Define compensation management ? comparison between two companies ?

Introduction

Compensation management, also known as wage and salary administration, remuneration

management, or reward management, is concerned with designing and implementing total
compensation package.

Compensation is the human resource management function that deals with every type of
reward individuals receive in exchange for performing an organizational task.

The consideration for which Labour is exchanged is called compensation.

Compensation is what employees receive in exchange for their work. It is a particular kind of price,
that is, the price of labour. Like any other price, remuneration is set at the point where the demand
curve for labour crosses the supply curve of labour. Compensation is referred to as money and other
benefits received by an employee for providing services to his employer.

Compensation refers to all forms of financial returns: tangible services and benefits employees
receive as part an employment relationship, which may be associated with employee’s service to the
employer like provident fund, gratuity, insurance scheme and any other payment which the
employee receives or benefits he enjoys in lieu of such payment.

Your oldest daughter has just informed you that her class is inviting parents to talk about their
jobs at career day. You agree to visit your daughter's class and talk about your business. After
you have finished, you open it up for questions. It is at this time that a student asks about paying
your employees. Specifically, they want to know how you decide how much to pay your
employees and why. You see, what the student is essentially asking about, is compensation
management, which we will learn about in this lesson. So you may be wondering, what exactly
is meant by the term 'compensation management?' Well, as you know, employees get paid for
the work they do, and companies have a process or procedure they use when deciding the
terms of the compensation. Thus, compensation management is the act of distributing some
type of monetary value to an employee for their work by means of the company's policy or
procedures. In basic terms, it is paying an employee based upon the decided pay and benefit
package for the position.
The goal of compensation management is to find quality people who perform quality work and
then compensate them in order to retain them and reduce turnover rates. Some different types
of compensation include salary, overtime pay, commission, bonuses, and benefits packages
that might include health and dental insurance, vacation time, and retirement savings.

Compensation Management refers to the establishment and implementation of

sound policies, programmes and practices of employee compensation.
It is essentially the application of a systematic and scientific approach for
compensating the employees for their work in a fair, equitable and logical
manner.
Compensation Management is concerned with the compensation to employees
for their work and contribution for attaining organisational goals.
Obviously, it is concerned with designing and implementing total compensation
package. It is also known as wage and salary administration or remuneration
management.

The employees need to be compensated for the services which they render to an
organization. It is not easy to workout suitable compensation package for the
employees and keeps them satisfied. The experience is that the employees mostly
remain dissatisfied with whatever wage or salary they are paid by the employers.
Therefore, the job of wage and salary administration has been complex and
subtle, and littered with techniques to reduce the complexity and cope with the
subtleties. Hence various methods to compensate the employees have been
deployed but without success. Incentive payment schemes, at times have been
considered as the answer to most problems.
The methods of appraisal of employees have been worked out to match the
performance of the employees with proper compensation, but without complete
success.
Compensation Management – Objectives

The basic objective of compensation management can be briefly termed as

meeting the needs of both employees and organization.
Since both these needs emerge from different sources, often, there is a conflict
between the two. This conflict can be understood by agency theory which
explains relationship between employers and employees.
The theory suggests that employers and employees are two main stakeholders
in a business unit, the former assuming the role of principals and the latter
assuming the role of agents. The compensation paid to employees is agency
consideration.
A well-developed remuneration system should aim at achieving the
following objectives:
1. To attract competent and qualified persons towards organization by offering
fair wage and incentive.
2. To retain present employees by paying competitive remuneration.
3. To establish fair and equitable remuneration so as to avoid pay disparities.
4. To improve production, productivity and profitability of the organization.
5. To minimise un-necessary expenditure and to control cost through a device of
internal check and establishment of standard.
6. To improve and maintain good human relation between employer and
employee through a process of payment of bonus, profit sharing and other fringes
benefits.
7. To enhance the name and fame of the company through a proper system of
wage payment.
8. To ensure prompt and regular payment of wage and salary to all the
employees.
9. Acquire Qualified Personnel – Compensation needs to be high enough to
attract applicants. Pay levels must respond to supply and demand of workers in
the labour market since employers compete for workers.
10. Retain Present Employees – Employees may quit when compensation levels
are not competitive resulting in higher turnover.
11. Ensure Equity – Compensation Management strives for internal and external
equity which requires that pay is related to relative worth of jobs and is
comparable to the workers getting in other firms.
12. Reward Desired Behaviours – Pay should reinforce desired behaviour and act
as an incentive for those behaviours to occur in the future.
13. Control Costs – A rational compensation system helps the organization
obtain and retain workers at reasonable cost.
14. . Facilitate Understanding – The Human Resource specialists, operating
managers and employees should easily understand the compensation
management.
15. Further Administrative Efficiency – Wages and Salary programmes should be
designed to be managed efficiently, making optimal use of HRIS.
Sometimes these objectives may conflict with one another and trade-offs must be
made between them. These objectives are not the rules, instead these are the
guidelines.
Objectives of Compensation Management – Attracting and Retaining
Personnel, Motivating Personnel, Optimizing Cost of Compensation
and Consistency in Compensation
The basic objective of compensation management can be briefly termed as
meeting the needs of both employees and the organisation. Since both these
needs emerge from different sources, often, there is a conflict between the two.

This conflict can be understood by agency theory which explains relationship

between employees and employers. The theory suggests that employers and
employees are two main stakeholders in a business unit, the former assuming the
role of principals and the later assuming the role of agents.

The compensation paid to employees is agency consideration. Each party to

agency tries to fix this consideration in its own favour. The employers want to pay
as little as possible to keep their costs low. Employees want to get as high as
possible.

Objectives of Compensation Management – Objectives of a

Sound Compensation Plan
A sound compensation plan seeks to achieve the following objectives:
i. Comply with all appropriate laws and regulations.
ii. Achieve cost-effectiveness for the organisation.
iii. Enable a firm to attract and retain talent. The wage or salary plan must have a
built-in incentive to spur people to superior performance.
iv. Easy to operate and execute.
v. Offer internal, external and individual equity for employees –
a. Internal Equity:
Employees want to be treated fairly in all facets of compensation, including base
pay, incentives and benefits. Equity is the perceived fairness of the relation
between what person does and what the person receives. Internal equity ensures
that complex, difficult jobs are paid more.
b. External Equity:
Externally, the organisation must offer compensation that is seen as equitable in
relation to the compensation provided to employees performing similar jobs.
c. Individual Equity:
It assures equal pay for equal work, that is each person’s comparison to others
performing similar jobs within an organisation.
vi. Lead to performance enhancement for the organisation.
vii. Project a good image of the organisation.

Objectives of Compensation – 9 Important Objectives

Compensation has some important objectives. To achieve, these objectives a well-
conceived compensation scheme or plan may be established.
These objectives are mentioned briefly below:
1. To be legally acceptable – In order to be legally acceptable, it must get
approval from the Government or top level management in the
organization.

2. To be adequate – Compensation must be sufficient so that needs of the

employees are fulfilled substantially.

3. To be motivational – Compensation must increase the level of motivation,

morale and job satisfaction of the employees.

4. To be equitable – Compensation policy should be declared in such a way

that it does not contain any discrimination.

5. To provide security – Employees must have guarantee of getting wages or

compensation regularly without any break.
6. To be cost benefit effective – The organization must make a balance between
cost for giving compensation and benefits to be accrued from the employees.
7. To attract skilful, talented and knowledgeable employees.
8. To retain the talent, by compensating them adequately.
9. To maintain the employees, for faster progress of the organization.

LITERATURE REVIEW
Armstrong (2005) stated that compensation management is an integral part of
human resource management approach to productivity improvement in the
organisation. It deals with the design, implementation and maintenance of
compensation system that are general to the improvement of organisational
,team and individuals performance Compensation management is concerned
with the formulation and implementation of strategies and policies that aim to
compensate people fairly, equitably and consistently in accordance with their
values to the organisation, (Armstrong, 2005). Compensation management as the
name suggests, implies having a compensation structure in which the employees
who perform better are paid more than the average performing employees

(Hewitt, 2009). This encourages employees to work harder in order to regain

more salaries.Armstrong and Brown (2005) postulated that compensation
management is an integral part of human resource management (HRM)
approach to managing people and as such it supports the achievement of
business objective and it is strategic in the sense that it addresses longer term
issue relating to how people should be valued for what they want to achieve.

Amstrong (2005) was of the opinion that compensation management is all about
developing a positive employment relationship and psychological contract that
adopt a total compensation approach which recognises that there are numbers of
ways in which people can be compensated.

In similar view, Bob (2001); Anyebe, (2003) saw compensation management as

being based on a well-articulated philosophy –a set of beliefs and guiding
principles that are consisted with the values of the organisation which recognises
the fact that if HRM is about investing in human capital from which a reasonable
return is required, then it is proper to compensate people differently accordingly
to their contributions. Harrison and Liska (2008) in their study positioned that
reward is the centre piece of the employment contract; after all it is the main
reason why people work. This includes both extrinsic and intrinsic received as a
result of the employment by the organisation. In similar pattern, Brown (2003)
saw compensation as a return in exchange.

Compensation management as the name suggests, implies having

a compensation structure in which the employees who perform better are
paid more than the average performing employees (Hewitt, 2009). This
encourages employees to work harder in order to regain more salaries.
Compensation is a systematic approach to providing monetary value to employees in exchange for work performed.
Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. An ideal
compensation management system will help you significantly boost the performance of your employees and create a
more engaged workforce that’s willing to go to the extra mile for your organization. Such a system should be well –
defined and uniform and should apply to all levels of the organization as a general system. Plus you ‘ ll enjoy clearer
visibility into individual employee performance when it comes time to make critical compensation planning decisions. With
effective compensation management you‘ll also enjoy clearer visibility into individual employee performance when it
comes time to make critical compensation planning decisions. With effective compensation management you’ll also enjoy
clearer visibility into individual employee performance when it comes time to make critical compensation planning
decisions. These performance appraisals assist in determining compensation and benefits, but they are also instrumental
in identifying ways to help individuals improve their current positions and prepare for future opportunities. Human
resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and
every work done and each and every result. Employees should be managed properly and motivated by providing best
remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for
attracting and retaining the best employees.

In the fierce market competition environment, the development of enterprises

is inseparable from the effective operation of management control system. As
an essential part of management control system, the importance of
compensation system design is beyond doubt. This paper summarizes the
latest research on the considerations of compensation system design, and the
influences of compensation system design on performance and financial
misreporting, in the hope of being a suggestion on following research.

With the rapid development of economy, the market competition is

increasingly fierce and enterprises are faced with more severe policy and
economic environment. In order to survive and develop, enterprises need to
strengthen internal management effectively and attach great importance to the
outside-in feedback management, that is to say, enterprises should establish
an effective management control system. As an essential part of management
control system, compensation system design is undoubtedly of great
importance. Compensation system is one of the important tools for enterprises
to carry out enterprise management and pursue business success. In the
fierce market competition environment, the corporation’s core competencies
are vital to the survival and development of the enterprises. Scientific and
appropriate compensation system can help enterprises to build core
competencies and achieve common development of enterprises and
employees. Consequently, it has become an important proposition to design
scientific and appropriate compensation system by applying advanced
management philosophy.
Research on compensation system design shows us its role in the enterprises
and enriches people’s understanding of compensation system design, which
is beneficial for people to apply it well. This paper summarizes the latest
research on compensation system design, aiming to contribute to research
and practice in this field. The rest of the paper is organized as follows: Section
2 sets forth the considerations of compensation system design, including the
applicability of Relative performance evaluation (RPE), the considerations of
directors’ compensation and the match between compensation system design
and the organization. Section 3 presents the influences of compensation
system design on performance and financial misreporting. Section 4 provides
concluding remarks.

DR. B. C. CHANDRA
PRABIR M. PATNAIK*;
P

Compensation is a systematic
approach to providing
monetary value to employees
in
exchange for work performed.
Compensation may achieve
several purposes assisting
in recruitment, job
performance, and job
satisfaction. An ideal
compensation
management system will
help you significantly boost
the performance of your
employees
engaged
willing toworkforce
goand
thecreate
extra
that’s
amile
more
for your organization. Such a
system should be well-defined
and uniform and should
apply to all levels of the
organization as a general
system.. Plus you’ll enjoy
clearer
visibility into individual
employee performance when
it comes time to make critical
decisions. Withplanning
compensation
you’ll management
effective
also enjoy clearer visibility
into individual employee
performance when it comes
time to make critical
compensation planning
decisions. These
performance
appraisals assist in
determining compensation
and benefits, but they are
also
instrumental in identifying
ways to help individuals
improve their current
positions
and prepare for future
opportunities. Human
Resource is the most vital
resource for
any organization. It is
responsible for each and
every decision taken, each
and every
work done and each and
every result. Employees
should be managed properly
and
motivated by providing best
remuneration and
compensation as per the
industry
standards. The lucrative
compensation will also serve
the need for attracting and
retaining the best employees