What are the various factors affecting the compensation of an organization?
The Compensation is the monetary and non-monetary rewards given to the employees in return for their work done for the organization. Basically, the compensation is in the form of salaries and wages. Show
Developing suitable compensation policies to meet organizational strategies, while efficiently accommodating different types of employment terms and conditions, poses many distinctive challenges for global HR practitioners, such as:
The primary objective of a compensation system is to administer an effective and equitable pay system. It can be affected by various factors which are as follows:
The organizational provision states that the level of compensation largely depends upon organizational operating policies and procedures. It is because the policies serve as a guideline for formulating and implementing compensation plans and programs.
In order to protect the working class from wage exploitation by strong employers, the government enacts various laws and judicial decisions. Such laws and regulations affect compensation management. Because, they emphasize on minimum wage rate, overtime rate, working hours, equal pay for equal work, payment of bonus, etc.
Equity considerations hold the philosophy that the compensation system should be fair and equitable. It means the compensation system should be similar for the same type of work within the organization. Similarly, it should be fair relative to what other people get for the similar job in another organization.
Labor unions are pressure groups that work in the interest of the workers. Such unions lobby the management for the formulation of fair compensation plans. These organized unions can ensure better wages for employees.
Job analysis is a method through which necessary information about the contents and the contexts of the job is made available to determine the value of each job. The job evaluation is a process of determining the value/worth of a job so that a payment system can be specified.
Compensation is concerned with an overall return that an employee obtains from the organization for rendering contributions towards organizational objectives. Therefore, the payment should be adequate to maintain the cost of living of the employees.
Sometimes, the organization itself evaluates where it is in order to prepare compensation plans. The position of the organization is determined by its productivity i.e., if the productivity of the worker is high, it assesses itself as a higher position. As a consequence of it, the compensation system is determined at a higher level.
Another factor of compensation management is the productivity of workers. This is the new concept of linking pay with employee performance. Under it, if the workers are highly productive, they get high compensation as compared to less productive workers. Productivity is a key factor as it enhances organization’s image and status. Compensation management is one of the primary functions of HR, as it plays a crucial role in attracting and retaining top talent.A compensation package attracts employees towards startups and their decision to stick with them. Several factors, from industry standards to government rules, affect the compensation package. This article details compensation management, its importance, its types and how you can do an excellent job at it. Let’s get started! What is compensation management?It is managing and determining an employer’s compensation to the employees in return for their work. Compensation management involves managing, analysing, and determining the salary, benefits, and incentives paid to the employees. Compensation management plays a crucial role in attracting and retaining top talent. It includes monetary as well as non-monetary benefits. It also increases employee productivity and reduces employee turnover. Additionally, it ensures that every employee gets paid a fair wage based on industry standards, work experience, company budget, etc. Importance of compensation management in HRMWhile the list of reasons why you should focus on compensation management is rather long, here are a few main reasons-
Factors affecting compensation management
Types of compensationThe types of compensation are broadly classified into direct compensation and indirect compensation. Let us look at them in detail. Direct CompensationIt is the monetary benefits provided by the employer to the employees.
[Suggested Read: Salary Breakup – Salary Structure, Format, Calculation & More] Indirect CompensationIndirect compensation refers to non-monetary benefits like paid holidays, insurance, and retirement benefits.
[Suggested Read: The Complete Guide to ESOPs (Employee Stock Ownership Plans)]
The huge number of employees makes manual compensation management tiresome and error-prone. The best way to deal with the payroll of a huge number of employees is to use payroll processing software like What is the main factor affecting the compensation?Demand and Supply of Labour– It is one of the most important factors that affect the compensation of employees. If the demand is more than the supply, the compensation will be higher.
How compensation affects organizational performance?The compensation and benefits is very important in increasing the employee motivation to perform well. This is because; it can improve the life of the employee and secure their life in the future. The employee will raise their performance so that they will get the bonus or promotion as the compensation and benefit.
What is the impact of compensation management on an organization?The Impact of Compensation on Employee Performance
A good compensation package ensures: Retention – A compelling compensation plan helps to reduce the turnover rate of the company. Employees will be more incentivized to stay in their role and this saves potential expenses related to turnover.
What are the determinants of compensation?Job performance, external equity, job families, organisational tenure, and employee skills as determinants of employee compensation.
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