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Assignment on Compensation
Management
Table Of content

 Compensation management
 Importance of compensation Management
 How a Compensation Management Solution Can Facilitate Employee Recognition?
 Objectives of Compensation Management
 Types of Compensation Management
 Need of Compensation Management
 External and Internal Factors of Considered in Deciding the Compensation
 Significances of Compensation Management
 How to design a compensation plan
Compensation Management

 In simple terms, compensation is everything that a

company offers its employees in return for their talent and
time. When organized the right way, compensation dollars
can be strategically leveraged to reduce turnover, boost
employee engagement and attract top talent. The purpose
of compensation management is to make the most of
company dollars in a way that rewards employees for their
work.
Importance of Compensation
management
 Compensation management makes a company vigilant. It drives managers to be on the
lookout for star performers who must be given rewards for their efforts, which
ultimately decreases the risk of losing a valuable employee.
 It is positive reinforcement. Yes, money doesn’t make the world go round and if line
managers are not friendly, helpful and supportive retention is difficult. But cash prizes
and consistent monetary perks in conjunction with a great work environment allow
companies to grow by leaps and bounds through motivated, hard working employees.
 Compensation management enhances the company’s reputation. When workers are
satisfied with their monetary and intangible rewards, they attract better prospects for
vacant positions, bringing new, fresh talent to the organization
How a Compensation Management Solution Can
Facilitate Employee Recognition?
Employees Want To Feel Valued
 Now more than ever, employees want
to feel valued for the work they do.
Management can achieve this through a
compensation management system that
rewards top talent for their above-and-
beyond success.
How to Show Them Their Value
Implementing compensation management
software can help you answer these
questions for employees: What qualifies
for above-and-beyond performance? What
are the company’s expectations for me, and
how will I be rewarded for meeting (and/or
exceeding) these criteria?
objectives of compensation
management

To Attract Top Talent To Boost Motivation

 one of the primary goals of  When structured effectively, your
compensation should be to recruit compensation plan can drive
qualified talent. When you have a motivation across your teams.
competitive compensation plan in Employees who know that they’re
place, you’ll be better able to attract being fairly compensated for their work
top industry talent feel appreciated and are therefore more
likely to stay engaged, committed, and
productive.
To Be Compliant
 Compensation isn’t just about being
fair within the industry; it must also
comply with federal regulations, such
as the Fair Labor Standards Act. While
adhering to standards can complicate
your compensation management, it will
help protect your company against
litigation and ensure fairness across the
board for your personnel.
Retain & Reward Personnel
 Don’t lose your top talent to your
competitors because employees believe
that the grass will be greener
elsewhere. Find out market values for
your employees and pay accordingly.
You can also set up pay-for-
performance models to drive
performance by encouraging associates
to reach new goals and push farther
Types of Compensation

Direct Compensation Indirect Compensation

 Direct compensation can be in the form of  it is essential to understand that employers
wages, salaries, commissions and bonuses that can include standard contractual, non-
an employer provides regularly and monetary features covering annual leave, as
consistently. Compensation that isn’t well as valuable benefits such as healthcare,
considered direct includes benefits, retirement in indirect compensation. Indirect
plans, leaves, employee services and education. compensation differs from direct
It is wise for employers to distinguish between compensation, which is monetary
direct and indirect compensation in their
compensation paid directly to employees for
benefits packages and to acknowledge the
their services, starting with their salary.
power that indirect compensation can play in
getting and retaining employees, especially if Instead of being paid directly to an
the employees are otherwise satisfied with their employee, indirect compensation is
direct compensation calculated as an extra component of the base
salary.
Need of Compensation Management

 A good compensation  Unless compensation is provided no

one will come and work for the
package is important to organization. Thus, compensation helps
motivate the employees to in running an organization effectively
increase the organizational and accomplishing its goals.
productivity
 Salary is just a part of the
compensation system, the employees
have other psychological and self-
actualization needs to fulfill. Thus,
compensation serves the purpose.
 The most competitive compensation
will help the organization to attract and
sustain the employees
External Factors of Considered in
Deciding the Compensation
Demand and Supply of Labor
 Wage is a price or compensation for the
services rendered by a worker. The firm
requires these services, and it must pay
a price that will bring forth the supply
which is controlled by the individual
worker or by a group of workers acting
together through their bunions.
Cost of Living
 Another important factor affecting the
wage is the cost of living adjustments
of wages. This tends to vary money
wage depending upon the variations in
the cost of living index following rise
or fall in the general price level and
consumer price index. It is an essential
ingredient of long-term labour contract
unless provision is made to reopen the
wage clause periodically
 Labour Union
 Organized labor is able to ensure better
wages than the unorganized one. Higher
wages may have to be paid by the firm to
its workers under the pressure or trade
union. If the trade union fails in their
attempt to raise the wage and other
allowances through Collective bargaining,
they resort to strike and other methods
hereby the supply of labour is restricted.
This exerts a kind of influence on the
employer to concede at least partially the
demands of the labour unions
Prevailing Wage Rates
 Wages in a firm are influenced by the
general wage level or the wages paid
for similar occupations in the industry,
region and the economy as a whole.
External alignment of wages is
essential because if wages paid by a
firm are lower than those paid by other
firms, the firm will not be able to
attract and retain efficient employees.
Internal Factors
Ability to Pay
 Employer’s ability to pay is an important
factor affecting wages not only for the
individual firm, but also for the entire
industry. This depends upon the financial
position and profitability of the firm.
However, the fundamental determinants
of the wage rate for the individual firm
emanate from supply and demand of
labour. If the firm is marginal and cannot
afford to pay competitive rates, its
employees will generally leave it for
better paying jobs in other organizations
Top Management Philosophy
 Wage rates to be paid to the employees
are also affected by the top
management’s philosophy, values and
attitudes. As wage and salary payments
constitute a major portion of costs
and /or apportionment of profits to the
employees, top management may like
to keep it to the minimum.
 Productivity of Workers
 To achieve the best results from the
workers and to motivate him to
increase hisefficiency, wages have to
be productivity based. There has been a
trend towards gearing wage increase to
productivity increases
Job Requirements
 Job requirements indicating measures
of job difficulty provide a basis for
determining the relative value of one
job against another in an enterprise.
Explicitly, job may be graded in terms
of a relative degree of skill, effort and
responsibility needed and the adversity
of working conditions
Significances of Compensation Management
 Effective compensation management
objectives are to maintain internal and
external equity in remuneration paid to
employees. Internal equity means
similar pay for similar work. In other
words, compensation differentials
between jobs should be in proportion of
differences in the worth of jobs.
 A sound wage and salary
administration helps to attract qualified
and hardworking people by ensuring an
adequate payment for all jobs. For
example IT companies are competing
each other and try their level best to
attract best talents by offering better
compensation packages
 By paying competitive levels, the
company can retain its personnel. It can
minimize the incidence of quitting and
increase employee loyalty. For example
employees attrition is high in
knowledge sectors (Ad-agency, KPO,
BPO etc.,) which force the companies
to offer better pay to retain their
employees.
 Sound wage and salary administration
helps to improve the motivation and
morale of employees which in turn lead
to higher productivity. Especially
private sectors companies’ offer
production linked compensation
packages to their employees which
leads to higher productivity.
 Through sound compensation
management, administration and labour
costs can be kept in line with the ability
of the company to pay. If facilitates
administration and control of pay roll.
The companies can systematically plan
and control labour costs.
 Compensation management based on
jobs and prevailing pay levels are more
acceptable to trade unions. Therefore,
sound wage and salary administration
simplifies collective bargaining and
negotiations over pay. It reduces
grievances arising out of wage
inequities
How to design a compensation plan
Compensation strategy
 Your philosophy is important as you
compare salaries in the marketplace.
Do you want to pay at the top of your
market or somewhere in the middle?
Are you okay being considered one of
the lowest-paying organizations?
Job descriptions
 These don’t have to be long documents,
but must explain the key job
responsibilities well so that you’re
matching positions properly when you
do your market surveys

Formal pay structure
 As a compensation pro, you need to be
able to explain pay decisions, and a
formal system can help. Whether it’s a
system of grades or a documentation of
current positions, a formal system will
help you provide consistency to your
employees, as well as help your
supervisors and managers become
knowledgeable about how the
compensation system works. They are
your link to your employees
Exempt/non-exempt
evaluation
 This is critical regardless of your
organization’s size, as the Department
of Labor is now looking more closely
to ensure proper employee
classification. Remember that it is job
responsibilities—not job titles—that
determine the classification.
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