Compensation Management
Compensation Management refers to the establishment and implementation of sound
policies, programmes and practices of employee compensation.
It is essentially the application of a systematic and scientific approach for
compensating the employees for their work in a fair, equitable and logical manner.
Compensation Management is concerned with the compensation to employees for
their work and contribution for attaining organisational goals.
An organisation’s goals or objectives can be achieved when its employees put in
their best efforts in the right direction. Hence, they should be nurtured properly and
paid well for their work, performance, services, etc. Besides wages or salaries,
organisations provide different kinds of incentives, benefits and services to their
employees.
Objectives of Compensation Management:
1.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 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.
2.To Attract Competent Personnel
A sound wage and salary administration help to attract qualified and hardworking 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.
3.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, employee’s attrition is high in knowledge
sectors (Ad-agency, KPO, BPO etc.,) which force the companies to offer better pay to retain their
employees.
4.To Improve Productivity
Sound wage and salary administration help 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.
5.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.
6.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 simplify collective bargaining and
negotiations over pay. It reduces grievances arising out of wage inequities.
7.To Improve Public Image of the Company
Wage and salary programme also seek to project the image of the progressive employer and to
company with legal requirements relating to wages and salaries.
8.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.
9.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 plans that hits workers’ needs is more likely to motivate them to act in the desired
way.
10.Peace of Mind
Offering of several types of insurances to workers relieves them from certain fears, as a result
worker now work with relaxed mind.
11.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.
Remuneration – Definitions
Remuneration may be defined as money received in the performance of work, plus
many kinds of benefits and services that organisations provide their employees.
Money is a direct compensation, known as wages, gross pay. Benefits are indirect
compensation, it includes, life insurance, accident insurance, health insurance,
employees contribution to retirement benefits such as gratuity, pension, pay for
vacation, pay for illness/ sickness, simply it includes payment for welfare and social
security.
Remuneration – 12 Main Objectives
(1) To acquire qualified competent personnel
(2) To retain the present /existing employees
(3) To secure internal and externals equity means similar wages for jobs within an
organisation. External equity implies payment of similar wages to similar jobs in
comparable organisations.
(4) To ensure desired / positive behaviour of employees.
(5) To enhance employee morale and motivation.
(6) To keep control on labour and administrative cost.
(7) To protect in public as progressive employers and to comply the wage legislation.
(8) To satisfy people/employees to reduce the labour turnover, grievances and
frictions over pay inequities.
(9) To pay according to the content, challenges, difficulty, risk of the job and
according to the effort and merit of the employees.
