Success Factors of Compensation Management in Organizations

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First of all, we would to explain the concept of Compensation management in organizations, we can say that it includes the role of human resources management in dealing with employees, and methods used to provide compensation. It also highlights the importance of maintaining the capable education qualification, the value of developing their skills, and the significance of providing the appropriate atmosphere for them. Several important topics will be addressed in the class such as: Compensation professionals’ goals within a human resource department. Ways to strengthen the pay-for-performance link. Ways to strengthen the pay-for-performance link, health insurance concepts. It can be described as a systematic approach to providing monetary value to employees in exchange for work performed. Employee compensation may achieve several purposes in recruitment, job-performance and job satisfaction. It can be defined as all the rewards earned by employees in return for their labour. We have to say that Compensation in divided into direct & indirect components. First type is direct compensation; it consists of pay received in the form of salaries, bonuses and commissions provided as regular and consistent intervals. The second type is indirect compensation, it includes all financial rewards that are not included in direct compensation and can be added to form part of the social contract between the employer and employee for example benefits, leaves, retirement plans, education, and employee services. While non financial compensation can be referred to topics for example career development and opportunities, recognition, as well as work environment and conditions. In determining effective rewards, the uniqueness of each employee must also be considered. All people have different reasons for work. The most appropriate compensation will meet these individual needs, fair compensation is in the mind of the employees.

In this part of study we have to study role of compensation in organization, we have to say that good compensation strategy should includes a balance between internal equity and external competitiveness. For sure Compensation and benefits affect the productivity and happiness of employees, and the ability of organization to effectively realize its objectives as well. It is an advantage to ensure that employees are creatively compensated and knowledgeable of their benefits. The role of compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to have a better performance and achieve the required standards. Compensation will enhance the process of job evaluation, it can help in setting up an ideal job evaluation and the set standards would be more realistic and achievable. Once the employee understands and accepts compensation level, it becomes a type of thinking takes into consideration the factors which may induce an employee to stay on with a company. The size and prestige of the company, the power of the union, the wages and benefits that the employee receives in proportion to the contribution made by him- all have their impact. While internal compensation is social traditions, customs prevalent in the organization and psychological pressures on the management, the prestige attached to certain jobs in terms of social status, the need to maintain internal consistency in compensation at higher level, the ratio of the maximum and minimum wage differentials, the norms of span of control, and Demand for specialized labour all affect the internal wage structure of an organization.

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The main form of compensation is money, it always considered as a mean of achieving human’s need such as food, clothing, insurance, education, etc. the nature of Human Resource market is one of the most important issues affecting compensation plan of any company. In analyzing the nature of human resource market there are three issues as follow demand and supply, the nature of demand and supply are of various types and operates at regional, national and global level and determine wages and salary structure. In the case of Human Resource the level of demand and supply of a productize decided-If the demand of a certain category of product exceeds their supply their price is tend to be higher in respect of their productivity-which may reduce productivity of human resource in another market or remain constant. The employer's demand for labour is dependent on a number of factors such as demand for his/her product, availability of other factor of determination, the level of technological. Second issue is Productivity of human resource is another market related force which affects compensation management. If productivity of a personnel is high the wages and salary rate will also he high and if the productivity of personnel is low the wage s and salary payable to him will also be low. E.g. many foreigners have opted to open their Business in India though there are many issues behind it. One of those factors/issues is low employee cost but this low employee cost is offset by lower productivity. Compensation can be said to be the reward or remuneration for a task performed. Compensation plays a key role in job performance. The effect of compensation can be negative if monetary compensation and finding benefits inadequately satisfy the worker. Apart from monetary compensation strong motivators include recognition and promotion which boosts the workers morale. Apart from basic salaries and wages other monetary compensations employed for employers include commissions and bonuses.

In this part of study we will discuss, we will study the main components of compensation system as follow. First component is job analysis; it is the process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Second component is job description, which can be described as a critical component of compensation and selection systems, job descriptions can define in writing the responsibilities, requirements, functions, duties, environment, conditions, and other aspects of positions. Descriptions may be developed for jobs individually or for entire job families. The third component is job evaluation, which can be described as system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. Job evaluation determines the relative values of compensable factors for the jobs in company. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. The fifth component is pay structure it is useful for standardizing compensation practices, most pay structures include several grades with each grade containing a minimum salary and either step increments and grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining. The sixth component is Salary survey, it can be described as a collections of salary and market information, which include average salaries, inflation indicator, cost of living indicators, salary budget averages. Organizations may purchase results of surveys conducted by survey supplier or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. The last component is policy and regulation, Compensation will be perceived as fair if it is comprised of a system of components developed to maintain internal and external al equity.

Now we can say that compensation can be described as a motivational tool, it can be said to be the reward for a task performed. It plays a key role in job performance. The effect of compensation can be negative if monetary compensation and finding benefits inadequately satisfy the worker. On the other hand monetary compensation as strong motivators includes recognition and promotion which controls the workers morale. Away from basic salaries and wages other monetary compensations employed for employers include bonuses. Compensation cannot directly improve employee performance, but is able to increase his motivation and strengthen organizational commitment. Motivation gives a strong effect on relationship between compensation and employee performance. A strong compensation structure could limit the efficiency because employees expect a fixed comp. irrespective of job input. Company vacation, insurance, housing allowance, transportation allowance and meals end also year and bonuses can be strong sources of motivation. Employer help to achieve his company's goals through performing assigned jobs, while Employee seek motivation to meet the design lied goals in which the country is able to help them by setting attainable conditions and measures. A well thought and fair compensation system aligned with success in fulfilling the designated goals is the basis of Social Peace in the company and surely motivates employers to deliver the required performance. But attention should also be paid to nonfinancial motivational tools.

The harder it is to define and grasp these tools the more significant a role they play in motivating employees. There are some policies for Compensation at the company level which are subject to the overall legislative and other mandatory principles established by the Government. A lot of considerations both objective and subjective weight the determination of compensation policies at the company level. There is a clear need for balance between organization design and company policies. Organizations also have to consider the policies of other companies, this pressure of collective bargaining and the profile and expectations of the workforce. The actual practice compensation policies and structures are determined unilaterally by employer in situations where employer could exploit the prevailing labour market situation, jointly by management and workers union though collective bargaining through consultations among the three partners in government, management and labour representatives under the minimum wages legislations wage boards and pay commissions courts through adjudication. No employee should be evaluated or paid for results he or she has little or no impact upon. Pay for performance plans that award payments to employees based upon broad financial results such as return on equity, return on assets, return to stockholders and the like are paying for organizational performance not employee performance.

Finally we can say that we have presented the main issues of compensation management along with success factors of organization which can retain employees with increasing job satisfaction. This study has concluded that compensation has direct relation with job satisfaction and job motivation as well. We have discussed changing trend of compensation plans and components. It shows that employees and employers are getting towards financial as well.

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Success Factors of Compensation Management in Organizations. (2020, December 14). WritingBros. Retrieved March 29, 2024, from https://writingbros.com/essay-examples/success-factors-of-compensation-management-in-organizations/
“Success Factors of Compensation Management in Organizations.” WritingBros, 14 Dec. 2020, writingbros.com/essay-examples/success-factors-of-compensation-management-in-organizations/
Success Factors of Compensation Management in Organizations. [online]. Available at: <https://writingbros.com/essay-examples/success-factors-of-compensation-management-in-organizations/> [Accessed 29 Mar. 2024].
Success Factors of Compensation Management in Organizations [Internet]. WritingBros. 2020 Dec 14 [cited 2024 Mar 29]. Available from: https://writingbros.com/essay-examples/success-factors-of-compensation-management-in-organizations/
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