ARTICLE: Concept and Perspectives of Compensation Management

The compensation management is the process of distributing some monetary value to the employees for their work done for the organization. This is a sub-function of the Human Resource department. But many big companies prefer to have an entire department which takes care of the compensation policies for them. The compensation policy is designed according to the strategic objectives and values of the company. There many other factors which help in deciding a compensation plan for certain posts such as the complexity of the task, the qualification required for it and the skill sets needed to perform a job well. Then the government guidelines also have to be followed while creating the apt compensation policy.


The fundamental purpose of creating useful compensation plans is to retain the best talent by keeping them motivated. The motivated workforce gives its best to any work, and the productivity automatically improves. With designing an employee friendly compensation policies, the companies try to decrease the turn over rates also. There are different types of compensation like the salary, bonus, incentives, overtime pay, insurances, vacation packages etc.


The Goals of Compensation Policies


The primary purposes of the compensation management system are as following:


•    To recruit the mosey suitable, qualified and experienced candidate for the company
•    To increase the employee morale and motivation
•    To reward people for their better work and encourage that behavior to be continued
•    Compensation also helps to achieve external and internal equity in the firm
•    An excellent compensation policy helps the companies to increase the loyalty of the employees towards the organization and to reduce the turnover rates also

There are many factors which are not in control of the employers such as the market factors which decide the pay packages for a particular position. One company can set its pay packages, but it has to consider the packages offered by other companies for the same applicant pool. The moral of the employees also depends upon how well they get paid and rewarded. If they feel satisfied with the benefits provided the organization then it is likely that they will put their maximum efforts to achieve the desired targets.

Different Components of the Compensation system


If the compensation is designed on the systematic approach, then it will be perceived fair by the employees and in turn, will benefit the organization with high productivity and lesser turnover rate. According to the values which should be provided for an individual position, there are several compensation systems which have been developed by the employers. Here is the list of essential components of a successful compensation system:


•    Job Analysis


This is the process of identifying all the details related to a particular job. The data is collected by the HR managers from the employees who do that work and from their immediate seniors. The information about the responsibilities and duties of a task create a ground for writing the job descriptions and according to them deciding the job specification (the skill sets). The data which is produced by analyzing the job helps in many other functions such as training, compensation management, and the performance management system.


•    Job Description


The job description is the written record of the duties and responsibilities of a specific task. There are many other components of job description like the requirements to do it efficiently, the work environment, working conditions, location, the superiors and other aspects of the job. The job descriptions are written by collecting data about each task and its underlying duties. The managers can create JDs for an individual post or the similar kind of jobs by selecting the samples of few functions from them.


•    Job Evaluation


This is a systematic approach to evaluating the value of a specific job and the employee’s efforts to get it right. This is a tool which helps the organization for designing their compensatory policies. Primarily the jobs are evaluated with the help of four significant methods which are factor comparison, job classification, point method and the job ranking method.


•    Pay scales structures


The pay of the employees should be standardized so that there arises no grievance in their mind of employees. Standardization of the pay structure is a crucial function of compensation management. There is a minimum wage or salary decided for each level in the hierarchy and according to that the overall pay of the employees.


•    Salary surveys


Collecting the data from the industry or market is also essential to create a compensation plan. The managers have to analyze the salaries given by the competitors, average salary budget of the company, cost f living of a place, indicators of inflation. There are many companies which collect such data with the help of salary surveys, and the companies can buy it from them.The studies should be conducted for the same industry in which the company is operating and within the same geographical area.


Different types of compensations


The salaries which the employees get at the end of the month is not the only components of compensation. Instead, there are many other benefits which are paid to the employees time to time. These are as following:


•    Bonuses and profit sharing
•    Different types of allowances such as travel allowance, meal allowance and housing allowance
•    Options to invest in the company’s stocks
•    Overtime pay for extra hours of work
•    Different benefits which include coverage of the employee and his/her family under a medical insurance plan, Family vacation trips, leaves, and exemption from the taxes etc.


Different perspectives to consider while structuring the compensation policies


As the part of employment relation, the companies offer many monetary and non-monetary benefits to their employees. There are several rewards and benefits which are given to keeping up the employee morale and enhancing their loyalty towards the organization. Hence it is highly essential to create a win-win situation for everyone if the company wants to archive the heights of success. Therefore,  compensatory decisions should be taken by considering the different perspectives of different factors. The following are the perspectives through which the compensation system can be viewed as:


•    The Societal Perspective


There is no discrimination in the employees due to their race, gender, and geographical background. The pay packages should be performance and competency based.


•    The stockholder perspective


The company should think about increasing the wealth of its stockholders. When any organization creates employment and compensation policies according to the interest of its stockholders, then it will directly affect their performance.


•    The Managerial Perspective


When a company pays salaries and gives other benefits to its employees, then it is like an expense to the company which it has to incur to keep the operations running. This is a considerable expense, and the departments like HRM and finance have to manage it properly. This is also an excellent way to influence the attitude of the workers which leads to the quality of the work. Hence the managers should balance both things to maximize the productivity in the best interest of the organization.


•    The Employee Perspectives


The meritorious performances should always be rewarded. This gives the positive reinforcement to the employees, and the employees repeat the rewarded behaviors. The benefits and rewards also indicate the worth of the employee, and when they feel valued by the employer, it motivates them to deliver best results always.


•    The Global Perspective


The companies should also consider the global scenario across the geographic boundaries in the similar industry. It becomes particularly important if the company has to send expatriates in other country or people from different countries come to work in their country.