Compensation Satisfaction and the Design of Compensation and Reward Schemes: A Review of the Associations Between Compensation Satisfaction and Various Compensation Components in the European Management Consulting Industry

Frederik Søren Daugaard Jensen & Thomas Saugstrup

Student thesis: Master thesis

Abstract

This thesis aims to investigate the impact of various compensation and reward scheme components on employees' level of compensation satisfaction. The contextual focus is on the management consulting industry in Europe. Much is known about the construct of compensation satisfaction, but the impact of various components of compensation and reward schemes on the construct has not been tested systematically. We seek to address this research gap.
First, we set out to investigate which compensation component that is most likely to be associated with high levels of compensation satisfaction for management consultants. Next, we address the potential adjusting effects of individual characteristics on the significance of compensation components. Finally, we discuss the implications of our findings for the design of compensation and reward schemes in management consulting.
We develop hypotheses to investigate our problem statement and test them by using a multinomial logistic regression model based on a representative data sample. The hypotheses are based on insights from expectancy theory, social exchange theory, self-determination theory, crowding theory, agency theory and theories of distributive and procedural justice.
Our main result is that the base salary component is more likely than any other component to be associated with high levels of compensation satisfaction. Further, the component related to safety and work-life balance is more likely to be associated with low levels of compensation satisfaction, relative to other components. We found that the associations between compensation satisfaction and compensation components were impacted by a consultant's seniority, location and the size of his or her employer.
We argue that our findings would have at least three implications for the design of compensation and reward schemes in management consulting. First, we suggest that management consultancies, above all, should prioritize giving their employees a competitive base salary. Second, management consultancies should consider whether the allowance component should have a more prominent role than the incentive component. Finally, we argue that the safety and work-life balance component may have a positive impact on retention, recruiting and reputation.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages163