Compensation Management
z Jayashree R
Assistant Professor-MBA
Sri Ramakrishna College of
Arts & Science
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Compensation
Compensation is the remuneration given to the
employees for their work or contribution made to the
business.
The contribution can be as time, knowledge or
commitment to the projects they are handling.
Compensation comprises regular salary and other non-
monetary benefits that an employee gets for their
services in the organisation.
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Compensation is a part of human resource
management, which helps to keep the employees
encouraged and improves an organisation's
effectiveness.
A company's compensation plans also reflect its values
and culture. It shows how thoughtful the organisation is
towards its employees.
Compensation would be fair if it covers basic living
expenses, keeps up with inflation and gives some room
for savings.
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Compensation may achieve several purposes assisting
in recruitment, job performance, and job satisfaction.
An ideal compensation management system will help
significantly boost the performance of employees and
create a more engaged workforce that’s willing to go the
extra mile for the organization.
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Introduction
Compensation is the key deciding factor for any employee to
take up a job offer or stay loyal to the current job.
The compensation of an employee decides his standard of
living, his position in society and in turn reflects his loyalty,
motivation levels etc.
It also helps in improving organizational efficiency.
Compensation also helps in maintaining coordination between
work & employee relationships by providing them monetary &
non-monetary benefits.
In other words, compensation can be defined as the monetary
worth given to the employee by the employer in return for
their service to the organization.
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Employees are provided compensation in three different
forms:
• Pay: Provided in the form of periodic wage & salary.
• Benefits: Provided in the form of medical facility,
insurance facility, recreational benefits etc.
• Incentives: Provided in the form of bonuses,
commissions etc. to award the good performers.
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Compensation Management
Compensation management practice is essential for
every organization’s performance.
Organizations have used compensation management
practices to achieve their performance, particularly in
relation to retention.
The impact that compensation management practice
has on an organization’s performance is apparent, as
many researchers have shown in their studies from the
United States and Europe, to Asia and Africa.
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Compensation management practice consists of policies and
practices that are used by managers to reward and maximize
the potential of human resources in the organizations.
Compensation management is been studied extensively by
researchers and it is shown to have a significant effect on firm
performance.
Compensation management is needed in organizations for the
financial income and well-being of their employees.
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Objectives of Compensation
Planning
Compensation is a very important part of an
organization therefore, we must consider certain
objectives before planning for compensation to the
employees. These are as follows:-
• Internal & External Equity
• Attract Quality Candidates
• Retain Employees
• Cost Control
• Comply with Legal Rules
• Ease to Understand and Operate
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Internal & External Equity
The employees should be paid in accordance to the services
delivered by them. In internal equity, if an employee is
performing a difficult or more complex task he should be paid
more in synchronization with his contribution to the organization.
The absence of internal equity can lead to discontent amongst
the employees and an unhealthy work environment.
In external equity, an employee’s job should be fairly
reimbursed to similar jobs in the market. In the absence of which
the employees might leave in the hunt of greener pastures
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Attract Quality Candidates
Quality candidates are in demand in every organization.
In order to attract and retain them the compensation
offered by an organization needs to be high enough to
retain them.
An organization should offer higher salaries which will
motivate talented candidates to apply.
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Retain Employees
Nowadays there are ample opportunities available to the
candidates in the market hence the most challenging
task of an organization is to retain its employees.
If the organization wants to retain efficient employees it
should maintain an effective level of compensation.
If the level falls employees can switch to other
organizations.
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Cost Control
A good organization always ensures that their
employees are neither paid too less nor too much.
Both situations are harmful to the organization. They
should always be paid in proportion to the services
provided by them.
The organization should also take care that the cost of
recruiting new talents is not too high.
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Comply with Legal Rules
while giving the compensation to the employee’s government
policies and rules should also be kept in mind regarding minimum
wage, allowances, benefits, bonuses etc.
Ease to Understand and Operate
The compensation planning should be easy to understand and
operate. It should be comprehensive and clear and the employees,
managers and union should be able to refer to them with ease.
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Thank You
