Academic journal article Research and Practice in Human Resource Management

Descriptive Case Study of the Use of Non Cash and Informal Compensation in Thailand

Academic journal article Research and Practice in Human Resource Management

Descriptive Case Study of the Use of Non Cash and Informal Compensation in Thailand

Article excerpt


Non-cash compensation is increasingly used in Western countries (Hashimoto 2000, Dale-Olsen 2006), and its importance in recruiting and retaining employees has been highlighted by many human resource experts (Healey 1998, De Young 2000). As reported in the trade journals, the use of non-cash compensation can take various forms, such as luxury cars, allowing employees to bring pets to work, telecommuting, a concierge service, and gifts of the company's own products. Executives have commented that these incremental compensation expenses make their employees satisfied, which results in a lower employee turnover and associated costs (Fenn 1995, Healey 1998, De Young 2000, Vogt 2005).

In addition to determining the pay composition (whether to pay in a form of cash or in goods or services), employers can choose whether to pay employees formally with a salary and fringe benefits or informally. Informal compensation is additional compensation that is not stated in employment contracts, company charters, or company policy. For example, in addition to formal annual leave, a supervisor can allow a subordinate to take 'sick' leave when the workload is minimal. This extra leave is considered to be informal compensation.

Much of the previous research in the literature on compensation empirically and theoretically investigates the use of formal cash or equity compensation in Western countries (see Murphy (1998) for a review of the literature on cash and equity compensation for executives in large companies in the U.S., and Core, Guay and Larcker (2003) for a more recent review of the literature on equity compensation in U.S. companies). Although researchers have also turned their attention to compensation in other countries (e.g. Canada, the United Kingdom, Germany, Italy, Spain, Denmark, Bulgaria, China, and Japan), there is still relatively less literature on compensation outside the U.S. (Murphy 1998). Werner and Ward (2004) review the recent compensation literature and remark that little research has been devoted to international compensation. The authors also find that only 8.3 per cent of the 396 papers reviewed study benefits as opposed to cash wages, salaries, and equity compensation. None of the papers reviewed specifically studied informal compensation.

The purpose of this paper is to describe the use of non-cash and informal compensation in Southeast Asia, a research area that is less extensively explored. The overall research questions of interest for this study are: (a) the kinds of goods and services that are paid as non-cash compensation, (b) whether any part of compensation is paid informally, and (c) why employers choose to pay in goods or services rather than cash, and in an informal rather than a formal way.

An exploratory case study of three Thai companies was conducted to answer the research questions. The study reveals that medical checkups or in house medical benefits, paid leave, training programmes, and New Year gifts are the most common non-cash compensation, and that extra non-cash compensation is often paid to executives. The employers used pay in goods to exploit a cost advantage (by providing goods to a large number of employees or through access to low cost supplies), to comply with the law, to attract job candidates and retain employees, and to enhance production. Some employees in the firms also receive informal cash compensation. This extra compensation is paid informally because this means of payment is more flexible (or easier to change), and because it gives the payer some influence or power over the payee. Informal compensation is often paid to reward performance based on subjective evaluation. The cases also illustrate how the firms studied use noncash and informal compensation creatively and intelligently to mitigate employee misbehaviour.

The remainder of this paper proceeds as follows. …

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