Compensation Management Slides

COMPENSATION MANAGEMENT Course instructor: Dr. Tayyaba Makhdoom Definition “Compensation” “Employee compensation refers to all forms of pay going to employees and arising from their employment.” Gary Dessler in his book Human Resource Management. According to Thomas J. Bergmann(1988) c...

COMPENSATION MANAGEMENT Course instructor: Dr. Tayyaba Makhdoom Definition “Compensation” “Employee compensation refers to all forms of pay going to employees and arising from their employment.” Gary Dessler in his book Human Resource Management. According to Thomas J. Bergmann(1988) compensation consists of four distinct components: Compensation = Wage or Salary + Employee benefits +Non-recurring financial rewards+ Non-pecuniary rewards. Definition “Compensation” Compensation in HRM refers to all the monetary and non-monetary rewards an organisation provides to its employees in exchange for their work. This can include base salary, bonuses, commissions, benefits and other perks. Compensation Management Compensation management is designing, administering, and evaluating compensation programs to ensure they are fair and effective. It can indeed become a tricky task, as many different factors must be considered. Some of these include: The organisation’s overall business strategy The types of jobs and skills required Internal equity (how fair the compensation is within the organisation) External competitiveness (how much other organisations are paying for similar positions) Budgetary constraints Compensation Management objectives The system of compensation should be so designed that it achieves the following main objectives. The capable employees are attracted towards the organization The employees are motivated for better performance The employees do not leave the employer frequently Why is Compensation Important? What are different types of compensation? Different types of compensation include: Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes... Factors Considered in Deciding the Compensation External factors Compliance with the Law of land Compliance with compensation and benefits laws stands as a pivotal pillar of ethical and sustainable employment practices. Demand and Supply of Labour The firm requires labour 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. Cost of Living 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. External factors Government To protect the working class from the exploitations of powerful employers, the government has enacted several laws. Laws on minimum wages, hours of work, equal pay for equal work, payment of dearness and other allowances, payment of bonus, etc., have been enacted and enforced to bring about a measure of fairness in compensating the working class. 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. 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. 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. Top Management Philosophy Wage rates to be paid to the employees are also affected by the top management’s philosophy, values and attitudes. Salary payments constitute a major portion of costs, top management may like to keep it to the minimum. Or top management may like to pay higher pay to attract top talent. Productivity of Workers To achieve the best results from the workers and to motivate him to increase his efficiency, wages are set productivity based. Internal Factors Job requirements Measures of job difficulty provide a basis for determining the relative value of one job against another in an enterprise. The occupational wage differentials in terms of Hardship, Difficulty of learning the job, Stability of employment, Responsibility of learning the job, and Change for success or failure in the work. Employees Related Factors Several employees related factors interact to determine his remuneration. These include Performance, Seniority, Experience, Potential. Organizational politics A sound and objective compensation system may be destroyed by organizational politics. the job value determined by this process could be manipulated. Results of employee performance appraisal may be intentionally disported by the supervisor.