Compensation refers to all forms of financial returns: tangible services and benefits employees receive as part an employment relationship, which may be associated with employee’s service to the employer like provident fund, gratuity, insurance scheme and any other payment which the employee receives or benefits he enjoys in lieu of such payment. In order to make compensation management to work effectively, the organisation should clearly specify its compensation policy, which must include the basis for Besides money, people also want praise, promotion, recognition, acceptance, status, etc. Premium wages are sometimes needed to attract applicants working for others. Compensation policy is derived from organisational strategy and its policy on overall human resource management. Topic Page No. Most of us would have heard the term “compensation” in the context of getting paid for the work that we do. It requires employers to pay equal wages for jobs of comparable values. Compensation Strategies and Pay Equity. It can be said that compensation is the “glue” that binds the employee and the employer together and in the organized sector, this is further codified in the form of a contract or a mutually binding legal document that spells out exactly how much should be paid to the employee and the components of the compensation package. It includes everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, childcare, or moving expenses. Hence, compensation management is something that companies must take seriously if they are to achieve a competitive advantage in the market for talent. Lesson No. To retain these employees, pay levels must be competitive with that of other employers. This involves researching and understanding the current and upcoming competitive markets for employee pay and benefits. Similarly, if there is a great demand for labor expertise, wages rise; but if the demand for workforce skills is minimal, the wages will be relatively low. Unions may also limit management’s flexibility in administering merit increases since unions often argue for raises that are based on seniority and are applied across the board equally. 2. These include the basic salary, house rent allowances, medical benefits, city allowances, conveyance, provident funds, etc. Objectives of compensation management Objectives of Compensation and Benefits-Compensation and Benefits is more than just the means to attract and retain talented employees. Wage and salary programs should be designed to be managed efficiently, making optimal use of the HRIS, although this objective should be a secondary consideration with other objectives. Like any other price, remuneration is set at the point where the demand curve for labor crosses the supply curve of labor. Internal equity requires that pay be related to the relative worth of a job so that similar jobs get similar pay. Schuler identified three major types of compensation, which are mentioned below; It includes any benefit that an employee receives from an employer or a job that does not involve tangible value. Should know the nature and scope of Compensation management b. Employees want to get as high as possible. This aspect is important as studies have shown that a majority of the employees who quit companies give inadequate or skewed compensation as the reason for their exit. The globalization of business affects compensation management. Compensation and benefits managers analyze data on salaries and the cost of benefits, and assess and devise programs that best fit an organization and its employees. With the rapid growth of industries’ business trade, there is a shortage of skilled resources. Compensation refers Since, this article is intended to be an introduction to compensation management, the art and science of arriving at the right compensation makes all the difference between a satisfied employee and a disgruntled employee. An effective compensation system should fulfill the following criteria: A sound wage policy is to adopt a job evaluation program in order to establish fair differentials in wages based upon differences in job contents. Employee Compensation: Human resource management performs the function of determining the pay structure for different employees on the basis of qualification, efficiency, experience, nature of the job. Components of compensation means components of remuneration to employees. The company needs some creative techniques for compensation. A common strategy is to give nonunion workers the same raises that are given to unionized employees; this often is done to prevent further unionization. Rewards and recognitions, promotions, responsibility, etc., are some factors that induce confidence in the employees and motivate them to perform better. The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. All employers, irrespective of their profits or losses, must pay no less than their competitors and need to pay no more if they wish to attract and keep workers. It also instills the faith in them that their good work is being recognized, and they can boost their career opportunities if they continue to work harder. According to Dale Yoder, “Compensation is paying people for work.”, “Compensation is what employees receive in exchange for their contribution to the organization.” – Keith Davis, In the words of Edwin B. Flippo, “The function compensation is defining as adequate and equitable remuneration of personnel for their contributions to the organizational objectives.”. Since, this article is intended to be an introduction to compensation management, the art and science of arriving at the right compensation … Whether the recruiter lists the wage as an hourly, weekly, monthly, or hourly rate, candidates see it as the most critical part of any job offer. Combined, these are referred to as total rewards. Business skills. An organization compensation policy generally tends to conform to the wage rate payable by the industry and the community. DEFINITION OF COMPENSATION Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship (Milkovich, Newman & Gerhart, 2011) The term compensation means any form of payment made to an individual for services rendered as an employee for an employer; services performed as an employee … A summary of benefits is sent with the initial contract letter to each faculty member paid by Tufts University. Employee Motivation: This results in a considerable uniformity in wage and salary rates. Direct compensation consisting of pay received in the form of wages, salaries, bonuses, and commissions provided at regular and consistent intervals. This is done for several reasons. Compensation management supports human resource managers by defining the pay scale and other benefits such as employee retirement benefits etc. In the short run, the economic influence on the ability to pay is practically nil. d. Techniques of job evaluation e. Understanding the importance of fringe benefits Awareness of the latest trends in compensation. Allocate sufficient resources to perform work assingments. Promote social relationship with co- workers. The compensation management system should be easily understood by human resource specialists, operating managers, and employees. The basic objective of compensation management can be briefly termed as meeting the needs of both employees and the organization. It is a particular kind of price, that is, the price of labor. Compensation is what employees receive in exchange for their work. © Management Study Guide This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. Scope # 7. To retain and motivate employees, employee compensation must be fair. Performance Management, Compensation, Benefits, Payroll, and the HRIS . NON MONETARY Enhance dignity & satisfaction from work performed. Compensation management and benefits is vital function of human resource managing team of companies who operate at international level. Compensation policies can be accustomed according the business requirements, goals, and existing resources. What is common to them is that the “reward” that we get for expending our energy not to mention the time is that we are compensated for it. Scope of Employee Benefits : 1. This Standard should be applied by an employer in accounting for all employee benefits, except employee share-based payments2 . (Gary Dessler, 1976) It will encourage the employees to perform better and achieve the standards fixed.2. It also includes bonuses, payments for holidays, etc. Thus, higher compensation is attached to higher-level jobs. A rational compensation system helps the organization obtain and retain workers’ reasonable costs. Compensation analysts must focus not only on equity but on competitiveness too. CONT…Indirect compensation Insurance (health, eye). An ideal compensation system will have positive impact on the efficiency and results produced by employees. Pay should reinforce desired behaviors and act as an incentive for those behaviors to occur in the future.