Dhole S.

January-2015 55

Excellence Mapping in Pharmacy and

Compensation Management Management
Volume-1, Issue-1, Pg. 01-15
System: Significance of Vital January-2015
Reprint and Permission:
Theories and Changing Dimensions editor.empm@gmail.com
http://www.empm.in
Mr. Sagar Suresh Dhole Modern Group of Institutes, Indore, MP
PhD Scholar, Nagpur University, India (LLB, MBA)

Dr Anjali Kulkarni:

Professor, CIBMRD, Nagpur

Abstract:

Compensation management system is the most vital plinth of effective functioning, growth
and development of every organization as well as for its Human Resources. It is directly
incidental with significant factors like Organizational growth, job satisfaction of employees,
growth & retention of employees; image and market value of a organization and effective
utilization of various human and material resources Like all the other conventional human
resources management approaches and strategies, total Compensation strategy need to be
analyzed and practiced throughout the time to make it work effectively and perfectly. In this
article, the dimensionalities of total Compensation strategy which varies at all times has been
summarized through the trend of times and redefined. Managers would gain remarkable
profits for the organization they governed if they use the integrated total Compensation
strategy properly. The strategy will not only improve the performance of staffs, act
important role of decision making process of an organization, but also solve existing and
potential compensation problems as well.

Keywords: Compensation Management System,Total Compensation strategy, Human

resource management, Modern management, Motivation.

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1. Introduction employee contribution to the

organization. It is an organized practice
Compensation Management System is
that involves balancing the work-
system of compensating individuals for
employee relation by providing
the work they perform in such way that
monetary and non-monetary benefits to
the organisation is able to attract retain
employees.
and motivate them to perform well
keeping in view organizational and Compensation Management System is a

incidental factors affecting the systematic approach to providing

compensation. monetary and Non Monetary value to

employees in exchange for their work
Compensation Management System
performed Among all kinds of budgets
refers to Refers to the methods of
in an organization, remuneration cost
maintaining balance between interests
remains a part of great importance. With
of company & attracting, developing,
the speedy update of the modern world,
retaining, and rewarding high quality
however, the traditional remuneration
staff through wages and salaries.
management has been facing great
Compensation is defined as
challenges both in public and private
amount of consideration rendered by an
sectors under the current economic and
employer to his employees for the
business circumstance, and then come a
performance of a specific task or
lot of problems which can affect the
providing the stipulated services as per
performance of an organization and
directions or both with consensus of
even cause existential threats. Survey
employer which can be expressed in
has demonstrated that the cash
monetary as well as in non-monetary
Compensation which was paid most
form.-Lord Denning
attention to is not as important as in the
The term compensation is derived past. Based on a 2012 survey of 1,500
from Latin word compensare which employees (of all ages) conducted by
means counter-balance. Nelson Motivation, Inc., in India, the
Compensation is the remuneration ranks of employee motivators in
received by an employee in return for descending order are as follows: a

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learning activity, flexible working Money and substance, which

hours, verbal praise, increased authority, indicates that indirect income and some
autonomy, time with their manager, no-monetary compensation have been
time off from work, public praise, playing parts of increasing
choice of assignment and written praise. importance in Compensation Structure
What is noteworthy is that the cash Design. Generally, Modern
Compensation ranks 15th in Compensations Management is carried
importance (Reynolds, 2012). In out through Total Compensation
recent years, some other Management which matches with the
Compensation-related glossaries also work ethic and pursuit of the present
spring up as the progress of new- employees, and it is an important
fashioned market economics, for reflection of emphasizing the
example, salary management, salary relationship between enjoyment of
administration, payment (or pay) Compensation elements and
management, compensation performance
management, Compensation 2. Compensation Management
management etc. However, the common System
ground is that all of them focus on how
2.1 Interpretation of Compensation
to redound employees, simply in
Compensation Management System is
slightly different approaches.
a process of determining Cost-effective
Modern Compensations Management
pay structure, designed to attract and
appears and develops in the context
retain , provide an incentive to work
of managing transformation; it not
hard and structured to ensure that pay
simply acknowledges and redounds
levels are perceived fair -Stephen P
upon what the members have
Robbins
contributed to the organization, in fact,
Compensation Management System is
its a specific action scheme of
financial and Non financial reward
company strategic objective and values
structure organizations use to
outlook conversion. To some extent,
compensate individuals for the work
Modern Compensations Management
they perform for the origination. -Linda
breaks through the categories of

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K. Stroh working quality, the degree of focusing

Compensation Management System on customers and enthusiasm of

refers to payment system which learning new skills will be influenced

determines employee wages or salary, by the decision-making of

direct and indirect rewards. -I.Kessler Compensation and the ways in which
employees get their Compensations.
Compensation is the remuneration
Regulatory function of Compensation is
which an employee receives from an
embodied in several aspects which
organization (mainly refer to
include reasonably allocating labor
enterprises) for his or her service. It not
force and modulating the configuration
simply contains direct currencies and
of quality of labor force. And it is
other forms which can convert to
obvious that reasonable Compensation
currencies, but also a comfortable
system can help bring effectual income
office, favorable interpersonal
far beyond the cost.
relationship inside the organization,
having access to decision-making 2.2 Development of Compensation

involvement, the challenge and sense of System

achievement, preferable growth The concepts concerned with

opportunities and so forth these kinds of Compensation have experienced five
forms which is difficult to measure in phases through summing up the relevant
various currencies. records

Compensation is the market form of Its obvious that nowadays the

human resources value and form the Compensation system will not only
distribution point which is the return of focus on the employees payment but
respective contribution of human take more attractive non-financial
capital. Compensation has benefits into account in the motivation
compensatory function; it is an management. And out of question, it is
exchange of the service one employee the certain uptrend that modern total
has offered or the retribution for the Compensation strategy will be popular
done work. In addition, motivation is in varieties of companies and get its
another function of Compensation, for rigid status in this highly developing

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world. Compensation strategy that brings

In order to achieve the objectives of additional components such as learning

compensation management, it should and development, together with aspects

proceed as a process. This process has of the working environment, into the

various sequential steps as shown. benefits package. (Armstrong & Brown,

1. Organizations strategy. 2001) Worldatwork, the Total

2. Compensation policy. Compensations Association of U.S.,

3. Job analysis and evaluation. defines total Compensations as all of the

4. Analysis of contingent factors. tools available to the employer that may

5. Design and implementation of be used to attract, motivate and retain

compensation plan. employees. It also indicates that total

6. Evaluation and review. Compensations include everything the

employee perceives to be of value
2.3 Modern Compensation
resulting from the employment
Management-Total Compensation
relationship (Worldatwork, 2006).
Strategy
It goes beyond standard remuneration
Fernandes (1998) describes total
by embracing the company culture, and
Compensation as The sum of the
is aimed at giving all employees a voice
values of each element of an employees
in the operation, with the employer in
Compensation package. Total
return receiving an engaged employee
Compensation begins with total
performance. In other words, total
remuneration, the subset of Total
Compensation provides a broader view
Compensations, which compromises all
to treat everything what an enterprise
the elements of Compensations that can
can offer to its staff and everything what
be valued in monetary terms. And it is a
the employees can promise to their
plan for allocating Compensations
companies, which embodies the
resources in a manner that directs the
fundamental change of management
business to the successful execution of
thinking model of company high-level
its objectives (Manas& Graham,
superintendents.
2002).Total Compensation is the term
that has been adopted to describe a In recent years, total Compensation has

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Dhole S. January-2015 60

been becoming a more and more spectrum of human behavior. Maslow

popular facet which has caught many proposed that motivation is a function
scholars attention. As a part of human of five basic needs-physiological,
resources management practice, total safety, love, esteem and self-
Compensation has also been introduced actualization-which are arranged in
into varieties of enterprises to improve the predictable stair-step fashion (refer
their competitiveness so that they will to Figure 1 below), and he explained
have the abilities to survive in the global that a persons physiological needs must
marketing warfare. be firstly met followed by safety needs,

Now, total Compensation is an and so on up the need hierarchy

advanced model of human resources (Kreitner&Kinicki, 2007). When

management which microscopically designing total Compensation strategy,

accelerates enterprise development and employees multifarious needs must be

macroscopically boosts the well considered, Maslows points will

advancement of social economic help the organization reach its

environment. Compared with traditional expectation.

Compensations system, total Alderfers ERG theory assumes that

Compensation much more
reflects in what ways enterprises can
attract, motivate and retain talents, in
what ways employee performances
which accord with corporate goal will
appear and in what ways the excellent
employees should be motivated and
praised
deeply people have three types of needs:
existence, relatedness and growth, and it
is partly based on some of Maslows
thinking. These three categories are also
arranged orderly, being from existence
needs to relatedness needs and then to
growth needs from lowest-level to
highest-level. Unlike Maslow ideas,

3. Theory Basis of Total ERG theory demonstrates that a higher-

Compensation Management level need can be a motivator even if a

lower-level need is not fully satisfied,
Maslows need hierarchy theory (1943),
and needs at more than one level can be
supposed to be a motivation basis has
motivators at any time (George & Jones,
been used to interpret the entire
2002). Total Compensation strategy also

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Dhole S. January-2015 61

follows Alderfers thought, and the they tend to put greater effort into work.
different components might be used in Expectancy Theory includes three
the mean time, which depends on the dimensions, say, expectancy,
organizations goals and strategies. instrumentality and valence, the level of

The two-factor theory put forward by all of which must be high if desired

(1966) divides job-related factors into behaviors are looked forward to in

hygiene factors and motivators. Hygiene employees work. The position of

factors are those led by work but not Expectancy Theory in total

involve work itself while motivators are Compensation strategy can be inferred

those carry out relevant work-related from Figure 2 (Bohlander& Snell, 2004)

behaviors, and motivation will not be showing the relationship between pay-

significant unless both of the two kinds for-performance and the expectancy

of factors are present. For instance, theory of motivation.

sometimes several elements of total Its certain that the staff want their
Compensation strategy must be needs satisfied, however, they also
synchronously provided by would like to be treated fairly by the
organizations to meet the employees organization. Adams Equity Theory
needs so as to produce motivation concentrates on the concept of fairness
bringing back more behalf. in the workplace. Employees are

Focused on the ways in which workers probable to compare the inputs they

decide which specific behaviors to devote to the work with the outputs they

perform and how much effort to exert, receive from the organization. The

Expectancy Theory predicts ones level equity theory of motivation assumes a

of motivation depends on the balance of employee inputs and outputs

attractiveness of the Compensations as compared to others are illustrated in

sought and the probability of obtaining the form of picture in Figure 3 below

those Compensations (Vroom, 1994; (Drafke&Kossen, 2002). Once they feel

Bohlander& Snell, 2004). If employees they get less outputs than inputs, which

perceive that they may get valued means there isnt a balance, employees

Compensations from the organization, are tend to be unsatisfied and not

motivated. Thus, when total

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Compensation strategy is brought to vision of where it is going and how it

bear it must assure the employees plans to get there, and they want to get
realize the justice of the corporation, for individual growth in acquiring skills
example the procedural justice of that prepare them to add value to the
performance management. business. Thus, combinations of base

4. Dimensionalities of Compensation pay, variable pay, recognition and

Management System celebration and benefits are essential to

providing a complete total
As a burgeoning Compensation-package
Compensation package (Patricia & Jay,
pattern, researchers have given various
2000b) Lyons and Ben-Ora (2002)
subsets of total Compensation strategy,
indicate that total Compensation
although in general this modern
strategy is the best foundation of pay for
management methodology can be
performance. They define total
divided into material and immaterial
Compensation strategy to include
components.
following: base salary, variable pay
Francis and Fernandes (1998) outlined
(containing short-term incentives and
the principal elements of total
long-term incentives), other
Compensation which include basic
compensation, perquisites, benefits and
salary, variable pay, pension benefits,
performance management. Moreover, a
death-in-service benefits, long-term
total strategy may also include training,
disability benefits, private medical
career development, coaching and other
insurance, vacation entitlement,
employee-related policies.
company car schemes, share schemes,
Tropman (2001) suggested that the
mortgage subsidies etc. Patricia and Jay
concept of total compensation which
(2000a) made an analysis of total
he considered as new pay be
Compensation components which refer
expressed in terms of an equation
to individual growth, compelling future,
with ten variables.
total pay and positive workplaces.
TC = (BP + AP + IP) + (WP + PP) +
They hold that people work for more
(OA + OG) + (PI + QL) + X,
than just pay, they are also looking for
an organization which has a powerful where TC= total compensation; BP =

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Dhole S. January-2015 63

base pay, or salary; Compensations in order to explain the

AP = augmented pay, that is, any one- concept of total Compensations more

time payment, even if received at clearly. There are three elements in this

regular intervals; framework: compensation, benefits and

work experience (including recognition,
IP = indirect pay;
work/life balance, company culture,
WP = works-pay, that is, employer-
employee development and environment
subsidized equipment, uniforms, and so
are involved in this element.) However,
on;
Worldatwork afterwards thought that
PP = perks-pay, that is, special the work experience aspect of the
benefitsanything from accessories to model put forward in 2001 included
employee discounts on company aspects of employment that might be
products; some components of the overall
OA = opportunity for advancement and working experience. In 2005, the
increased responsibility; Worldatwork Public Policy Staff

OG=opportunity for growth, both excogitated another more specific

through on-the-job training and through outline of total Compensation which

off-site training and degree attainment;
PI= psychic income, the emotional
enhancements provided by the job itself
and the setting;
QL =quality of life, that is, opportunity
to express other important aspects of
life;
X= any unique element that an
employee wants that the workplace can
facilitate.
In addition, in 2001, the
Compensations Association introduced
a relatively new framework of total
contained four elements: pay (base
salary, variable pay, recognition and
stock are included), benefits (health
care, retirement, savings and time off
are included), learning &development
(career development, performance
management, succession planning and
training are included), work
environment (organization climate,
leadership, performance support and
work/life balance are included).
Total As what has been mentioned, nowadays
people do not work simply for pay, they
also want get chances for individual

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development through which theyre able example, base pay, total cash
to obtain new knowledge and apply compensation, benefits, retirement and
their own talent and valuable skills. As work/life etc.
well, the compelling future and positive 5. Management Role of
workplace may be other facets Compensation Strategy
employees are pursuing. Based on this
The performances of the staff in an
temporized trend, Patricia and Jay
organization adopting total
(2003) constructed a four-component
Compensation strategy become of more
module of Total Compensation which
statistical generalization, which attracts
is shown in table 2.
an increasing number of companies.
Another sample total Compensation Introducing total Compensation strategy
strategy framework, which was built by probably improves not only employees
JLARC/Commonwealth of Virginia in work efficiencies, job satisfaction and
2008, contains three main segments that job performances but their
are compensation, benefits (health) and psychological contract and
work/life environment. Specifically, organizational citizenship behaviors.
compensation provides competitive Because of this effective management
base salary levels necessary to attract method, organizations have more
and retain talent and compensates for channels to acquaint with employees
day-to-day responsibilities performed at work life and other needs; in other way
fully acceptable level and above; round, the personnel can keep positive
Benefits provides flexible and market attitude towards the organizations, might
competitive health benefits to support being less stressful or fairly treated or
employment brand and support some else.
attraction and retention; And work/life
Ittner and Larcker (1995) found that
environment provides elastic work
among less extensive users of formal
practices, telecommuting and support to
quality improvement practices, greater
promote the appropriate balance of
reliance on nontraditional information
productivity and employee engagement.
and Compensation systems is
Furthermore, Commonwealth also
associated with higher performance.
suggested options to consider, for

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Organizations that focus on developing fees) and attendance problems is

an integrated Compensations program negative, but not always statistically
that helps to improve accountability, significant (Jensen & Murphy, 1990;
flexibility, attraction, and retention Adams & Ferreira,
excellence; is well communicated; and 2008). Elements of recognition and
provides technology tools can add Compensation can be as important as
significant shareholder value. Whats structure in achieving the desired
more, the development of a total synergism that accompanies cross-
Compensations program in support of functional cooperation (Appeldorn,
the global Compensations philosophy 2008).
warrants a strategic approach (White,
6. Conclusion
2005). Total Compensation is also an
Compensation Management System is a
important aspect to be considered when
holistic approach aligning with business
some decision processes happen in an
strategy and people strategy; it
organization.
encompasses everything employees
As Total Compensation is put forward
value in their employment relationship
on the basis of total compensation
like compensation, benefits,
which has been using in a large number
development and the work environment
of companies these years, therefore
(Kaplan, 2007). This newly coming
the researches on total compensation
management approach acts according to
and some other Compensation
the circumstance, helps with costing
theories also provide the development
savings, brings about maximum return
of total Compensation with potent
on the Compensations strategy
backgrounds. Total compensation could
adoption, and builds up employment
have an effect on attendance if, as in
brand, all of which are likely to
efficiency wage theories, directors who
contribute to both short-term and
are paid more attend more meetings
long-term goals of an organization. As
because they care more about keeping
a Compensation Management System
their jobs (Adams & Ferreira, 2008).
of effectiveness, its able to gain enough
The relationship between total
good information of employees and
compensation (not including meeting

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 Dhole S. January-2015
conduct objective analysis, so that the
organization can make wise decisions
and assess their influences internal and
external. In spite of diverse definitions,
structures and functions mentioned by
academicians and administrators, there
still is a trend that Compensation
Management System will move along
because of the standards which have not
been unified and have been improving
and perfecting.
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Adams, R. B. & Ferreira, D. (2008). Do
directors perform for pay? Journal of
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Appeldorn, R. H. (2008). Technology
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Armstrong, M. & Brown, D. (2001).
New Dimensions in Pay Management,
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Edition.
Drafke, M. W. & Kossen, S. (2002). The
human side of organizations, 8th Edition,
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Fernandes, F. N. (1998). Total
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incentives. Journal of Political
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Assessment Observations and
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(2007). Business Strategy, People
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Lyons, F. H. & Ben-Ora, D. (2002) Total Compensations to the

Total Compensations Strategy: The
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Table 1.THE FIVE PHASES OF COMPENSATION

Modalities of Compensation Specific Descriptions

Wage A wage is usually a financial compensation, received by a

worker in exchange for their labor.

Salary A salary is a form of periodic payment from an employer to

an employee, which may be specified in an employment
contract. It is contrasted with piece wages, where each job,
hour oro ther unit is paid separately, rather than on
aperiodicbasis.
Compensation Compensation is something similar with pay or salary,
typically a monetary payment for services rendered, as in an
employment. Some benefits may be concluded.
TotalCompensation Total compensation includes pay, benefits, flexible schedules,
education assistance, training courses, and workplace
opportunities to help you get the most out of your career and
personal life. Total Compensation covers all the elements that
employees value in working for their employer. It emphasizes
the integrity of remuneration and is put forward in contrast to
total compensation. Although at most times it is thought as the
same as total compensation, total Compensation remains the
most new word in the category of remuneration or
Compensation.

Table 2.A Four-component Module (Patricia & Jay,2003)

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TOTALCOMPENSATION COMPONENTS

Individual Growth Compelling Future

Total Pay PositiveWorkplace

Figure1.MaslowsNeedHierarchy

Figure2. Pay-for-Performance and ExpectancyTheory

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Inputs: Outputs:
Skill Pay and Benefits
Effort Recognition Job
Performance Satisfaction
Education Opportunities
Others Others

Employee

Organization

FIGURE 3.THE EQUITY THEORY OF MOTIVATION ASSUMES A BALANCE OF

EMPLOYEE INPUTS AND OUTPUTS AS COMPARED TO OTHERS

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