Irregularity of Wages and Company Performance

Irregularity of Wages1

Introduction

Work performance is the result of the organization of production and the coordination of the actions of the individuals involved (Williamson, 1993; Ménard, 1997 ). A very old question in economic thinking, research on performance has mostly focused on the organization of work, forgetting aspects relating to the remuneration of employees. However, remuneration, which derives its explanations from the interactions between labor supply and demand, is the result of marginal productivity, regardless of the organization of production or the varieties of firms.

A company’s performance is defined as the level of achievement of results in relation to the efforts made and the resources used (Issor, 2017). It is essentially based on effectiveness and efficiency and is analyzed on three dimensions: the environmental dimension, which advocates sustainable development; the economic dimension, which highlights the achievement of production and market access objectives; and the social dimension, which refers to respect for human rights, working conditions and equal treatment (Reynaud, 2003). The regularity in the payment of wages is part of the social dimension of performance. Salary is the consideration for work done that an employer must pay back to an employee after a given period.

The amount of the salary results from an agreement between the two parties based on training, skills, experience, and sometimes the profile of the job requested. The payment of salary follows several strict regulations, non-compliance with which is punished by law. Among these, there is respect for the regularity of the payments.

What can be the relationship between the performance of a company and the regularity of wages? It is, therefore, a question here of analyzing the effect of the regularity of payment of wages on the performance of companies. Therefore, it is appropriate first to take a theoretical look at the link between wage regularity and business performance before presenting the consequences of irregularity in paying wages on business performance.

I. Effect of the Regularity of the Payment of Wages on the Performance of Companies: Theoretical View

Contemporary literature in economics reveals two contradictory schools of thought about the link between performance and wage regularity. On the one hand, the approach of labor economists puts forward two arguments. The first states that salary is an essential factor in job performance. But it is necessary to add to the salary other complementary and necessary rules for stabilizing the employment relationship.

The second argument asserts a strong relationship between work and wages. Indeed, the salary framed by institutional elements is a major incentive factor and encourages productive involvement at work (Reynaud, 1992; Garnier, 1986; Storper, 1993; Aoki, 1984). The second school of thought is defended by organizational theory, which is essentially managerial. This stream states that coordination is an important principle of organizational control of work performance. In other words, coordination is effective when the authority of the structure is delegated to the employer (Scott and Davis, 2015; Desreumaux, 2015). The focus is on the performance objectives (efficiency, effectiveness, and relevance) of the company, and it is the responsibility of the employer to activate the coordination mechanisms.

The work of Tidjiani (2006) on human resource management in sub-Saharan Africa shows that the high performance of the company is more of taking into account the needs of employees. Indeed, the fact of involvement of the employee in the real functioning of the company reduces him to a production unit and not to a partner.

Yet as a partner, he is more dedicated and committed because he feels his needs are considered. He will be a little more productive when he receives his salary and more when this salary is regular and punctual.

II. The Consequences of Irregularity in the Payment of Wages on Business Performance

Irregularity in salary payments has negative effects on business performance. These effects include, among others, those described below.

Decreased Productivity and Competitiveness of the Company

According to the World Economic Forum (2018), when the salary is not paid or is irregular, the employees are not efficient, which reduces the productivity and competitiveness of the company. In this logic, Akerlof (Nobel Prize in Economics 2001) in 1986 had put forward the theory of efficient wages in which he demonstrated the regularity in the payment of wages and, even more, the increase in wages has a positive effect on worker performance.

In the same direction, the work of Mas (2006) on 500 companies in the United States leads to the result that the regularity in the payment and the increase of the wages of the workers considerably improve their productivity so that the productivity gains cover the loads generated. This means that overall, the productivity and competitiveness of the company are modeled on the psychological effect of the employee, which is to say, on his motivation because a regular salary contributes to the physical and psychological health of the worker, a better diet.

Decreased Business Stability

This is another important factor that affects the company due to the irregularity in the payment of wages. Indeed, when wages are paid on time, there are fewer resignations, which reduces hiring costs and increases the company’s stability. Indeed, regular hiring has financial and time costs for the company. Therefore, it would benefit from having employees who resign less and are loyal.

The works of Reich et al. (2003), Dube et al. (2007), and Fairris et al. (2005) corroborate the idea according to which the regularity of payment of wages reduces resignations in the sense that these authors arrive at the results according to which better wages and regularity in payments encourage employees to remain stable in the company; this makes it possible to compensate for less favorable working conditions such as travel time and reduces disciplinary sanctions.

Adverse Effects on Social Capital

Reflections on social capital are part of the large body of theories of social resources which lead to three propositions (Lin, 1995):

  • The resources help the actor achieve his ends
  • The proposal of the positional force
  • The proposal for the strength of the links

If the salary is considered a resource, the irregularity of payment pushes the employee to violate the proposals mentioned above. As a result, he will not be able to achieve his goals in time and may, to some extent, lose his social position, which may affect his social ties. Thus, the employee could lose the consideration that society gives him.

He will no longer be fulfilled at work when we know, according to Aon (2016), who, in a report, indicated that career development and salary are two of the three factors of worker fulfillment. As a result, an employee who is happy at work is more efficient, productive, motivated, and takes less time off.

Conclusion and Recommendations

The regularity of payment of wages has an important effect on the company’s performance. We, therefore, recommend that companies:

  • Regularize the payment of employees’ salaries
  • Inform their staff in case of late payments
  • Facilitate dialogue between managers and employees, which could lead to a better understanding of employee problems
Dr.-Herve-Nicanor-ONDOUA-1024x908
Dr. Hervé Ondoua
Economy Policy Analyst | + posts

Hervé Nicanor ONDOUA, est titulaire d’un Doctorat Ph.D en Economie de Développement obtenu en Janvier 2021 à l’Université de Yaoundé II-Soa (Cameroun). Il a dans la même université obtenue un Master en Gouvernance et Développement Economique et une Licence en Economie publique.

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