Definition of Compensation Responsibilities

Learning Objectives

After reading this chapter you should be able to:

➢➢                     Define Compensation Responsibilities

➢➢                     Understand the Compensation Objectives

➢➢                     List different Significance of Compensation Management

➢➢                     Know the Principles of Compensation Management

Introduction

A good compensation package is important to motivate the employees to increase the organizational productivity. Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals. Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose.

 The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards. Human Resource Management (HRM) has never been as significant as it is today. Companies want to attract, retain and motivate brains to meet objectives. Today humans are regarded as one of every company’s assets, so they need to be efficiently and effectively managed. One of the tools companies use to attract, retain and motivate its people is Compensation Management.

Objectives of Compensation Management

To Establish a Fair and Equitable Remuneration

Effective compensation management objectives are to maintain internal and external equity in remuneration paid to employees. Internal equity means similar pay for similar

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work. In other words, compensation differentials between jobs should be in proportion of differences in the worth of jobs. External equity implies pay for a job should be equal to pay for a similar job in other organizations. Payments based on jobs requirements, employee performance and industry levels minimize favoritism and inequities in pay.

To Attract Competent Personnel

A sound wage and salary administration helps to attract qualified and hard-working people by ensuring an adequate payment for all jobs. For example IT companies are competing each other and try their level best to attract best talents by offering better compensation packages.

To Retain the Present Employees

By paying competitive levels, the company can retain its personnel. It can minimize the incidence of quitting and increase employee loyalty. For example employees attrition is high in knowledge sectors (Ad-agency, KPO, BPO etc.,) which force the companies to offer better pay to retain their employees.

To Improve Productivity

Sound wage and salary administration helps to improve the motivation and morale of employees which in turn lead to higher productivity. Especially private sectors companies’ offer production linked compensation packages to their employees which leads to higher productivity.

To Control Cost

Through sound compensation management, administration and labour costs can be kept in line with the ability of the company to pay. If facilitates administration and control of pay roll. The companies can systematically plan and control labour costs.

To Improve Union Management Relations

Compensation management based on jobs and prevailing pay levels are more acceptable to trade unions. Therefore, sound wage and salary administration simplifies collective bargaining and negotiations over pay. It reduces grievances arising out of wage inequities.

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To Improve Public Image of the Company

Wage and salary programme also seeks to project the image of the progressive employer and to company with legal requirements relating to wages and salaries.

To Improve Job Satisfaction

If employees would be happy with their jobs and would love to work for the company if they get fair rewards in exchange of their services.

To Motivate Employees: Employees

All have different kinds of needs. Some of them want money so they work for the company which gives them higher pay. Some of them value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way.

Peace of Mind

Offering of several types of insurances to workers relieves them from certain fears, as a result workers now work with relaxed mind.

Increases Self-Confidence

Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in them and in their abilities if they receive just rewards. As a result, their performance level shoots up.

Significance of Compensation Management

Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men.

Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour expects wages from the process.

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Labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labour therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following:

➢➢                     An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed.

➢➢                     It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable.

➢➢                     Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system.

➢➢                      The system should be simple and flexible so that every employee would be able to compute his own compensation receivable.

➢➢                      It should be easy to implement, should not result in exploitation of workers.

➢➢                     It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.

➢➢                     An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed.

➢➢                     It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable.

➢➢                     Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system.

The system should be simple and flexible so that every employee would be able to compute his own compensation receivable.

➢➢                     It should be easy to implement, should not result in exploitation of workers.

➢➢                     It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.

➢➢                     Such system would help management in complying with the various labor acts.

➢➢                     Such system should also solve disputes between the employee union and management.

➢➢                     The system should follow the management principle of equal pay.

➢➢                     It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel.

➢➢                     Sound Compensation/Reward System brings peace in the relationship of employer and employees.

➢➢                     It aims at creating a healthy competition among them and encourages employees to work hard and efficiently.

➢➢                     The system provides growth and advancement opportunities to the deserving employees.

➢➢                     The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.

➢➢                     The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job.

➢➢                     The business organization can think of expansion and growth if it has the support of skillful, talented and happy workforce.

➢➢        The sound compensation system is hallmark of organization’s success and prosperity. The success and stability of organization is measured with pay-package it provides to its employees.

Principles of Compensation Administration

➢➢                     Compensation policy should be developed by taking into consideration of the views of employers, the employees, the consumers and the community.

➢➢                     The compensation policy or wage policy should be clearly defined to ensure uniform and consistent application.

➢➢                     The compensation plan should be matching with overall plans of the company. Compensation planning should be part and parcel of financial planning

➢➢                     Management should inform the wage/salary related policies to their employees. Workers should be associated in formulation and implementation of wage policy

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➢➢                     All wage and salary related decisions should be checked against the standards set in advance in the wage/salary policy

➢➢                     To manage compensation related matters adequate information/data should be developed and stored for future planning and execution.

➢➢                     The compensation policy and programme should be reviewed and revised periodically in conformity with changing needs.

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