The Definition of Compensation Management:

The Definition of Compensation Management:
In simple terms, compensation is everything that a company offers its employees in return for their talent and time. When organized the right way, compensation dollars can be strategically leveraged to reduce turnover, boost employee engagement and attract top talent. The purpose of compensation management is to make the most of company dollars in a way that rewards employees for their work.
Employee salary : Basic pay + Grade pay + Dearness Allowance (DA) + House Rent Allowance (HRA) + City Compensatory Allowance (CCA)

The details of above said components of salary of government employees are as follows.
  • Basic pay: The primary component of employee salary which is bases for calculation of other components in the employee salary.
  • Grade pay: An amount which is fixed by the government on the range of employee in government hierarchy. (for example; Group A officers have high grade pay than Group B officers.)
  • Dearness Allowance: Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. An allowance paid to employees on the basis of consumer Price index. Consumer price index denotes the cost of the products which influences by the inflation. (in simple terms cost of living) At present, 41%  is for state government employees and 72 % is for Central government employees as dearness allowance on their basic pay.
  • House Rent Allowance (HRA): Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. This allowance is paid to employees are meeting house rent expenditure.
  • City Compensatory Allowance (CCA): An allowance paid according to the city or town where employee do the job and the purpose of this allowance is to compensate high cost of living especially in cities like Mumbai, Delhi, Calcutta and Hyderabad et cetera . Government decides the amount of allowance to be paid to employees on basis of city or town.
Objective of Compensation 

The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer. Patton suggests that in compensation policy there are seven criteria for effective­ness. Compensation should be: 


  1. Adequate Minimal governmental, union, and managerial levels should be met.
  2. Equitable Each person should be paid fairly, in line with his or her effort, abilities, and training.
  3. Balanced Pay, benefits, and other rewards should provide a reasonable total reward package.
  4. Cost-effective Pay should not be excessive, considering what the organization can afford to pay.
  5. Secure Pay should be enough to help an employee feel secure and aid him or her in satisfying basic needs.
  6. Incentive-providing Pay should motivate effective and productive work.
  7. Acceptable to the employee The employee should understand the pay system and feel it is a reasonable system for the enterprise and himself or herself.
3P Compensation Management: Pay for Position, Person and Performance
Paying for Position ƒDevelop an equitable grading structure ƒCreate a reference salary structure oƒ Leverage compensation costs with market survey inform
Pay for Person Determine competency requirements and employee capabilities Pay individuals based on their competency match with the position Identify and pay market premium for competencies in short supply in the market
Paying for Performance Design annual bonus and incentives plans that motivate staff Shift from merit salary increases to variable pay Create long-term reward plans - stock options, deferred compensation and phantom
The compensation policy is the basic document, which drives the detail of the compensation practices in the organization. As the compensation strategy sets the high level compensation goals of the organization, the compensation policy describes the details of the individual compensation components, their behavior and their role in the compensation scheme of the organization.

What is the compensation policy?

The compensation policy describes the details of the compensation components in the organization, how they are used and the conditions for the employees as the compensation component can be applied in their specific situation. Each organization uses many compensation components and they have to be described. The compensation policy provides the basic explanation of the compensation component, how it is calculated, who is eligible for the usage and the approval procedure.

What is important in the compensation policy?

The compensation policy has to be transparent and it has to provide just the only way of the interpretation.  It is extremely important, the employees and managers are not unsure about the compensation component and they understand clearly, what conditions are applied for the approval of the specific compensation component.
The transparent compensation policy supports the high performance corporate culture organization as the employees understand, what behavior and performance levels are expected to be eligible for the specific compensation component and it drives the behavior and performance specifically the right way for the organization.
The policy has to cover all the compensation components, which are used in the organization and affects large populations. The exceptional managerial component tools can be referenced from the general compensation policy, but they should not stay hidden. The employees cannot trust the compensation policy, which does not mention all the compensation components.

Examples of Compensation Policies

Compensation policies range from basic shift differentials for employees who work outside normal business hours – such as swing shifts or graveyard shifts – to strategies that reward employees for high-level performance that reaches organizational goals. In addition, employers regularly monitor their compensation policies to ensure they are paying employees in an equitable manner and as competitively as possible when compared to other businesses in the industry.

Employee Incentives

Employee incentives are a part of some employers’ compensation policies. Incentives can be based on number of factors, such as performance, sales or other standards the company uses to reward employees for attaining organizational and career goals. For example, employees whose sales exceed the company’s expectations might be eligible for an incentive if their sales performance meets certain guidelines. Guidelines employers use for sales incentives include actual sales figures, repeat customer sales or sales to customers within the company’s emerging markets. Employee incentives are almost always specifically outlined using eligibility criteria to eliminate gray areas about performance expectations.

Merit Increases

Performance appraisal reviews are an integral part of compensation policies on merit increases. Employers typically require that supervisors and managers conduct performance appraisals for employees who report to them. Performance appraisals use job descriptions, performance standards and work logs to determine if employees are meeting the employer’s expectations in terms of productivity and quality of work. Companies that use merit increases to reward employees rely on supervisor ratings to determine salary or wage increases, referred to as merit increases. Merit increases generally have specific percentage increases for employees who attain certain performance ratings. An example of merit increase guidelines might be 5 percent and 8 percent increases for employees who meet and exceed performance expectations, respectively.

Pay for Performance

A pay-for-performance compensation policy is similar to a merit increase because it’s based on employee performance. The difference between a merit increase and a pay-for-performance policy is that pay-for-performance increases are not usually limited to specific percentages based on achieving a certain rating. Pay-for-performance policies increase employee salaries based on performance that advances the organization’s goals. One of the characteristics of a pay-for-performance compensation policy is that managers have more latitude in determining the amount of a salary increase. For example, a lawyer who brings a substantial amount of business or a large number of clients to the law firm may be eligible for an increase based on a pay-for-performance compensation policy.

Annual Review

Human resources staff or compensation and benefits specialists should review compensation policies annually basis to ensure the company is maintaining a competitive edge. An example of using annual reviews to strengthen competitive compensation policies occurs when employers effect salary adjustments based on market pricing for employees with skills and qualifications in high demand. Another example involves adjusting salaries and wages in accordance with cost of living increases. Reviewing compensation policies regularly also ensures the company is in compliance with federal regulations concerning fair pay, minimum wage and overtime rules. During annual compensation reviews, some employers audit their policies related to exempt and non-exempt status. The U.S. Department of Labor enforces the Fair Labor Standards Act guidelines pertaining to exempt and non-exempt employee classifications and provides technical support and guidance to employers who need assistance in this area.







Comments

Post a Comment

Popular posts from this blog

LABOUR ADMINISTRATION MACHINERY

LABOUR ADMINISTRATION MACHINERY The machineries for labour administration in the states are similar to those operating at the center. As explained earlier in the chapter, most of the important labour subjects in the concurrent list of the constitution. The central government is empowered to give direction to the state government and to delegate powers and impose duties on them. Many central labour laws are enforced both by the central and state government in industries or  establishments falling under their respective jurisdictions. Generally speaking, labour administration of the state governments is on a pattern similar to central labour administration with slight variations relating to implementing agencies and the requirements of the state enactments and non-statutory labour programmes. the main organizations for labour administration in the states comprise, department of labour and employment (secretariat), office of la...
Read more

Tripartite Bodies

Tripartite Bodies I ndian Labour Conference (ILC) and Standing Labour Committee(SLC) have been constituted to suggest ways and means to prevent disputes. The representatives of the workers and employers are nominated to these bodies by the Central Government in consultation with the All-India organizations of workers and employers. The Labour Ministry settles the agenda for ILC/SLC meetings after taking into consideration the suggestions sent to it by member organizations. These two bodies work with minimum procedural rules to facilitate free and fuller discussions among the members. The ILC meets once a year, whereas the SLC meets as and when necessary. ILC and SLC are both important constituents of tripartite bodies and play a vital role in shaping the IR system of the country.The function of ILC is to advise the Government of India matter referred to it for advice, taking into account suggestions made by the provincial government, the states and representative of the organi...
Read more

Workers Participation in Management : Definition, Characteristics and Objectives

Definition: Like other behavioral terms, WPM means different things to different people depending upon their objectives and expectations. Thus, WPM is an elastic concept. For example, for management it is a joint consultation prior to decision making, for workers it means co-determination, for trade unions It is the harbinger of a new order of social relationship and a new set of power equation within organizations, while for government it is an association of labour with management without the final authority or responsibility in decision making. Let us also go through some important definitions of WPM According to Keith Davis, “Workers’ participation refers to the mental and emotional involve­ment of a person in a group situation which encourages him to contribute to group goals and share in responsibility of achieving them”. In the words of Mehtras “Applied to industry, the concept of participation means sharing the decision-making power by the rank and file of an indus...
Read more