BSBHRM505 Manage Remuneration and Employee Benefits Assignment

BSBHRM505 Manage Remuneration and Employee Benefits Assignment

BSBHRM505 Manage Remuneration and Employee Benefits Assignment

Introduction

The research topic of this paper is related to implication of net income of a firm on benefits given to the employees of a firm. The relevance of the topic lies on the fact that both employee benefit and net income are the important determinant of performance and growth of a firm (Ekere & Amah, 2014) The paper first studies background of the chosen research method topic. Depending on the background research aim and research questions are determined. Past literatures are studied to understand significance of current research. Final part of the paper consists of research methods, analysis, discussion and overall conclusion.

Problem Statement

The benefits provided to employees hold a significant importance both for the employee and employers. Such benefits have a critical role to play on choice of employees regarding employment and decision to stay in the job (Ismail, Yabai & Hahn, 2014) Employee benefits not only include wages and salaries given to workers but also other benefits in the form of health security, security to employee’s family, long service leaves, annual leaves and such other obligation. Benefits to employees differ across the different level of employment. Firms sometimes delay or rule out employee benefit to cut its cost (Duda, 2018). This however can affect performance of the employee which has direct impact on profitability of the firm. Firm with a relatively high income are in a position to offer different monetary and non-monetary benefits to the workers.

In this paper three renowned mineral companies are selected to study the impact on employee benefits due to net income of the firm. Of the three two belongs to Australia namely BHP Billiton and Caltex. The third on is a London based company namely British Petroleum (BP). Influence of the chosen companies’ net income on employee benefit is critically evaluated using relevant time series data.

Research aim

The study aims to evaluates impact on employee benefits followed by a net in net income of the three selected companies.

Research question

The paper is developed to address the following research question

How net income of Caltex, BHP Billiton and British Petroleum influence employee benefit of the company?

Literature Review

This section provides a brief overview of the past literatures based on the employees benefit, performance of a company, net income of firms and its association to employee benefits.

Employee Benefits

Employees benefits signify different program that a firm uses to in addition to cash compensation to the employees. The objective is to secure the employees and their families from potential financial risks (Burton et al., 2017). Different form of benefits represents a major part of remuneration package to the workers. These are additional facilities to workers in some other forms of monetary payment such as salaries and wages with the intention to improve quality of work and increase productivity and cooperation within the organization (Ning, Xiao & Lee, 2017) Employee benefits refer to form of compensation except salaries and wages that firms pay in part or as a whole (Gerhart & Fang, 2014) Such benefits are necessary to develop industrial relationship. Examples of employee benefit include child care, retirement plan, social security, medical treatment, paid holiday and vacation (Jaworski, et al., 2018). The main purpose of offering different benefits other than monthly salaries is to raise the sense of economic security among the employees. This is expected to improve retention rate of worker in the organization (Bellou et al., 2015).

There is different rationale for providing additional benefits to workers. A package of benefit is provided to reward the employees and increase loyalty of employees towards the organization (Carter et al., 2016). Once employers show concern towards it employees, it discourages need for union and hence protect the firm from harmful consequences of unionization (Kristal, 2017). An attractive remuneration package along with added benefits helps to attract more competent and talented workers. The benefits are designed to enhance individual welfare of employees. An import rationale to provide monetary benefits to some other forms is to protect the workers from burden of heavy taxation (Hou, Priem & Goranova, 2017) This is due to the fact that most of these benefits belong to non-tax category. Benefits help the workers to enjoy a non-taxed return from investment. Satisfying legal requirement is another objective of benefits apart from wages and salaries (Selviaridis & Wynstra, 2015).

Importance of Employee Benefits

The impact of employee benefits on performance of an employee is dependent on the structure of existing compensation and management performance package of the firm. Response of the employees to the payment and additional benefit offered by the firm is generally positive and productive (Shields et al., 2015). Several past studies concluded that benefits to employees have a linkage with performance of the firm. Finding of one scholarly study found that both compulsory and fringe benefits to employees have a positive and significant relationship with commitment of the employees and associated performance of firms (Jenter & Kanaan, 2015) Fringe benefits in fact found to have a higher impact compared to compulsory payment. The findings suggested that more and more fringe benefits are received by employee higher is the commitment of the employees to the organization (Ferrell, Liang & Renneboog, 2016).

Workers who are more committed tend to constitute a higher productivity and improve performance of the firm. Benefits thus improve profit of the firm, result in an increase in sense of responsibility among the employees and improve quality of life of the employees (Selviaridis & Spring, 2018) Benefits and compensations are the key to retain experienced workers for a considerably long period. in the organization (Azeez, 2015) Several studies considered employees benefit as an important source of improving the competitive gains of the firms.

Net income and employees benefit

Net income is fundamental representative of profitability of a firm. Net income is also regarded as a proxy measure of efficiency. Overtime increase in net income indicates growth of the firms. This in turn help to boost confidence of investors and contribute to further growth. The earned income of the firm is further reinvested to enhance future growth (Kajola, Adewumi & Oworu, 2015) Among different expenses of a firm employees benefit comprise an important part. The linkage between net income of a firm and given benefit to the employees run in both ways. As income increases, financial position of firms improve (Tayeh, Al-Jarrah & Tarhini, 2015). This increases ability of the firms to pay a better remuneration and other associated benefits to its employees. Higher benefit to employees increases productivity, rate of retention and quality of workers (Kuo et al., 2014). All these together contribute to an improvement in performance of the firms which is reflected in terms of a higher net income. Net income and employees’ benefits are thus complementary to each other.

Studies conducted research on linkage between net income of a company and different levels of employees. One study researched how payment to CEO of a company is affected by the income a firm (Hayek, 2016). The paper concluded the different components of payment which include bonus, restricted stock option and others tying performance of upper level management to net income of a company. Literature also evidenced some contradicting findings (Herbst, Foerster & Emmert, 2018) Some paper in this field have founded that incentives, cash bonus, restricted stock rewards and others encourage employees to engage in activities that might create problem for the organization. Supporters of this claim suggested that paying a higher fraction of net income to the employees might bring short term benefits but at the cost of long term health of the firm (Gupta & Shaw, 2014)

Hypothesis

Reviewing the past literatures and accomplishing research objective the three following hypotheses are developed.

Hypothesis 1

Null hypothesis (H10):Net income of Caltex has no significant impact on employees benefit.

Alternative hypothesis (H11):Net income of Caltex has significant impact on employees benefit.

Hypothesis 2

Null hypothesis (H20):Net income of BHP Billiton has no significant impact on employees benefit.

Alternative hypothesis (H21):Net income of BHP Billiton has significant impact on employees benefit.

Hypothesis 1

Null hypothesis (H10):Net income of British Petroleum has no significant impact on employees benefit.

Alternative hypothesis (H11):Net income of British Petroleum has significant impact on employees benefit.

Methodology

Collection of Data

The study aims to research whether there is any impact on employee benefits due to change in net income of firm. The study is explorative in nature and depends on raw data collected from secondary sources (Neuman, 2013) The data related to net income and employees benefit for each of the three companies are collected from annual reports of the respected companies.

For net income, company profit after payment of taxation and other liabilities is taken into consideration. The structure of employee benefits differs among the companies. The total expenses on employee benefits are taken as common measure of employee benefit. Data for ten years (2008-2017) has been collected on the two selected variable for the three companies. Total number of sample observation is thus 30.

Analysis of Data

Quantitative data are collected to carry out the research. As the objective is to find out the extent of relationship between net income and employee benefit quantitative methods are used for analysis (Bryman, 2017). First, descriptive statistics of the relevant data are computed to find an overall summary measure like average, nature of the distribution, stability measures and others. Bivariate correlation represents association among the selected variables. Finally, regression analysis is done to verify presence of any significant relationship (Hussein, 2015).

Findings and Analysis

Descriptive Statistics

Table 1: Summary statistics of net income and employee benefit of Caltex

Caltex

Net income

Employee Benefit

 

 

 

 

Mean

295561.10

Mean

200560.20

Standard Error

84830.71

Standard Error

17221.69

Median

316380.00

Median

199320.00

Mode

#N/A

Mode

#N/A

Standard Deviation

268258.25

Standard Deviation

54459.78

Sample Variance

71962489249.43

Sample Variance

2965867461.29

Kurtosis

-1.87

Kurtosis

1.24

Skewness

-0.09

Skewness

0.71

Range

693963

Range

187434

Minimum

-73211

Minimum

127762

Maximum

620752

Maximum

315196

Sum

2955611

Sum

2005602

Count

10

Count

10

The average net income of Caltex as obtained from the descriptive statistics is 295561.10 thousand dollars. Caltex on average thus maintained an average income of 295561.10 thousand dollars. Standard deviation of the income distribution is 268258.25. Since the standard deviation is less than the obtained average coefficient of variation for income is less than 100 indicating a relatively less volatility of income. Range of net income of Caltex is obtained as 693963 thousand dollars. Net income of the company varies from a loss of 73221 thousand dollars to a maximum of 620752 thousand dollars.

The average employees benefit of Caltex as obtained from the descriptive statistics is 200560.20 thousand dollars. Caltex on average thus provided an average 200560.20 thousand dollars as employees benefit. Standard deviation of employees’ benefit is 54459.78. The benefits given to employees varied less in the last ten years as indicated by a smaller value of standard deviation. Range of employees benefit of Caltex is obtained as 187434 thousand dollars with maximum and minimum amount spent for employees’ benefit is obtained as 315196 and 127762 thousand dollars respectively.

Table 2: Summary statistics of net income and employee benefit of BHP Billiton

BHP Billiton

Net income

Employee Benefit

 

 

 

 

Mean

11437.70

Mean

4974.50

Standard Error

1786.04

Standard Error

410.32

Median

10823.00

Median

4816.00

Mode

#N/A

Mode

#N/A

Standard Deviation

5647.95

Standard Deviation

1297.54

Sample Variance

31899282.90

Sample Variance

1683616.06

Kurtosis

1.81

Kurtosis

0.00

Skewness

1.12

Skewness

0.74

Range

19810

Range

4018

Minimum

4136

Minimum

3414

Maximum

23946

Maximum

7432

Sum

114377

Sum

49745

Count

10

Count

10

The average net income of BHP Billiton as obtained from the descriptive statistics is 11437.70 million dollars. BHP Billiton on average thus maintained an average income of 11437.70 million dollars. Standard deviation of the income distribution is 5647.95. Since the standard deviation is less than the obtained average coefficient of variation for income is less than 100 indicating a relatively less volatility of income. Range of net income of BHP Billiton is obtained as 19810 million dollars. Net income of the company varies from minimum of 4136 thousand dollars to a maximum of 23946 thousand dollars.

The average employees benefit of BHP Billiton as obtained from the descriptive statistics is 4974.50 million dollars. BHP Billiton on average thus provided an average 4974.50 million dollars as employees benefit. Standard deviation of employees’ benefit is 1297.54. The benefits given to employees varied less in the last ten years as indicated by a smaller value of standard deviation. Range of employees benefit of BHP Billiton is obtained as 4018 million dollars with maximum and minimum amount spent for employees’ benefit is obtained as 7432 and 3414 million dollars respectively.

Table 3: Summary statistics of net income and employee benefit of British Petroleum

British Petroleum

Net income

Employee Benefit

 

 

 

 

Mean

9670.20

Mean

12399.90

Standard Error

3729.15

Standard Error

364.23

Median

7515.50

Median

12303.50

Mode

#N/A

Mode

#N/A

Standard Deviation

11792.62

Standard Deviation

1151.81

Sample Variance

139065779.29

Sample Variance

1326657.66

Kurtosis

-1.63

Kurtosis

-0.05

Skewness

0.12

Skewness

-0.50

Range

32579

Range

3732

Minimum

-6482

Minimum

10204

Maximum

26097

Maximum

13936

Sum

96702

Sum

123999

Count

10

Count

10

The average net income of British Petroleum as obtained from the descriptive statistics is 9670.20 million dollars. British Petroleum on average thus maintained an average income of 9670.20 million dollars. Standard deviation of the income distribution is 11792.62. Since the standard deviation is larger than the obtained average coefficient of variation for income is greater than 100 indicating a relatively less volatility of income. Range of net income of British Petroleum is obtained as 32579 million dollars. Net income taxation of the company varies from a loss of 6482 million dollars to a maximum of 26097 million dollars.

The average employees benefit of British Petroleum as obtained from the descriptive statistics is 12399.90 million dollars. British Petroleum on average thus provided an average 12399.90 million dollars as employees benefit. Standard deviation of employees’ benefit is 1151.81. The benefits given to employees varied less in the last ten years as indicated by a smaller value of standard deviation. Range of employees benefit of British Petroleum is obtained as 3732 million dollars with maximum and minimum amount spent for employees’ benefit is obtained as 123999 and 10204 million dollars respectively.

Correlation analysis

Table 4: Bivariate correlation between net income and employees benefit of Caltex

Caltex

 

Net income

Employee Benefit

Net income

1

 

Employee Benefit

-0.64

1

The correlation estimate for association between net income and employees benefit in Caltex is - 0.64. There is thus an inverse association between income of Caltex and its employee benefit. The correlation between the two is moderate in nature.

Table 5: Bivariate correlation between net income and employees benefit of BHP Billiton

BHP Billiton

 

Net income

Employee Benefit

Net income

1

 

Employee Benefit

0.21

1

The correlation estimate for association between net income and employees benefit in BHP Billiton is 0.21. There is thus a direct association between income of BHP Billiton and its employee benefit. The degree of association however is very weak.

Table 6: Bivariate correlation between net income and employees benefit of British Petroleum

British Petroleum

 

Net income

Employee Benefit

Net income

1

 

Employee Benefit

0.25

1

The correlation estimate for association between net income and employees benefit in British Petroleum is 0.25. There is thus a positive linkage between income of British Petroleum and its employee benefit. The small value of correlation indicates a weak association between the two.

Regression Analysis

Table 7: Summary of regression output for Caltex

Regression Statistics

Multiple R

0.64

R Square

0.41

Adjusted R Square

0.34

Standard Error

44267.45

Observations

10

ANOVA

 

df

SS

MS

F

Significance F

Regression

1

11015952162

11015952162

5.6215

0.0452

Residual

8

15676854990

1959606874

 

 

Total

9

26692807152

 

 

 

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Intercept

239106.6113

21453.9374

11.1451

0.0000

189633.7429

288579.4797

Net income

-0.1304

0.0550

-2.3710

0.0452

-0.2573

-0.0036

Following the obtained regression result, associated coefficient for net income is – 0.1304. Annual net income of Caltex thus adversely affects benefits given to companies’ employees. In other words, as net income increases, employees working in the company receive less benefits. P value for the associated coefficient of net income is 0.0452. The lower p value compared to 5% significance level implies the coefficient is statistically significant.

Table 8: Summary of regression output for BHP Billiton

Regression Statistics

Multiple R

0.21

R Square

0.04

Adjusted R Square

-0.08

Standard Error

1346.23

Observations

10

ANOVA

 

df

SS

MS

F

Significance F

Regression

1

653891.656

653891.656

0.361

0.565

Residual

8

14498652.844

1812331.606

 

 

Total

9

15152544.500

 

 

 

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Intercept

4428.6417

1003.5263

4.4131

0.0022

2114.5060

6742.7775

Net income

0.0477

0.0795

0.6007

0.5647

-0.1355

0.2309

The obtained regression result suggest associated coefficient for net income is 0.0477. Annual net income of BHP Billiton thus has a direct effect on benefits given to companies’ employees. In other words, as net income increases, employees working in the company receive higher benefits. P value for the associated coefficient of net income is 0.5647. The higher p value compared to 5% significance level implies the coefficient is statistically insignificant.

Table 9: Summary of regression output for British Petroleum

Regression Statistics

Multiple R

0.25

R Square

0.06

Adjusted R Square

-0.05

Standard Error

1183.01

Observations

10

ANOVA

 

df

SS

MS

F

Significance F

Regression

1

743784.635

743784.635

0.531

0.487

Residual

8

11196134.265

1399516.783

 

 

Total

9

11939918.900

 

 

 

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Intercept

12164.1630

494.4863

24.5996

0.0000

11023.8757

13304.4504

Net income

0.0244

0.0334

0.7290

0.4868

-0.0527

0.1015

Following the obtained regression result, coefficient associated with net income is estimated as 0.0244. Annual net income of British Petroleum has a positive implication fir benefits given to companies’ employees. In other words, as net income increases, employees working in the company receive more such benefits. P value for the associated coefficient of net income is 0.7290. The higher p value compared to 5% significance level implies the coefficient is statistically insignificant.

Discussion

Hypothesis 1: Net income has significant influence on employee benefits of Caltex

The first null hypothesis relating to Caltex states that net income does not have a statistically significant impact on employees benefit of the company. Based on the regression estimates and significance analysis the null hypothesis is rejected. This means net income is a statistically significant impact on several benefits given to the employees. The regression result suggests an opposing effect of net income on employees benefit. That means higher net income induces the company to reduce benefits to the employees. The result contradicts most of the previous studies depicting a positive linkage between net income and employee benefit of a company (Lee, 2014).

Hypothesis 2: Net income has significant influence on employee benefits of BHP Billiton

Inference related to BHP Billiton is to test statistical significance of annual net income of BHP Billiton on employees benefit. There is positive linkage between net income and employees benefit in BHP Billiton. Employees benefit expense of BHP Billiton include wage, salaries, employee share awards, cost of social security, obligations related to pension and various other post retirement expenses. The coefficient however is statistically insignificant meaning acceptance of null hypothesis of no significant association of net income of a firm to that of employees benefit.

Hypothesis 3: Net income has significant influence on employee benefits of British Petroleum

The third hypothesis is developed to infer whether there is a statistically is a statistically significant influence of net income on employee benefit for British Petroleum. Like, BHP Billiton the regression result indicates a positive connection of net income to that of employees benefit in British Petroleum. BP this offers a higher benefit to its employees as net income increases. The impact however is not statistically significant as the null hypothesis of no statistically significant association has been rejected based on regression analysis. Net income thus cannot be regarded as a statistically significant factor determining benefit to employees.

Conclusion

Addressing research question and research objective

The primary question that the paper addresses is impact on employee benefit due to change in net impact of three selected companies – Caltex, BHP Billiton and British Petroleum. A mixed result is obtained.

For Caltex, net income has a negative significant influence on benefit to employees. In case of BHP Billiton and British Petroleum the impact of net income on employee benefit is positive but statistically insignificant. Employees Caltex thus adversely affected from net income of the company. No firm conclusion can be drawn regarding the concerned relation between net income and employee benefit for BHP Billiton and British Petroleum.

Limitation

The paper has some limitation that encourages for further research. First is limited sample size. Only thirty observations are considered for the analysis. For each company only ten years’ data are taken. Increasing sample size might give a different result.

Second, apart from net income employee benefit also depends on performance of employees. No measures of employees’ performance however is considered in the paper.

Recommendation

There is no uniform relation between net income of firm and benefit to the employees. The relation varies across firms. Realizing the positive effect of employee benefit on performance of the employees’ firms should provide higher benefit with increase in net income. Companies where net income inversely affect employees benefit should focus on linking employees benefit to some other performance measure of the firm.

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