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COMPENSATION

AND REWARDS

Component of
compensation management

1. Salary
2. Benefits
3. Incentives

Compensation
Is what employees receive in

exchange for their contribution


to the organization.
When managed correctly, it
helps the organization achieve
its objectives and obtain,
maintain, and retain a
productive workforce.

Compensation (Contd)
Without adequate compensation,

current employees are likely to


leave and replacements will be
difficult to recruit.
The outcomes of pay
dissatisfaction harm productivity
and affect the quality of work
life.

Forms of compensation
Direct Financial Compensation

pay received in forms of wages,


salaries, bonuses and commissions.
Indirect Financial
Compensation(benefits)
- All financial rewards not included in
direct compensation. For examples
workers compensation, Family &
medical leave, Disability Protection,

Forms Of Compensation
(Contd)
Nonfinancial Compensation

- Satisfaction person receives from


psychological & or physical
environment in which person works.
For examples, skills variety,
experiences, good working
conditions, flextime

Objectives in compensation
management
To help the organization achieve strategic

success while ensuring internal and external


equity.
Internal equity- ensures that more
demanding positions or better qualified
people within the organization are paid
more.
External equity - assures that jobs are
fairly compensated in comparison with
similar jobs in other firms.

Objectives in compensation
management (Contd)
Acquire qualified personnel
Retain current employees
Ensure equity
Reward desired behaviour
Control costs
Facilitate understanding

Acquire qualified personnel


Compensation needs to be high

enough to attract applicants. Pay


levels must respond to the
supply and demand of workers in
the labour market since employers
compete for workers. Premium
wages are sometimes needed to
attract applicants already working for
others.

Retain current employees


Employees may quit when

compensation levels are not


competitive, resulting in higher
turnover.

Ensure equity
Compensation management

strives(berjuang) for internal and


external equity. Internal equity
requires that pay be related to the
relative worth of a job so that similar
jobs get similar pay. External equity
means paying workers what
comparable workers are paid by
other firms in the labor market.

Reward desired behaviour


Pay should reinforce desired

behaviours and act as an incentive


for those behaviours to occur in the
future.
Effective compensation plans reward
performance, loyalty, experience,
responsibility, and other behaviours.

Control costs
A rational compensation system helps

the organization obtain and retain


workers at a reasonable cost.
Without effective compensation
management, workers could be
overpaid or underpaid.
Comply with legal regulations.
A wage and salary system considers
the legal challenges imposed by the
government and ensures the employer's
compliance.

Facilitate understanding
The compensation management

system should be easily understood


by human resource specialists,
operating managers, and employees.

Employee will be pay based


on labor market conditions:
It includes:
Compensation surveys- what are other

firms paying?, geographic area of survey


Cost of living- when prices rise over a
period of time
Labor Unions- mandatory collective
bargaining management & unions as
wages, hours & other terms and
conditions of employment, cost of living
(COLA) allowance has been disappearing

Employee will be pay based


on labor market conditions
(Contd):
The economy- cost of living often

rises as economy expands.


Compensation legislation- states
in wages council Act 1947,
government has generally resisted
any suggestions for a minimum wage
applicable throughout industry and
region.

Job itself continues to be factor.


Organizations pay for value they attach

to certain duties, responsibilities, and


other job related factors as working
conditions.
E.g, professional positions different
level of salary

Employees may demands


for their salaries based
on:
Performance
Competencies
Skills
Experiences
Seniority

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