Compensation Management

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What is Compensation Management?

“Compensation includes direct cash payments, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity”.             -Cascio

The term compensation means employees’ gross earnings in the form of financial benefits and rewards as a part of employment relationship.

Compensation Management can also be viewed as,

·         A system of rewards that motivates employees to perform,

·         A tool used by organizations to foster the values, culture and the behaviour they require

·         An instrument that enables organizations to achieve their business objectives.


The concept of Compensation Management


If compensation is not managed properly, it can be a two-edged sword. On one hand, a high base salary and a lucrative benefits package help an organization to keep and retain high-quality employees. On the other hand, high levels of compensation will create high overhead for the company. Compensation management has become one of the issues both for employees and employers around the world due to its importance. Usually, employees want to get more remuneration for their work as where employers want to pay as minimum as they can. So, regarding the compensation there is a conflict between employees and employers in many organizations. This is called compensation and competition.


 

 

 

Objectives of Compensation Management

General Objectives

·         To attract and acquire qualified and competent employees in order to meet the organizational objectives

·         To secure internal and external equity

·         To control the desired behavior of the employees

·         To reduce conflicts and grievances

·         To ensure industrial harmony

·         To simplify minimum bargain

·         To facilitate pay roll and pay system.

 

            In Compensation management, there are separate objectives for both employees and employers.

 

Employees’ objectives of compensation management

                            ·  

  •          To get equity based remunerations
  •          To satisfy their worth
  •          To have cushion for price inflation
  •          To have security and welfare considerations.

  

Employers’ objectives of compensation management

  •          To acquire competent employees at reasonable costs to the company.
  •          To justify the cost to the company through performance and productivity improvement
  •          To ensure industrial harmony by satisfying the worth of the employees
  •          To comply with legal rules
  •          To boost the morale of the employees.


Basic factors of Compensation Management

                     1.  The Organizations Ability to Pay:

Payments are depended on the affordability of the organization. If the Company has good sales and high profits they tend to pay higher. If the company runs at a loss or earns low profits because of higher cost of production or low sales, the firm is marginal and can’t afford to pay higher than the competitors and then employees will go to other firms. Therefore, all employers who irrespective of their profits or lose, must pay not less than their competitors and to pay more if they wish to attract and retain workers.

2.   Supply and Demand of Labor:

The labor market conditions or supply and demand forces operate at the national, regional and local levels determine organizational wage structure and level. If the demand for certain skills is high and supply is low, the result is a rise in the price to be paid to these skills. The other alternative is to pay higher wages if the labor supply is scarce; and lower wages when it is excessive. Similarly, if there is a great demand for labor expertise, wages rise; but if the demand for manpower skill is minimal, the wages will be relatively low.

3.   The Cost of Living:

The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increase or decrease in an acceptable cost of living index. However, when living costs are stable or decline, the management does not resort to this argument as a reason for wage reductions.

4.      Labor Union:

Labor union also helps in paying better wages to the workers. Higher wages have to be paid by the firm to its workers under the pressure of the trade unions.

5. The Living Wage:

It implies that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. However, employers do not generally favor using the concept of a living wage as a guide to wage determination because they prefer to base the wages of an employee on his contribution rather than on his need.

6. Government:

Government has also fixed the rules for protecting the interest of the employees. The organizations are liable to pay as per the Government instructions. Wages cannot be fixed below the level prescribed by the Government.

7. Productivity of Workers:

To get the best results from the employees and to increase the productivity, compensation has to be linked with productivity.


References

 

 


Comments

  1. Dilanka FernandoJuly 16, 2020 at 5:21 PM

    How do you experience Compensation management in your organization?

    ReplyDelete
  2. Buddima BandaraJuly 17, 2020 at 9:31 AM

    What the modern approaches for compensation management?

    ReplyDelete
  3. Eranga PrabhashanaJuly 18, 2020 at 9:17 AM

    Hi hasangani, Compensation management is another curve
    Employee motivation is a method. But do you think employees can be satisfied with the current compensation management in Sri Lanka?

    ReplyDelete
  4. Sajitha EkanayakeJuly 19, 2020 at 3:08 AM

    Hi Hasa, do you think can we apply this theory to recruitment to attract employees from different organisations?

    ReplyDelete

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