Compensation Management

A Machine Can Do The Work Of 50 Ordinary Workers, But It Can Not Do The Work Of One Extra Ordinary Worker.

COMPENSATION MANAGEMENT

Compensation is the remuneration received by an employee in return for his/her contribution to the organization.

Compensation management is a process of determining cost-effective pay structure, designed to attract and retain, provide an incentive to work hard and structured to ensure that pay levels are perceived as fair.

-Stephen P. Robbins, David A DeCenzo, Robin Stuart-Kotze and Eileen B. Stewart

Compensation is what employees receive in exchange for their contribution to the organization.

It also refers to all forms of financial returns and tangible benefits that receive as part of an employment relationshipMeaning:

Objective:The most important objective of any pay system is fairness or equity, generally expressed in three forms

Internal equity: where more difficult jobs are paid moreExternal equity: where jobs are fairly compensated in comparison to similar jobs in labour marketIndividual equity: where equal pay is ensured for equal work

Major Phases of Compensation Management(Internal equity)

Job AnalysisJob evaluationJob ranking Job grading

External EquityWage and salary surveysPricing jobs

Total compensation packageCompensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services.

Compensation can be classified into:Direct CompensationIndirect Compensation Non-monetary Compensation

3Non-monetary compensationNon-monetary compensation can include any benefits an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, opportunity for growth, preferred office furnishings, assigned parking spaces, preferred work assignments, preferred lunch hours, own secretary etc.

Characteristics of Effective compensation planning Attract talentRetain talentEnsure equityReward appropriately(loyalty, commitment, experience, risk raking and other desired behaviours)Control costsComply with legal rulesEase of operation

**Purpose of CompensationMotivate & Retain StaffAttract talentAdministratively Efficient

MODERN APPROACH

16-5Components of Pay Structure The two essential components of pay structure are;Basic Wages: The basic wage rate is fixed taking the skill needs of the job, experience needed, difficulty of work, training required, responsibilities involved and the hazardous nature of the job.Dearness allowances:Dearness allowance : Dearness allowance it paid to employees in order to compensate them for the occasional or regular rise in the price of essential commodities.

16-6The following, however, do not come under the term wages BonusPayments made under a profit sharing schemeValue of house accommodationMedical allowancesTravelling allowances Any other sum paid to defray special expenses incurred by the workerContribution to pension, provident fundAny amenity or service excluded from the computation of wages Components of Pay Structure

-Jack WelchIf you pick the right people and give them the opportunity to spread their wings- and put compensation as a carrier behind it-you almost dont have to manage them.

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