Compensation includes payments like bonuses, profit sharing, overtime pay, recognition rewards and sales commission, etc.
Compensation can also include non-monetary perks like a company-paid car, company-paid housing and stock opportunities. Compensation is a vital part of human resource management, which helps in encouraging the employees and improving organizational effectiveness.
Compensation packages with good pay and advantages can help attract and retain the best employees. A quick survey of employees about compensation is likely to expose an expectation that wages are fair and cover basic living expenses, keep up with inflation, leave some money for savings (perhaps for retirement) and leisure, increment over time.
A company’s compensation scheme also informs a great deal about the firm’s values and cultures. Employees often look at what a company pays rather than what it says. In many aspects, people behave as they are rewarded.
A compensation scheme projects what the company expects of its employees. For example, if quality is an essential value, then it should be implemented through some element of the total compensation system.
Goals/Objectives of Compensation Policy
- Allure suitable staff.
- Keep qualified personnel.
- Develop reward structures that are equitable with logical and fair pay relationships between differently valued jobs.
- Manage pay structures to mirror inflationary effects.
- Assure that rewards and salary costs handle changes in market rates or organizational change.
- Appraise performance, duty, and loyalty, and provide for progression.
- Abide with legal requirements.
- Maintain compensation levels and differentials under review and control salary or wage costs.
Clearly, managing a firm’s compensation policy is a complex task as it facilitates systematically administered and equitable salaries, reconciles employees’ career aspirations with respect to earnings, aligns employees’ personal objectives with those of the organization, and keeps the firm’s costs under control.
To summarize, compensation management is a synchronized practice that includes balancing the work-employee relation by facilitating monetary and non-monetary benefits for employees.