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COMPENSATION MANAGEMENT

INTRODUCTION: Definition: If you pick the right people and give them the opportunity to spread their wings and put compensation and rewards as a carrier behind it - you almost dont have to manage them. Jack Welch Most of us would have heard the term compensation in the context of getting paid for the work that we do. The work can be as part of full time engagement or part time in nature. 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. From the perspective of the employers, the money that they pay to the employees in return for the work that they do is something that they need to plan for in an elaborate and systematic manner. Unless the employer and the employee are in broad agreement (We use the term broad agreement as in many cases, significant differences in perception about the employees worth exist between the two sides), the net result is dissatisfaction from the employees perspective and friction in the relationship. 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. 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. Though Maslows Need Hierarchy Theory talks about compensation being at the middle to lower rung of the pyramid and the other factors like job satisfaction and
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fulfilment being at the top, for a majority of employees, getting the right compensation is by itself a motivating factor. Hence, employers need to quantify the employees contribution in a proper manner if they are to get the best out of the employee. The provision of monetary value in exchange for work performed forms the basis of compensation and how this is managed using processes, procedures and systems form the basis of compensation management. As the module progresses, readers would be introduced to other aspects of compensation management like the components of compensation management, types of compensation, inclusion of variable pay, the use of Employee Stock Options etc. The aspect of how skewed compensation management leads to higher attrition is discussed as well. 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. Hence, compensation management is something that companies must take seriously if they are to achieve a competitive advantage in the market for talent. Considering that the current trend in many sectors (particularly the knowledge intensive sectors like IT and Services) is to treat the employees as creators and drivers of value rather than one more factor of production, companies around the world are paying close attention to how much they pay, the kind of components that this pay includes and whether they are offering competitive compensation to attract the best talent. In concluding this article, it is pertinent to take a look at what Jack Welch had to say in this regard: As the quote (mentioned at the beginning of this article) says, if the right compensation along with the right kind of opportunities are made available to people by the firms in which they work, then work becomes a pleasure and the managers task made simpler leading to all round benefits for the employee as well as the employer. Compensation or remuneration in general terms means direct wages, salaries, or allowances given to the work force of the business organisation.compensation management or wage andsalary administration refer to establishment and implementation of sound policies and practices of employee compensation considering the worth of concerned employee and concerned job. It includes such areas as job evaluation, surveys
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of wage and salaries, analysis of relevant organisational problems, development and maintenance of wage structure, establishing rules for administering wages, wage payments, incentives, profit sharing, wage changes and adjustments, supplementry payments, control of compensation costs and other related items. Contingent factors in compensation plan: Internal factors 1. Organisational strategy and attitude 2. Organisational culture. 3. Nature and worth of job. 4. Capacity to pay. 5. Nature of human resource. External factors 1. Nature of Hr market. 2. Cost of living 3. Employee union. 4. Legal framework 5. Socio-economic fators

Both above mentioned factors influence the compensation system in an organisation. Infact because of such reasons the compensation system is very strategic in nature.Global competition in hr market infuence the retention of employees with in the organisation. From the employer's perspective, compensation is an issue of both affordability and employee motivation. Companies must consider what they can reasonably afford to pay their employees and the ramifications of their decisions: will they affect employee turnover and productivity? In addition, some employers and managers believe pay can influence employee work ethic and behavior and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet important part of managing a business.

More specifically, six primary but interrelated factors can shape a company's pay structure: 1. Social Customs: Beginning in the thirteenth century, employees began demanding a "just" wage. This idea evolved into the current notion of a federally mandated minimum wage. Hence, economic forces do not determine wages alone. 2. Economic Conditions: Demand for labor influences employee wages. Employers pay wages based on the relative contributions employees make to production goals. In addition, supply and demand for knowledge and skills helps determine wages. 3. Company Factors: Pay structures depend on the kind of technology a company has and on whether a company uses pay as an incentive to motivate employees to improve job performance and to accept more responsibilities. 4. Job Requirements: Some jobs may require greater skills, knowledge, or experience than others and hence fetch a higher pay rate. 5. Employee Knowledge and Skills: Likewise, employees bring different levels of skills and knowledge to companies and hence they are qualified to work at different levels of a company hierarchy and receive different rates of pay as a result. 6. Employee Acceptance: Employees expect fair pay rates and determine if they receive fair wages by comparing their wages with their coworkers' and supervisors' rates of pay. If employees consider their pay rates unfair, they may seek employment elsewhere, put forth little effort in their jobs, or file lawsuits. After considering the factors now I want to mention that in recent trend the compensation in an organisation is considered as a cause of grievance because of inequity in payscale and hidden aspects due to which the employee considered himself cheated and not able to trust on management regarding their wages and salaries.but recently in most of the organisations pay transperancy is applied which is giving positive results.lets discuss pay transperancy-

PAY TRANSPERANCY: As in this era of competition the employees are very care ful regarding their pay structure they dont want that any body can cheat them so they want a transparent pay system. Infact some organisations are using transparent pay system.this is helpful for them to retain their employees with in the organisation.pay transparencyis an important trend in compensation management that warrants both focussed discussion and targeted actions in most companies. In traditional time the payment system was not revealed to employees and not to other companies but decisions about compensationnow occur in the world of information changed forever by internet.people today have access to unparalleled amountsof information , including information about compensation which historically has been kept secret.numerous websitesprovide salary survey data freelyand the explosionof web 2.0 social networksand social media spreadscompensaton data andconversations without any limits. Pay transparency influence employees Fosters trust in management Increases employees engagement Encourages discretionary efforts Reduces turnover Create competitive advantage People want to work where they understand their value and feel they can trust their employers. In such tan environment, they are willing to work harder, offering more of their discretionary effort towards the organisational goals. Employee trust, then, is not an end in itself but a foundation for competitive business advantage
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COMPENSATION MANAGEMENT: IN INDIAN SCENARIO: With the technological developments taking place at a higher rate, the salary packages are too increasing at a much higher rate. Pay packages in India have witnessed an increase of more than 14% in 2006 over last years salary packages. The compensation package comprises of monetary and non-monetary benefits that includes salary, special allowances, house rent allowance, travel allowance, mobile allowance, employee stock options, club memberships, accommodations, retirement benefits and other benefits. Globalization is being considered as the cause for such salary hikes. The establishment of multi national companies and privatization has led the Indian industry to witness higher salary package. With the immense competition of attracting and retaining talented human resource, compensation package is the only motivation factor available with the organizations be it Indian origin organizations or foreign-owned multinationals. With the high attrition rate organizations are increasing their salary packages to attract and retain talented human resource. In the race, India has begged first position followed by Lithuania and China. INDIAN INDUSTRY ANALYSIS: Indian industries are aiming for high growth and are looking for talented human resource. For the purpose they are offering most competitive compensation packages. Besides the monetary and non-monetary benefits some organizations also offer development benefits such as online degree programmes or certification courses. Insurance sector has succeeded in increasing the compensation packages at highest rate followed by Banking and IT sectors. In Indian industry rate of salary hike also depends on the job position in the organizational hierarchy. During year 2006 technical and professional skill oriented jobs were offered more salary hikes than the senior management.

Role of Compensation and Reward in Organization:l Compensation and Reward system plays vital role in a business

organization.Since, among four Ms, i.e Men, Material, Machine and Money, Men has beenmost important factor, it is impossible to imagine a business process withoutMen.Land, Labor, Capital and Organization are four major factors of production.Every factor contributes to the process of production/business. It expectsreturn from the business process such as Rent is the return expected by theLandlord. similarly Capitalist expects Interest and Organizers i.e Entrepreneurexpects profits. The labour expects wages from the process.It is evident that other factors are inhuman factors and as such labour playsvital role in bringing about the process of production/business in motion. Theother factors being human, has expectations, emotions, ambitions and egos.Labour therefore expects to have fair share in the business/production process. Advantages of Fair Compensation System: Therefore a fair compensation system is a must for every businessorganization. The fair compensation system will help in the following: 1.If an ideal compensation system is designed, it will have positive impacton the efficiency and results produced by workmen. 2.Such system will encourage the normal worker to perform better andachieve the standards fixed. 3.this system will encourage the process of job evaluation. It will also helpin setting up an ideal job evaluation, which will have transparency, andthe standards fixing would be more realistic and achievable.

Importance of Compensation / REWRAD System in businessorganizations. Money makes the mare go is the proverb. It holds good for all the factorsparticipating in the business process expects its fair share of prosperity of thebusiness. Compensation/ Reward System plays a vital role in the businessorganization. And its importance can be very well ascertained as follows: 1.sound Compensation/Reward System brings amicability and peace in therelationship of employer and employees. 2.The system brings out the best out of every employee in the organization.It aims at creating a healthy competition among them. And as such,encourages them to work hard and efficiently. 3.The system provides adequate opportunities to those who wish toperform better. The system provides growth and advancementopportunities to the deserving employees.

COMPENSATION MANAGEMENT PROCESS: Purpose: This is a common business process used by compensation departments to plan and administer compensation policies. Prerequisites: If you want to run compensation management over the organizational structure then, you must create your organizational structure and all necessary organizational units before you start the compensation management process. Process Flow: When you have created your organizational structure, you can begin the compensation process: 1. Define the internal value of jobs and positions. You can enter data from external job evaluation systems and salary surveys. 2. Define compensation components and group them 3. Define guidelines and eligibility rules and associate them to the plans 4. Perform budgeting for compensation management 5. Plan and administer compensation policies 6. Approve compensation adjustments 7. Administer approved compensation Result: The system updates employees records with data provided by the Compensation Management component, and the employees receive the corresponding compensation adjustments.

SUMMARY: In this article the basic concept of compensation and recent trends which are applied in compensation management like pay transperancy has been mentioned.How pay transperancy is helpful in developing the trust and it is fostering the productivity? After all the Indian industry analysis and change or increment of compensation level is discussed with the help of some data.

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REFERENCE: 1.http://eng.hi138.com/?i280580_Compensation_Management_in_Vocational_Problems _and_SoC OMPENSATION ADMINISTRATION 2.http://www.referenceforbusiness.com/encyclopedia/Clo-Con/CompensationAdministration.html 3.http://blogs.payscale.com/compensation/2010/07/integrating-general-business-strategywithcompensation.html 4.http://payroll.naukrihub.com/compensation/indian-industry/ 5.www.indianmba.com/Faculty_Column/FC1003/fc1003.html 6.Human resource management by Dr. Vineet walia and Pradeep tomar Compensation 7.Management wage and salary administration-356

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