Top-Rated Free Essay
Preview

Compensation Management What do you mean by Compensation Structure? What are the components of modern Compensation structure?

Better Essays
1153 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Compensation Management What do you mean by Compensation Structure? What are the components of modern Compensation structure?
IntroductionWhen it comes to employee compensation, most managers are busy asking: "What do I have to pay to…?" That is not an easy question to answer. A better question might be: "What do I want my compensation package to say?"Compensation package of the organization says it all like the child care and health benefits say that the company values family. Giving longevity bonuses for employees on the anniversaries of their employment says that the company value employees who stay with the business. Throwing a party at the end of your business's busy season lets the employees and their families know that you appreciate it when your people go the extra mile. No matter what compensation elements the company uses, they all carry a message.

That message is important. Compensation packages can be linked to business structure, employee recruitment, retention, motivation, performance, feedback and satisfaction. Compensation is typically among the first things potential employees consider when looking for employment. It is important, therefore, to give a lot of consideration to your business's compensation structure. After all, for employees, compensation is the equivalent not to how they are paid but, ultimately, to how they are valued.

TextCompensation StructureA Successful compensation structure, are more like a total rewards system, containing non-monetary, direct and indirect elements. It's important to give a lot of consideration to the business's compensation structure because it ultimately reflects how employees are valued. The compensation program consists of:Direct compensation is an employee's base wage. It can be an annual salary, hourly wage or any performance based pay that an employee receives, such as profit-sharing bonuses.

Indirect Compensation is far more varied, including everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, child care or housing.

Non-Monetary Compensation can include any benefit an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, flexible hours and opportunity for growth, praise and recognition, task enjoyment and friendships.

Employers have a wide variety of compensation elements from which to choose. By combining many of these compensation alternatives, progressive mangers can create compensation packages that are as individual as the employees who receive them.

The general consensus of recent studies is that pay should be tied to performance to be effective. However this is not possible in all businesses because performance can be affected by many factors over which employees have no influence, like stress, pressure to perform. Successful managers must search for things employees influence and base performance objectives on these areas. An operation may benefit from the following: tenure bonuses for long-time employees, equipment repair incentives to encourage good equipment maintenance, or bonuses for arriving to work on time.

Let's see the elements of the compensation structure in detail1)Basic Pay and Salaries: This is the most important part of the compensation structure as the cash payment is one of the essential part of the employees life from this, he can determine what he can afford and what he cannot. Salary is determined by various factors like education, qualification and relevant experience. Once the pay is defined it can be revised depending on the performance of the employee2)Salary Add-Ons: This is the additional payments made over and above the basic pay like overtime pay, shift differentials, housing allowance, transport allowance etc.

3)Stock Options: A right to buy a piece of the business which may be given to an employee to reward excellent service. An employee who owns a share of the business, will go an extra mile to work hard and achieve the goals of the organization. Stock options are usually deducted from the basic pay, the employee has the options to select the percentage how much he wants to contribute. The best part is it becomes a compulsive savings for the employee.

4)Annual Payments: The oldest element of the annual payment is the bonus paid for Diwali in India, even during the British times. The annual payments also include an exemption in taxes, leave allowances, etc.

5)Performance Bonuses: A bonus is paid when specified performance objectives are met. This inspires employees to set and achieve a higher performance level and is an excellent motivator to accomplish organizational goals. Performance Bonuses can show an employer appreciates his/her employees and ensures that good performance or special events are rewarded.

6)Other Benefits: This include medical benefits which include coverage of all the medical reimbursements, pay when unable to work because of accidents, employee insurance, recreational benefits like club membership etc.

7)Retirement benefits: Retirement is not actually those who like to keep changing jobs like the IT professional or the call centre employees but for the loyal employees who work for many years are benefited by these. The retirement benefit should be such that emphasis on the seniority of the employee like if the employee works for more than three years in the company then only he gets the employers contribution etc.

8)Revision of Compensation: As the inflation is on a high and also the trends are changing this element is specifically important in the chanignig economy. The compensation structure should be flexible enough to adapt revision or changes in the pay scales if the need arises. Nowadays revision is done most annually rather than in three years.

9)Retention strategies: it is relatively easy to hire but to retain is one of the most difficult task. The retention strategies to be adapted could be interest free loans or low interest loans, healthy environment to work with, added benefits designed by the company like added benefits on the retirement benefits. This will not only help retain the employee but also motivate to perform better.

Some indirect compensation elements are required by law: social security, unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working mother may take a lower-paying job with flexible hours which will allow her to be home when her children get home from school. A recent graduate may be looking for stable work and also an affordable place to live. Both of these individuals have different needs and, therefore, would appreciate different compensation elements.

ConclusionCompensation structure has to be designed in a meticulous way and all the components should be considered. If you want employees to be innovative-reward them for new ideas. If you want employees to stay for a long time instead of training new employees every season-offer bonuses or tie their wages to their tenure. If you need employees that show up on time, work hard, and can be trusted with the most challenging of tasks-recruit those people; reward those people; promote those people. The future of every business depend on the people, people will intern depend on the compensation, compensation will be paid according to the structure designed so everything is interlinked.

bibliographyCompensation Management in a Knowledge Based world by Richard I.HandersonCompensation Managment by Prof Sateeshchandra Joshi

You May Also Find These Documents Helpful

  • Best Essays

    Rwt1 Research Paper

    • 2313 Words
    • 10 Pages

    This report examines 3 different compensation systems that our company can develop and enforce within our company for our employees. Compensation is the most important and rewarding factor for employees, so a thorough and thoughtful approach should be taken as we think about changing the way in which this company rewards it's employees for the work they do for us each and every day.…

    • 2313 Words
    • 10 Pages
    Best Essays
  • Best Essays

    A company’s fundamental purpose and objective of compensation is to provide adequate and equitable rewards to employees at a level that matches theirs skills, abilities and contributions to the company (DeNisi, Angelo S., Griffin, Ricky W., 2008, p. 284. Para. 1). Compensation is the human resource management function that deals with every type of reward that individuals receive in return for performing work – including financial and nonfinancial rewards. Financial rewards include direct payments (e.g. salary) plus indirect payments in the form of employee benefits. Nonfinancial rewards include everything in a work environment that enhances a worker’s sense of self-respect and esteem by others (Cascio, 2006, p.418, Para. 1).…

    • 1391 Words
    • 6 Pages
    Best Essays
  • Good Essays

    The compensation structure should reflect the company business plan and goals by placing a priority on customer service, repeat business, new client referrals, and safety. What the company can afford to pay and implementing programs to reward performance that align employee compensation with the success of the company should be the basis of the compensation structure (Cascio, 2013, p. 419). The compensation structure should keep fixed labor costs low and place emphasis on benefits, incentives, and merit based-pay. The correlation between employee compensation and the…

    • 1028 Words
    • 5 Pages
    Good Essays
  • Best Essays

    The purpose of this report is to review 3 different analyzed employee compensation strategies that could potentially benefit your corporation if accurately executed. As a business you must remember that Employee Compensation is key to identifying as well as rewarding your employees, for their exceptional performance and contributions to the company’s success rate overall. Due to compensation being a significant factor, you must carefully evaluate the three strategies that will be presented in this report. Incorporating a bonus structure is a widely accepted compensation strategy. It provides for an employee who receive a set salary to capitalize their earnings by being rewarded for excellent job performance. Implementing a bonus structure could result in a stable compensation strategy that most employers and all employees are comfortable with. The downside of using this strategy would be having to minimize the ability for growth in annual salary increases, which could result in moral, motivation and productivity decreases. Offering a tuition reimbursement plan is also another popular and well accepted compensation strategy. With this strategy, employees feel as if the company that they invest a minimum of 2080 hours per year cares enough about them to help them pay for a higher education degree. There are many individuals who come to work and give their all with a desire to better themselves. However, due to financial restraints they are unable to. With the implementation of such strategy, you will begin to notice more and more employees pursuing higher education. This overall provides an…

    • 3603 Words
    • 11 Pages
    Best Essays
  • Satisfactory Essays

    Companies today should mirror their compensation and benefit programs with their long- term business strategy and organizational culture. According to Casio (2010), “Pay systems are designed to attract, retain, and motivate employees” (p.421). The most important objective is fairness or to achieve internal, external, and individual equity; and maintain a balance in relationships between direct and indirect forms of compensation, and between the pay rates of supervisory and nonsupervisory employees. Employers must perform job analysis, develop job descriptions, evaluate the value of job/position in the organization, develop pay structure and pay levels to create competitive employee compensation and benefits (Cascio, 2010).…

    • 386 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Compensation System Plan

    • 2706 Words
    • 11 Pages

    When designing a strategic compensation plan, key considerations include criteria for strengthening performance, containing cost, limiting liability, and promoting fair pay. (Mayer, 2004, pg. 2). To ensure long-term success, organizations need a compensation system that links company strategy to performance, ties the strategy to the labor market, is within legal compliance, and provides a sound salary structure. The combined, collaborative interdependency between these elements must be designed in such a way that will support the firm’s business strategy and stand the test of time. This paper serves to identify and discuss the key components and considerations associated with the creation of an efficient compensation system. A case study which reflects a compensation plan proposal for Holland Enterprises is included.…

    • 2706 Words
    • 11 Pages
    Powerful Essays
  • Satisfactory Essays

    C202 Managing Human Capital Ch. 9-14 flashcards | Quizlet 1 of 17 https://quizlet.com/45012071/c202-managing-human-capital-ch-9-14-fla... Direct financial compensation compensation received in the form of salary, wages, commissions, stock options or bonuses indirect financial compensation all the tangible and financially valued rewards that are not included in direct compensation including free meals, vacation time and health insurance nonfinancial compensation rewards and incentives given to employees that aren't financial in nature base pay reflects the size and scope of an employee's responsibilities severance pay give to employees upon termination of their employment fixed pay pays employees a set amount regardless of performance variable pay bases some or all of an employee's compensation on employee, team, or organizational pay structure the array of pay rates for different work or skills within a single organization 10/8/2015 3:26 PM C202 Managing Human Capital Ch. 9-14 flashcards | Quizlet 2 of 17 https://quizlet.com/45012071/c202-managing-human-capital-ch-9-14-fla... pay mix the relative emphasis give to different compensation components pay leader organization with a compensation policy of giving employees greater rewards than competitors pay follower an organization that pays its front-line employees as little as possible resource dependence theory proposition that organizational decisions are influenced by both internal and external agents who control critical resources…

    • 3864 Words
    • 39 Pages
    Satisfactory Essays
  • Good Essays

    Compensation and Benefits

    • 1486 Words
    • 6 Pages

    There are many people that would choose their life career around the benefits and compensation they may receive. Compensation is known as human resources function that deals with every type of rewards that one may receive in return for performing organizational tasks.()1…

    • 1486 Words
    • 6 Pages
    Good Essays
  • Better Essays

    Martocchino Compensation

    • 1644 Words
    • 7 Pages

    Joseph J. Martocchino states that, “Compensation represents both the intrinsic and extrinsic rewards employees receive for performing their jobs and for their membership as employees” (3). Compensation can be in the form of money and also services or discounts. Monetary rewards or bonuses and vacations are common in many work places. Other examples include healthcare for the employee and possibly his/her family also, 401K, retirement, salary incentives, child care assistance and even time shares. Compensation does cost companies money but its effect on employees is worth the cost in the long run.…

    • 1644 Words
    • 7 Pages
    Better Essays
  • Good Essays

    In heterogeneous corporate and company structures, in particular, there are no unified compensation strategies and structures. Systematic guidelines exist at most for the top management; in middle management levels, on the other hand, no corporation- or company-wide strategy is adhered to. For these management levels, a number of conflicting compensation strategies have often developed within the grown legal structures.…

    • 1114 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    In exchange for job performance and commitment, an employer offers rewards to employees. Adequate rewards and compensations potentially attract a quality work force, maintain the satisfaction of existing employees, keep quality employees from leaving, and motivate them in the workplace. According to research conducted by the Corporate Executive Board, the most important workplace attribute is compensation, (The Increasing Call for Work-Life Balance, 2009). Not only must wages be set high enough to motivate and attract good talent, they must also be equitable—that is, the wage must accurately reflect the value of the labor performed. Fair and equitable compensation is a crucial factor in the success of an organization. It is important because it is a tool that is used to recruit, maintain, and motivate their employees to contribute to the organization’s success.…

    • 1776 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Compensation laws designed to protect the employees of an organization. A compensation package comprises of monetary and non-monetary benefits to help an organization in retaining the highly qualified, to spark high performance, and to attract quality applicants. Those compensations will vary from industry to industry and from employer to employer within those industries.…

    • 813 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Due to globalization and specialization, talented and desirable employees are a commodity. Companies compete with other companies in the current hiring market using compensation packages to attract these employees. Total compensation (or components thereof) is perhaps one of the leading reasons for a person to choose one company over another. For some, compensation is the sole reason for engaging in employment while others are more interested in the benefits. Gomez-Mejia, Balkin, and Cardy (2016) explain compensation (notably the greatest expenditure for most companies) has three components: the base rate (a fixed amount paid on a regular interval), incentives (performance reward system), and benefits (indirect financial remuneration).…

    • 1673 Words
    • 7 Pages
    Good Essays
  • Better Essays

    Five Year Career Plan

    • 2451 Words
    • 10 Pages

    The importance of a company’s ability to sustain a balance between employee and company interests is significant. Compensation is defined as the methods and practices of maintaining balance between interests of operating the company within the fiscal budget and attracting, developing, retaining, and rewarding high quality staff through wages and salaries which are competitive with the prevailing rates for similar employment in the labor markets. (HR Guide, 2008)…

    • 2451 Words
    • 10 Pages
    Better Essays
  • Satisfactory Essays

    Total compensations analyze salary, annual leave, stock options, and bonuses. The total compensation package will allow the employer and employee the opportunity to view the monetary and non-monetary financial incentives of the position. The total compensation package is the key determinant if some applicants will accept or deny an employment offer. Some employees object to total compensation program because they are often poorly written, contingent upon positions, and are often adjustable at times. Management may object of the total compensation program because they lack the knowledge of the program. Most employers mandate managers to attend compensation training so they will be aware of the pay rate of their employees and benefits they are eligible to…

    • 471 Words
    • 2 Pages
    Satisfactory Essays

Related Topics