illness The prolonged illness can be describe as the employees who is ill, sick, incapacitated or disabled and who is in need continuous and

continual medical attention and medication and in the expert opinion of a registered medical practitioner, is unable to perform normal work and/or will endanger the health and well-being of the co-workers. 30

In MAA Assurance, the company provide the prolonged illness leave for the employees where on the recommendation of the company doctor, any executives suffering from any disablement resulting from accidental or natural causes (including diseases), shall be granted in addition to his Medical Leave entitlement the following: 6 months 6 months 6 months Full Pay Leave Half Pay Leave No Pay Leave

An addition, the company doctor should certify that an executive is suffering from a prolonged disability; the executive may at his option elect to resign from the service of the company. In such a case, the company shall pay in one lump sum the balance, if any, of prolonged illness payments as set forth in Article 11.5.1 to which the executive would have been entitled to had he not opted to resign, in addition to other payments to which he may be entitled. An executive may be discharged from service on account of ill health after exhausting his total prolonged illness entitlement. The company will send the executive concerned for a full medical check-up to determine the extent of his illness and shall act upon the recommendation given by at least two (2) Company doctors. 2.7.4 Disability

31

According to J.J. Martocchio, (2004), an individual must meet the requirements of disability insured status to obtain disability benefits. Disability insured status requires that a worker be fully insured and have a minimum amount of work under Social Security within a recent time period. Disabled employees of any age are entitled to disability benefits only if they meet disability insured status. Moreover, the disability must be of a serious nature. A disability plan provides income replacement for the employee who cannot work due to illness or accident. These plans are either short term or long term and are distinct from workers' compensation because they pay benefits for non-work-related illness or injury. Disabilities may be classified as regular, temporary, total, or partial. When employees are unable to work because of an accident or some health related problem, disability income continuation payments assists them in maintaining their existing lifestyle without major modification. The company shall sympathetically consider, subject to availability of suitable positions, provide alternative employment to an executive who suffers disability, subject further to the circumstances prevailing at the time and when alternative employment is provided, the conditions of employment and the salary shall be determined by the company in consultation with the Union.

32

According to J.M. Ivancevich, (2010) workers compensation pays a very small part of these costs, since it was designed primarily to take care short term disability. Employer funded long term disability insurance is designed to cover these cases, with payments supplementing benefits from workers compensation, Social security and other agencies. Based on R.A. Noe et. al., (2008) short term plans typically provide benefits for six months or less, at which point long term plans take over, potentially covering the person for life. The disability benefits for the long term disability always need to be coordinated with other programs such as Social Security disability benefits. 2.7.5 Compassionate, Emergency & Marriage Leave Compassionate leave is defined as time off given to an employee in the event of a death in his household or immediate family. Immediate family included in this policy are spouses, siblings, children, adopted children, parents and grandparents. Compassionate leave may also cover a serious or incapacitating illness of a family member. The company will grant full pay leave in the following cases of emergency. MAA Assurance provides the maximum leave of 4 working days per annum for the case of fire or flood which affect the employees person or residence. Special leave may be granted to an employee if the area in which he or she works or normally resides is struck

33

by a natural disaster and it is impossible for the employee to continue with his or her duties at that time. An addition, the case of death or serious illness of an employees spouse, children, parents, parents in law or grandparents will be granted 4 days maximum working days allowed per annum. Lastly, for case marriage leave, the MAA Assurance has granted 5 days maximum working days allowed per annum for once only. However, the leave taken shall not exceed two (2) working days for any one occasion with the exception of Marriage Leave. 2.7.6 Maternity & Paternity Leave Maternity Leave is the period of absence from work immediately before and after the birth of a child. Maternity Pay is the entitlement to pay whilst absent. In the MAA Assurance, female executives who have completed 90 days continuous service with the company will be granted 60 consecutive calendar days of maternity leave on full pay. The maternity leave will only be granted after the 28 th week of pregnancy. Irrespective of the actual date of confinement, not more than 60 consecutive calendar days of paid leave will be allowed in respect of any one confinement. Leave on account of miscarriage prior to the 28 th week of pregnancy will not be considered as Maternity leave but as normal Medical leave. 34

Paternity leave refers to paid leave given to fathers for a short period of time just before and after the birth of his child. A male married executive shall be entitled to five (5) working days a year as Paternity leave in the event that the wife of the said executive has given birth or miscarriage after the 29th week of pregnancy. The maternity allowance referred to the above shall be paid in the same manner as if such allowance were salary earned during such leave period. Wherever any provision of the preceding paragraph of this Article may contravene the provisions of the Employment Ordinance 1955 in regard to maternity benefits, the provisions of the said Ordinance will apply. 2.7.7 Other Leave MAA Assurance also provides the other leave in certain cases. When an executive is required to attend jury duties or subpoenaed as a witness or is required to represent the members of the union in relation to industrial matters, he or she will be given time off for the period in question. If any executive is required to represent the state or nation at sports and cultural events sanctioned by the Ministry of Culture, Arts and Tourism or the Ministry of Youth and Sports, he may, at the discretion of the company, will be granted leave. It is not the practise of the company to grant unpaid leave. However, subject to special circumstances and at the 35

discretion of the company, such leave applied at the request of the executive may be granted. Special leave may be granted to en employee when he or she is selected by a recognized amateur sports association to take part in sport within the republic at international level or a level between provincial and national level or against an international team. 2.7.8 Examination & Study Leave According to Manpower Research and Statistics Department Singapore, 2003 as to manifesting to support for skills upgrading, some employers in the private sector allowed staff to stay away from their jobs for a period of up to 3 months to study, prepare and sit for their examinations. MAA Assurance offer examination and study leave for the employees. For any executive sitting for an examination where the resulting qualification is deemed by the company to be beneficial both to him and the company in his present or future assignment, the company may grant paid leave to enable him to pursue studies towards a recognised qualification on the following basis :

2 days for each paper

) ) subject to a maximum 36

1 day for actual Examination day

) of ten (10) working ) days per annum

The employees have to request for the leave that must be made in writing to the human resource department and recommend by the executives departmental head at least thirty (30) calendar days in advance of the examination. Moreover, any leave applied and approved in excess of the entitlements under this section will be deemed as annual leave. If an executive intends to pursue full time studies for which educational loan may or may not be provided, he may be released on Nopay leave of up to 4 years, subject to the companys approval. During such leave, his period of service with the company is suspended. On his return, he will be reverted to his former position or if such position no longer exists, he will be reassigned to another similar position unless he is considered for a promotion within the company. 2.7.9 Medical insurance Dictionary of Health Insurance and Managed Care define medical insurance as a form of health insurance. This form of insurance provides payment for medical, surgical and hospitalization expenses. This type of insurance bought to cover employees of the company. This scheme premium may be varying from year to year depending on the increasing age of each employee or removal and addition of employee (Khuan, 37

1999). There are health care plan that cover only hospitalization, surgical and medical expenses only (Ivancevich, 2007) while there are health care plan that extend their coverage to dental and vision care expenses for themselves and their family (Mathis & Jackson, 2006) .Mostly, premium for this type of insurance were vary according to country. For example, in China most company divided the premium of the insurance by 11% paid by employer and 2% paid by employee (Xiong & Ma, 2007 & J. R. Gabel, Sasso, & Rice, 2002). However, MAA Bhd paid the premium solely. If employee goes to MAA panel clinic, all expenses for the treatment will be pay by company. It different that United Stated employee needs to bear the first $200 of the treatment cost (Ivancevich, 2007). MAA offer to their employee 4 type of coverage on their medical insurance which is Outpatient Medical Benefits (OMB), Family Outpatient Medical Benefits (FOMB), Hospitalization and Surgical Benefit (H&S) and also Dental Benefit. Outpatient Medical Benefit was benefits offer to employee that visited their panel clinic/ hospital or any Doctor as outpatient. If the employee unable to go to panel clinic or goes to other clinic beside their panel, company will reimburse back the receipted bills for the cost of treatment by any clinic/hospital. This most basic coverage provide under this type of insurance. This benefit also extends the coverage if employees need to refer to specialist. Sadly, this coverage does not cover any expenses incurred due to pregnancy, confinement or miscarriage. In our opinion, this exclusion could be included into the 38

company coverage. Since most employee is woman (based from World Development Indicators Databases, 29% of female worker is in industrial sector while 45% is professionals), it crucial to include any expenses related to pregnancy in their Medical Insurance benefit. It will show that company do emphasize on their employee need and want. Furthermore, it could help reduce dissatisfaction and eliminated stress from employee. The increase cost of health care especially the pregnancy expenses could pressure employee and it will affect their work performance. MAA Bhd gives to their employee Family Outpatient Medical Benefit (FOMB). This benefit had similar coverage with Outpatient

Medical Benefits, just that it is pay medical expenses for family member of employee. This benefit does not cover all employee family members, just certain people. For single employee, FOMB will cover any medical expenses for unemployed parents aged 55 years and above. Parents that are under any employment are excluding in this benefit. Meanwhile, married employee FOMB cover only one legal spouse (it does not cover husband of the female employee), children below the age of 19 years or 23 years if studying full time either the children was legally adopted and step-children. However, MAA impose limit for this insurance. Company only pay up to a maximum of RM600 per family per annum. Morale hazard in medical insurance is unavoidable and hard to detect. The possibility for employee to make quick buck is high. Due to these factors, MAA decide to

39

impose limit for FOMB. This way company can avoid paying for high medical insurance premium and expenses. Hospitalization and Surgical benefits (H&S) are insurance that paid any expenses incurred while being hospitalized due to sickness or accident. This benefit usually cover expenses for Hospital room, Doctor consultation, surgical expenses and other miscellaneous hospital expenses such as X-ray or ECG fee (Khuan, 1999). MAA provide overall annual limit of RM30, 000 for each employee. This benefits does not cover for employee family member, however employee can extend it to their family member by paying certain portion of the premium. H&S does not cover all the expenses incurred if employee being hospitalizes. Employee will have to pay the difference of the hospital expenses if the amount exceeds the existing insurance limit. Besides that, employee also entitled to dental benefits. This benefit covers up RM200 per annum, included the cost of consultation, X-ray, extraction, fillings and scaling. Dental benefit is not a form of insurance, it only benefit plans provided by employers to help reimburse back to their employee the cost of dental care (American Associates of Endondontists, 2010). There are few method of reimbursement provide mostly by the dental clinic which is direct reimbursement plans and Fee-for-service (indemnity) plans. Direct reimbursement plan is when an employer puts aside a set amount of money that is available to an employee for dental care annually. The patient pays the dentist, the dentist provides a receipt 40

and the patient submits the receipt to the employer for reimbursement. Under direct reimbursement, the entire responsibility for paying the dentist rests with the patient (American Associates of Endondontists, 2010). This plan acts as if the employee is not insured. It is reasonable for a practice to require full payment at the time of service. This method is the one use by MAA Bhd. The reimbursement will be pay direct into the account at the end of the month. Usually it also will be stated in the salary statement. Another reimbursement method is Fee-for-service (indemnity) plans that allow patients to go to any the dentist. Under fee-for-service, the patient will have a deductible (first payment of the receipt need to be pay by themselves). After the deductible is met, the plan will pay a certain set of percentage of the dentists fee. Then patient is responsible to pay for the remainder. It is typically divided 80-20, but some plans include a 50-50 split for more expensive treatment that requires significant patient compliance for maintenance (American Associates of Endondontists, 2010). The common complain done by MAA employee only that the

reimbursement usually not enough for them and take a longer time to get the money back. This happen because most employees goes to private dental clinic rather that government funded clinic. Company also face problem when there is case which employee try to commit fraud toward company beside continuously increase of health care benefit costs 2.8 Employee Compensation Costs Control

41

However, benefit offered by organization is limited by organization own resource mainly financial resource. In order to controlled the increasing cost of health care, few alternative being use by organization which is changing the copayment and employee contribution, using managed care and switching the consumer driven health care plans (Mathis & Jackson, 2008). By changing the co-payment and employee contribution, employer actually try to shift the burden to pay the health care costs to the employee. Copayment is where employee requires paying certain portion of the costs (Mathis & Jackson, 2008). Besides that, there can also increase the coinsurance and deductible amount (Hosseini, 2010). According to Hosseini (2010) consumer demand for health is sensitive to the costs pay from thy own pocket ( first deductible). In other words, people who have to pay more for services at point-ofservice would be much less likely to seek medical care. Furthermore, there are many cases of cost sharing works as a deterrent to the necessary use of medical services especially to those that cannot afford the medical care they need. However, Rice (2003) stated that the application of this economic concept to prevention would discourage usages of preventive care, an area in which many had greatest need and ability to benefit (as cited by Hosseini, 2011). Based by Ivancevich (2007) there are alternative for employer in order to reduce the cost of health care plan which is Managed Care ("Health Care Costs a Primer: Key Information on Health Care Costs and Their Impact," 2007;Mathis & Jackson, 2008; Simonet, 2005). Managed care is approach that monitors and reduces medical costs using restriction and market system alternatives. The 42

main purpose of this plan is control the heath care benefits costs and ensure employee get quality service (Mathis & Jackson, 2008). Meanwhile, according to Federa and Camp (1994), managed care is and organized system of health care that seeks and influence the selection and utilizing the health care service that enrolled the population of the organization and to ensure it be done in high quality and cost effective manner (as cited by Aghazadeh,2002). There are few plan can be conducted under managed care which is Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) and ConsumerDriven Health (CDH) plan (Ivancevich,2007; Mathis & Jackson, 2008). The Health Maintenance Organizations Act (1973) was the reason HMO being establishes. HMO establishes to granted subsidies and guaranteed loans. HMO could be federally accredited. Firms that employing more than 25 people had to offer coverage from HMO as an alternative (or substitute) towards the traditional insurers that offering fee-for-service (FFS) payment. Employees could then choose between an HMO and an FFS insurer.HMO was believe to opened more opportunity for growth in the US health care industry (Simonet, 2005). There are few disadvantages when choosing HMO which is according to Davis et al, (1995) the lack of freedom to choose an insurer and practitioner is a major determinant of patient satisfaction (as cited by Simonet,2005). The obligation to choose a managed care insurer from a limited pool of insurers (if the choice of insurer is not dictated by an employer) can generates dissatisfaction among the insured. Besides that, the obligation to change managed care physicians, which

43

occurs when medical coverage is provided by an employer can cause confusion and dissatisfaction among the employee (Simonet, 2005). Preferred Provider Organization (PPO) is an organization, a delivery system, or an arrangement between providers and third-party payers (usually the company/employer). Generally, PPO is a group of health care providers (clinics, specialists, hospital etc.) who agree to provide services to a specific group of patients (employee of company) on a discounted fee-for-service basis. Subscribers can retain the right to choose other providers, but are given economic incentives, such as lower cost-sharing, to use the preferred providers. In return, provider will be rewarded with an increased pool of patients and more rapid and steady payment of claims (J. Gabel & Ermann, 1985). Meanwhile, according to Rizzo & Fang (2009) The PPO is a health care network of providers that offers care to patients for a negotiated fee, which is typically discounted. In addition to fee discounts, PPO providers agree to other restrictions in order to gain access to the PPO (Mathis & Jackson, 2008). Advantage of using PPO is that they will reward patients for using efficient providers. Beside that, PPO contract with providers mostly discussing about price and utilization review activities before the patient enters the health care system. The major

disadvantage of PPO is their failure to provide financial incentives for providers to control health care costs (J. Gabel & Ermann, 1985). PPOs usually reimburse hospitals and physicians on a traditional fee-for-service basis, although a few PPO have negotiated per case payment with hospitals. Under fee-for-service payment, a providers income increase in term of volume and complexity of 44

service. Therefore, PPO discounts may fail to produce savings if providers are able to induce increases in the quantity and complexity of services. Thus, the key to PPO cost-control efforts may not be discounts, but utilization review and selection of efficient providers. Selective contracting may yield short-run savings, as providers reduce charges or contain their rate of increases, and long-run savings as providers are rewarded for increased efficiency in the organization and delivery of care. Since providers have no short-run financial incentive to limit services, utilization review is an essential component of an effective PPO (Gabel & Ermann, 1985). According to Mathis & Jackson, (2008) Consumer-Driven Health (CDH) plan provides financial contribution to employees to cover their health care costs. CDH also one of the current public policy and private initiative to reduce health care costs and improve quality (Marshall, Skiba, & Paul, 2009). This plan operate based by beliefs of free-market competition, CDH is driven by employers and third-party payers (insurers and government) in response to pressures to constrain and reduce costs and is presented as offering consumers more choice and control over their health care expenditures. The fundamental CDHC goal is to reduce health care costs while improving health care quality by allowing free market forces to restructure consumer behavior and health care services into optimal systems for achieving cost-benefit goals (Marshall, Skiba & Paul, 2011). Furthermore, the CDH care focus more on combining the incentives with information to enable consumers to make informed choices about non-lifethreatening health care. These allow consumers to be aware of the true cost and 45

have enough information and confidence to make treatment decisions. CDH give consumers greater access and greater responsibilities to use, all the information on costs and quality of health care (Gabel, Sasso & Rice, 2008). There are two alternatives under CDH plan which is tiered programs and reimbursement accounts (Marshall, Skiba & Paul, 2011 & Gabel, Sasso & Rice, 2008).Tiered program or tiered network is a programs that are layered in the levels of benefits and flexibility and are provided at different costs. The tiered premium benefits type of program requires higher co-payments and deductibles or the use of a more restrictive network of approved providers and greater utilization review (Marshall, Skiba & Paul, 2011). With tiered networks, employees had option of different cost-sharing that required different preferred providers within a health plans network at the point of service (Gabel, Sasso & Rice, 2008). Here, consumer chooses among preferred providers based on cost and/or quality measures. What is common to all tiered programs is that the consumer has more options as to extent of coverage and care providers than under traditional MCOs or HMOs (Marshall, Skiba & Paul, 2011). Reimbursement account or health reimbursement arrangement (HRA) is when employer establishes an account for the employee to spend on health care (Clinic/prevention shot/ therapies etc). The employer pays a fixed amount of the employee health benefit into the employee health savings account (Marshall, Skiba & Paul, 2011 & Gabel, Sasso & Rice, 2008). The account is controlled by the employee and the employee can made additional contributions up to a defined limit. Unspent money accumulates yearto-year (Marshall, Skiba & Paul, 2011). However when the account is exhausted,

46

employee must pay out of pocket until the annual deductible is met, after which the plan becomes a traditional major medical plan(Gabel, Sasso & Rice, 2008). According to Mathis & Jackson, (2008), there are many advantages when using this plan. First, the increasing of health care benefits were shifted to employee, due to employers contribution does not need to increase as fast as the heath care costs. Second, the control of the health care usage falls in hand of employee. They may choose to use it or not. Furthermore, CDH encouraging people to opt for less expensive care and minimize their own costs. It also avoid them in gain any unnecessary services (Marshall, Skiba & Paul, 2011). However in MAA Bhd, controlling the employee benefit cost had never been a problem to them. It is because, for the past few years (2008-2010), they never had to cut down or reduce their compensation or benefit plan. Since it is an Insurance company, they had massive network and knowledge regarding the suitable and comprehensive insurance benefit to be offered to their employee. They had offered several types of insurance to their employee which is group term life insurance, hospital & surgical (H&S) and medical care insurance. Basically, employee is cover under MAA Bhd insurance, Sihat Malaysia plan. This is a standalone policy, which provides 24-hour comprehensive

hospitalization and surgical benefits for Individuals and Families. Here, employees also cover under the outpatients, family outpatients and hospital & surgical coverage. However, Sihat Malaysia is a product by the National Insurance Association of Malaysia (NIAM) in collaboration with Metronic iCares Sdn Bhd, a managed care organization. It can be concluded that MAA Bhd use 47

managed care to control their health care costs. Lucky for MAA Bhd, Metronic iCares provide intensive plan from the health care service provider to the administration of the health care cost and work. MAA Bhd believes that by using the Sihat Malaysia plan to cover their employee, they can be better manage by professional management. MAA Bhd also wants to avoid complexity of healthcare administration works. Furthermore, MAA Bhd believes that by using the Sihat Malaysia they can contain direct healthcare cost and indirect healthcare administration cost. The health provider for MAA Bhd was intensive and covers every corner of Malaysia region. Most panel clinic use is Mediviron Clinic and few policlinics while most panel of hospital is well establish such as Pantai Hospital, Sentosa and KPJ Hospital1 . MAA Bhd provided to their employee insurance plan that compensated their employee if their retired, which is group life insurance. It supposedly covers a group of employee for death or disability during their employment tenure. However, employee only entitled for this plan after their employment tenure reached five year. Once their reached five year tenure, they account for this plan will be activated with five year of outstanding cash bonus nest in the employee account. This cash bonus will accumulated depending to employment tenure Employee will received the lump sum amount at specified period of time usually when employee retired or quit their employment with the company(Khuan, 1999). For this benefit, MAA Bhd had opt to outsource the administration. They use

Appendix 1.2: Full listing of MAA Bhd panel clinic and hospital.

48

State Insurance Broker Sdn Bhd to handle this plan to avoid conflict of interest and less the burden of administered. 2.9 Evaluation of Compensation Effectiveness According to Fiskum (2008), effective compensation plans reinforce the unique vision and goals of each organization and serve to align and motivate people to focus their energy in a common and consistent manner. When to evaluate the effectiveness of compensation plan or program, several elements should be considered, which is; the component of compensation plan, non cash compensation, transparency and other factors. 2.9.1 Components of Compensation The majority of firms rely on bonuses as an essential component of their compensation program. This reliance on bonus payments helps firms manage swings in financial performance resulting from our industrys oversensitivity of the broader economys highs and lows. The relative size of bonuses and how deep into the organization they are paid vary significantly. Those individuals with the greatest personal financial risk in an organization should receive an appropriate return on their investment. In addition, individuals who have a greater impact on the performance and success of the organization should be paid commensurately. Many of these people are motivated by incentive-based bonuses. Bonuses paid at year-end can be derived in a multitude of ways and in several combinations. Examples include performance-based merit 49

bonus, salary percentage bonus, equal share bonus, share of ownership bonus, and deferred bonus, to name a few. In addition, bonuses may be paid during the year. Examples of these include project profitability bonuses paid to the team, individual spot bonuses to individuals, recruiting referral bonuses, and a quarterly bonus paid to all firm members based on recent profitability. Theres value in connecting a bonus payment closely in time to the accomplishment being rewarded. In any event, bonuses as a component of compensation enable a firm to weather economic ups and downs more easily, to reward teamwork, and to recognize outstanding performers. 2.9.2 Non-Cash Compensation In administering compensation and benefits, progressive leaders make appropriate decisions concerning rewards that are immediate and those that enhance the long-term well-being of employees. Today, retirement plans, some of which having discretionary components, are common in most firms. The degree to which these and other discretionary programs are funded relate to a firms culture, financial success, employee demographics, market expectations, and other criteria. Further, some plans, such as a safe harbor guaranteed retirement trust, are designed to share rewards deep into the firm while others, such as age-weighted supplemental profit sharing, are designed to reward the more experienced staff who are closer to retirement. Firms with such programs need to 50

communicate their existence and value overtly, particularly since many employees, perhaps conveniently, focus primarily on their wage statement during salary negotiations. A variety of other non-cash benefits paid to employees constitute a substantial amount of a firms overhead. These include programs such as pre-tax cafeteria benefit plans, health and dental plans, day care, training, development, professional memberships, and in some cases, perks such as club memberships, company automobiles, paid parking, and the like. These or similar benefits are part of an individuals total compensation package, and its important they are recognized and appreciated as such. Best-in-class firms annually prepare a total compensation summary customized for each employee. Most firm members are enlightened when they receive a comprehensive summary of their total compensation that includes all benefits. 2.9.3 Transparency Financial transparency, a quality most people agree is essential to aligning knowledge workers toward common goals, can be detrimental if taken to the extreme. This is particularly true if compensation is directly linked to financial performance and little else. Those who are privy to information, sometimes most everyone in a firm, have an obligation and responsibility to learn how to interpret and understand the numbers. Accordingly, transparency of financial data 51

negatively impacts the organization if individuals misinterpret it or, worse, if they attempt to manipulate the information to their advantage or otherwise engage in counterproductive behaviors. In the extreme, too much transparency can lead to employee burnout and departure when the information no longer serves to motivate. A principal with poor financial results, for whatever reason, might inadvertently drive the team to work unreasonable and excessive hours and the non-assertive staff may feel overwhelmed. Firm leaders must decide when to filter information that may be misinterpreted or is no longer serving a motivational purpose. 2.9.4 Other Considerations Generational differences manifest themselves in several ways, including how individuals view compensation. Much has been written about the characteristics of the four generations in todays workplace and their different motivational needs. There is variation in the nature of intrinsic rewards each generation considers important. The generations also relate to their organizations differently. Traditionalists have generally strived to build their career with one firm, while people from Generation X think more in terms of portable careers. Some of us may be surprised that it is common for Generation Y workers to call or e-mail their friends to share details upon receiving a raise. In contrast, baby boomers and

52

traditionalists rarely, if ever, share their salary information or bonus with their peers. Ownership transition programs also can affect salary and bonus. Firm owners committed to leaving a legacy through the internal sale of stock often pay higher compensation so that selected employees can actually afford to purchase the stock, even though much of it might be financed. In any case, for those risk-taking individuals buying into a design practice, disposable income takes a hit during the years of significant investment. Labor laws have compensation nuances that may vary by state. Firms should be cognizant of legal requirements as they design their compensation plans. In particular, attention should be paid to the classification of employees into the categories of exempt and non-exempt. To be exempt (i.e., salaried), an employee must meet certain standards, including a level of self-supervision (Department of Labor). Further, bonuses for salaried employees may not be linked to the number of extra hours they work during the year. While larger firms are typically well aware of the nuances of labor laws, smaller firms sometimes have compensation methods such as for overtime pay or compensatory time that are problematic. Firm leaders should periodically review their compensation policies and evaluate whether they are consistent with Malaysia Employment Act

53

1955 and the marketplace while at the same time reinforcing of the unique vision, values, and goals of their organization. Well-designed

compensation programs are a valuable strategic asset in shaping a design firms future and aligning its members for success. While with referring to Dorf (2007), it is important as well to look at how your other compensation plans are operating, namely, are they achieving the results that were intended when the plan was first designed or last updated? Basically, the design of any compensation plan should focus on achieving the main objectives of compensation: 2.9.4.1 Focus: Does the plan link pay to desired

performance? 2.9.4.2 Attract: Does it provide the company with the ability to hire qualified candidates? 2.9.4.3 Retain: Does the plan enhance your staffs desire to stay with the company? 2.9.4.4 Motivate: Does it become a motivator to the staff?

Those plans that are not achieving these objectives should be looked at more carefully, to determine the root of the problem and the possible solution. The starting point should be to look at compensation plans that have not been assessed in the past two years, and especially those that deal with salary administration. In particular, salary structures

54

should be evaluated every two years in order to determine what changes have occurred in the marketplace relative to structure movement and any adjustments that may be necessary to enable the structures to be competitive and reflective of your compensation philosophy. Structures that have not been updated frequently, or if there have been significant changes in the marketplace relative to the market value of positions or the need for talent, may need to be reconstructed. In determining whether the salary administration program needs updating based on the quality of the salary structures, a thorough market analysis should be undertaken on benchmark and "hot" jobs; therefore, job descriptions should be reviewed and updated to ensure that they accurately reflect the scope and responsibilities of the positions. During this exercise, Human Resources should evaluate the exemption status of each unique job under the Fair Labor Standards Act to ensure that exemption assignments are consistent with the regulations. Companies often drive their staff hard, but neglect to put the same energies into the design of meaningful and rewarding sales compensation plans. The resulting plans are often non-motivational and disconnected from the goals of the company. Annual changes to the plan are time consuming, and often exacerbate the problems, with credibility suffering as a result. An effective compensation plan usually considered these steps or elements:

55

1. Clarify the compensation plan: It is not unusual for a company to attempt to design a new compensation plan without having a consensus among all of the employees. Although factors may change during the course of a year, and the plan should allow for sufficient flexibility for modification without radically altering the plan. Once the focus items have been identified, they need to be prioritized from most important to least important. 2. Communication, implement and administer: A compensation plan needs to be thoroughly communicated to all concerned personnel in an organization. The form of communication will be different, since everyone has to achieve different set of target depends on their position, duties and responsibilities. 3. Monitor and apply corrective action: Does the compensation plan provide the motivation necessary to achieve those objectives? If the employees performances do not match up with the expectations, the company needs to examine why not, and take remedial action. The plan, if designed with sufficient flexibility, can then be tweaked, in order to place more emphasis on the desired results. This is an on-going process that must be carried out on a timely and continuous basis.

56

Often, compensation plan considered fail when it is unable to motivate and retain employees in an organization. Besides, their performance is not achieving companys target. It usually fails because they are not suitable to implement for particular position and may be employees tend to feel they are unfairly treated with the compensation and benefits given. These steps outlined above should help to eliminate some or all of these issues, and assist in the design and implementation of compensation plans that will be more effective at meetings the companys intended goals. For MAA, the way how they measure the effectiveness of compensation plan is through involving of unions. The compensation is result from cumulative union agreement which is considered the employees right and wants. It is allow the employees to participate in decision making of benefits and rewards. When the employees share in this decision they show more interest in them. When the organization is unionized, it is vital that the union leadership be involved. The leadership knows what employees want in benefits. Sometimes, however, the leadership tries to maximize benefits without having determined what employees want. It is useful to involve the union leadership so that all the parties are seeking benefits desired by the employees (Ivancevich, 2010). As did mention by Dorf (2007) and Ivancevich (2010), MAA do communicate their compensation plan toward employees. It is to ensure that the employees know and understand what are the benefits and 57

rewards that are provided for them. Many communication media used by MAA to deliver the information to employees such as employee handbooks, bulletin board, annual reports and so forth. 2.10 Job Evaluation Job evaluation is the process of systematically determining the relative worth of jobs to create a job structure for the organization. The evaluation is based on a combination of job content, skills required, value to the organization, organization culture and the external market. This potential to blend organizational forces and external market forces is both strength and a challenge of job evaluation (Milkovich and Newman, 2008). In addition, refer to El-Hajji (2011), job evaluation is a transparent process, and its results are appealable. Job evaluation is not a secret pay system nor is it a secret wage and salary determination policy in which an employee does not know how much his colleague earns. Where such secrecy exists, all talk about wage and salary is informal and often rumour or guesswork dominates, and figures are distorted. Here the employer has a more free hand in indulging in pay inequities, and employees do not have a proven formal document to complain against an unfair (usually underpayment though it could also be overpayment) wage policy. However, this does not mean that job evaluation is an open pay system in the sense that individual employees directly participate in evaluating their peers performance and in determining wage or salary increases for them. This is not the open system we meant. Instead, a job evaluation system is an

58

open and transparent document, and its results are available for inspection because after all, the aim is to establish an (acceptable) equitable pay to determine fairness and right. In fact, by informing employees about the job evaluation, management are not doing a favour to employees, rather it is acknowledging the employees right to be informed. This in turn would also create good level of trust between management and employees (i.e. in organizational culture) and implant confidence in job evaluation. Openness is just incompatible with planning and decisions that are made and concocted behind closed doors, by a single party or by excluding a party. It may be pertinent to observe that in relation to transparency. El-Hajji (2011) elaborated that job evaluation differs from performance appraisal. Job evaluation is ranking of jobs and not of employees or their performance. Thus job evaluation does not mean performance appraisal or staff appraisal or employees evaluation which are all equivalent and

interchangeable terms. Job evaluation is concerned with the conditions of the job, while the latter terms concern the personal qualities of the individual who is doing the job. Job evaluation intends to set a rate for the job, irrespective of the characteristics of individual employees who may be employed in it. Thus, jobs not people are being studied and the matter of how well or how badly an employee works is a matter that has to be decided through employee assessment procedures. Job evaluation is not a method of assessing the efficiency, level of effort or personal merit of any individual; it concerns itself with

59

the evaluation of the necessary values by establishing rates for each group of jobs based on their relative value. Besides, job evaluation is a technique to rank jobs in an organization on the basis of the duties and responsibilities assigned to the job. The job evaluation process results in a job being assigned to a pay grade. The pay grade is associated with a pay range that is defined by a minimum and a maximum pay rate. Job evaluation plans have been in use for approximately 75 years in the public and private sectors. There are many variations to the design a job evaluation plan. However, they all basically follow the same approach, which is to value each job in a defined group of jobs based on a common set of generic factors. The first set of decisions that an organization is required to make when installing a job evaluation plan is to determine which jobs in the organization will be covered by the plan and what factors will be used in the job evaluation process. The second step in the job evaluation process is to collect information about each job to be evaluated. This can be done using a job analysis questionnaire, job descriptions, observation and interviews with employees and supervisors.

60

Step three in the process is to systematically rate each job based on the job evaluation factors selected. The points assigned for each of the factors are totalled for each job. The forth step is to select the benchmark jobs from the jobs that have been evaluated. The benchmark jobs are those jobs commonly found in most organizations and are typically included in salary surveys. The benchmark jobs connect the internal pay structure with the external labour market. Job evaluation must be clearly defined and identifiable jobs must exist. These jobs will be accurately described in an agreed job description. All jobs in an organisation will be evaluated using an agreed job evaluation scheme. Job evaluators will need to gain a thorough understanding of the job and the job evaluation itself is concerned with jobs, not people. It is not the person that is being evaluated. The job is assessed as if it were being carried out in a fully competent and acceptable manner. Besides that, job evaluation is based on judgement and is not scientific. However if applied correctly it can enable objective judgements to be made. It is possible to make a judgement about a job's contribution relative to other jobs in an organisation. The real test of the evaluation results is their acceptability to all participants. Furthermore, job evaluation can aid organisational problem solving as it highlights duplication of tasks and gaps between jobs and functions. In fact, job evaluation as a process is advantageous to a company in many ways. The advantages of job evaluation such as:

61

1. Reduction in inequalities in salary structure - It is found that people and their motivation is dependent upon how well they are being paid. Therefore the main objective of job evaluation is to have external and internal consistency in salary structure so that inequalities in salaries are reduced. 2. Specialization - Because of division of labour and thereby specialization, a large number of enterprises have got hundred jobs and many employees to perform them. Therefore, an attempt should be made to define a job and thereby fix salaries for it. This is possible only through job evaluation. 3. Helps in selection of employees - The job evaluation information can be helpful at the time of selection of candidates. The factors that are determined for job evaluation can be taken into account while selecting the employees. 4. Harmonious relationship between employees and manager - Through job evaluation, harmonious and congenial relations can be maintained between employees and management, so that all kinds of salaries controversies can be minimized. 5. Standardization - The process of determining the salary differentials for different jobs become standardized through job evaluation. This helps in bringing uniformity into salary structure. 6. Relevance of new jobs - Through job evaluation, one can understand the relative value of new jobs in a concern.

62

There are three basic methods of job evaluation which are ranking, classification and point method (Milkovich and Newman, 2008). Ranking method perhaps the simplest method of job evaluation is the ranking method. According to this method, jobs are arranged from highest to lowest, in order of their value or merit to the organization. Jobs also can be arranged according to the relative difficulty in performing them. The jobs are examined as a whole rather than on the basis of important factors in the job; and the job at the top of the list has the highest value and obviously the job at the bottom of the list will have the lowest value. Jobs are usually ranked in each department and then the department rankings are combined to develop an organizational ranking. The variation in payment of salaries depends on the variation of the nature of the job performed by the employees. The ranking method is simple to understand and practice and it is best suited for a small organization. Its simplicity, however, works to its disadvantage in big organizations because rankings are difficult to develop in a large, complex organization. Moreover, this kind of ranking is highly subjective in nature and may offend many employees. Therefore, a more scientific and fruitful way of job evaluation is called for. Meanwhile, classification method is a predetermined number of job groups or job classes are established and jobs are assigned to these classifications. This method places groups of jobs into job classes or job grades. Separate classes may include office, clerical, managerial, personnel and so forth. This job classification method is less subjective when compared to the earlier 63

ranking method. The system is very easy to understand and acceptable to almost all employees without hesitation. One strong point in favour of the method is that it takes into account all the factors that a job comprises. This system can be effectively used for a variety of jobs. However, this job evaluation method also has a disadvantages or weaknesses such as, even when the requirements of different jobs differ. Besides that, it is difficult to write all-inclusive descriptions of a grade, the method oversimplifies sharp differences between different jobs and different grades. When individual job descriptions and grade descriptions do not match well, the evaluators have the tendency to classify the job using their subjective judgments. While for point method, it is widely used currently. Here, jobs are expressed in terms of key factors. Points are assigned to each factor after prioritizing each factor in the order of importance. The points are summed up to determine the wage rate for the job. Jobs with similar point totals are placed in similar pay grades. In this method, first, key jobs must be selected which is identify the factors common to all the identified jobs such as skill, effort, responsibility and so on. Then divide each major factor into a number of sub factors. Each sub factor is defined and expressed clearly in the order of importance, preferably along a scale. The most frequent factors employed in point systems are skill such as education and training required, depth of experience required, problem-solving skills, creative thinking and so forth. The other factor must be considered in this method is responsibility and accountability which is complexity of the work, 64

degree of freedom to act, extent of accountability for equipment and materials. The employees effort like mental and physical demands of a job and degree of potential stress also should be think about while using this method. The point method is a superior and widely used method of evaluating jobs. It forces raters to look into all keys factors and sub-factors of a job. Point values are assigned to all factors in a systematic way, eliminating bias at every stage. It is reliable because raters using similar criteria would get more or less similar answers. It accounts for differences in wage rates for various jobs on the strength of job factors. Jobs may change over time, but the rating scales established under the point method remain unaffected. On the negative side, the point method is complex. Preparing a manual for various jobs, fixing values for key and sub-factors, establishing wage rates for different grades, and is a time consuming process. For MAA, this company use ranking method in their job evaluation. As did explain before, this is the simplest job evaluation method. There are several steps in the job ranking method. Manager first must obtain job information, job analysis and job descriptions for each job are prepared and the information they contain about the jobs duties is usually the basis for rankings jobs. Sometimes job specifications are also prepared. However, the ranking method usually ranks jobs according to the whole job, rather than a number of compensable factors. Therefore, job specifications which list the jobs demand in terms of problem

65

solving, decision making skills, for instance are not as necessary with this method as they are for other job evaluation methods. There are three techniques that are used by MAA for ranking jobs. These techniques are as follows: 1. Job description: In this technique, a written jobs description is prepared for every jobs. The job description are then studied and analysed. The differences between them in terms of duties, skills requirements and so forth. Each job is assigned a rank depending upon its relative significance. Several raters may independently rank job. The average of these ratings is calculated to determine the final ranking. 2. Paired Comparisons: In this technique each job is paired with every job in the series. The most difficult job in each pair is identified. Rank is assigned on the basis of the number of times a job is rated more difficult. 3. Rank jobs: MAA give each rater a set of index cards, each of which contains a brief description of a job. Then they rank these cards from lowest to highest. Some managers use an alternation ranking method for making the procedure more accurate. Then manager take the cards, first choosing the highest and the lowest, then the next highest and next lowest, and so forth until they have ranked all the cards. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate.

66

MAA is using this ranking method because it is simplest and oldest method. This method is also very effective when there are relatively few jobs to be evaluated. Moreover, it is very economical and less time consuming and it involves little paper work.

67

3.0

Conclusion Compensation administration is a segment of management or human resource

management focusing on planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform. Compensation includes direct forms such as base, merit, and incentive pay and indirect forms such as vacation pay, deferred payment, and health insurance. Compensation does not refer, however, to other kinds of employee rewards such as recognition ceremonies and achievement parties. The ultimate objectives of compensation administration are: efficient maintenance of a productive workforce, equitable pay, and compliance with federal, state, and local regulations based on what companies can afford. The basic concept of compensation administration compensation management is rather simple: employees perform tasks for employers and so companies pay employees wages for the jobs they do. Consequently, compensation is an exchange or a transaction, from which both partys employers and employees benefit: both parties receive something for giving something. Compensation, however, involves much more than this simple transaction. From the employer's perspective, compensation is an issue of both affordability and employee motivation. Companies must consider what they can reasonably afford to pay their employees and the ramifications of their decisions: will they affect employee turnover and productivity? In addition, some employers and managers believe pay can influence employee work ethic and behavior and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet important part of managing a business. 68

Our grandparents and many of our parents as well went to work every day expecting to be paid for the time they spent on the job. In the olden days, compensation planning focused on paying employees for their work and service to the company. If you were a dedicated employee, you may have stayed long enough to get the gold watch at retirement Today, our employment landscape is much different for many reasons. New generations of workers dont stay as long as their parents or grandparents, and constantly seek greener pastures. Literally, to keep anyone under the age of 40 interested in staying, companies must offer more than just pay. Sure, a wage is a necessity, but there is much more to compensation than just the money. Unfortunately, many companies and organizations sour on new compensation plans when they dont obtain the results they were expecting after implementing a bestpractices plan, one which takes benchmarks and uses those as best practices. Instead of achieving desired results, their "best practice" ends up as just another ineffective human resources program.

69

4.0 Recommendation In order to enhance performance among employees, we suggest that MAA should provide an attractive benefits plan that suit with the employees personally rather than the company as a whole. For example, MAA can subsidize the facilities such as parking, gymnasium and meal to all of their employees regardless the department. In the MAA Bhd building, these facilities are already available and ready to be use by the employee. However, employee had to pay for it. We believe that by subsidized the facilities especially meal, it could show that employer pay attention to the need of employee. Besides that, employer could reduce lunch time and lessen employee burden since meal is on the house. We also recommend that, for the employees who are staying in MAA more than 5 years will be recognize by a token of reward such as jewelry, trophy, paid vacation, voucher coupon at any fine dining. Whereas, for those who are show their loyalty towards MAA by retain more than 10 years will be rewarded in term of unit of shares in MAA. The reward that to be given to employees act as an important tool to derive employees motivation to be within an organization for a long period of time. Furthermore, rather than forming compensation plan by the union, it is better to conduct survey to identify what benefits that employees really want. From that survey, MAA able to provide compensation package that meet with the employees preference. Besides that, flexible working hour should be implemented to all departments. For instance, MAA agencies or brokers can work from home since MAA has their own network system by using their own IDs to connect with their organization. 70

71