HRM – Compensation Management

Let’s start our discussion of Compensation Management with a simple question: “What is compensation?” In very simple terms, compensation is the results or rewards that the employees receive in return for their work.

Compensation includes payments like bonuses, profit sharing, overtime pay, recognition rewards and sales commission, etc.

Compensation can also include non-monetary perks like a company-paid car, company-paid housing and stock opportunities. Compensation is a vital part of human resource management, which helps in encouraging the employees and improving organizational effectiveness.

Compensation

From a manager’s point of view, the compensation package offered to a company’s employees is essential not only because it costs money, but because it is likely to be the primary reason the employees work for the firm.

Compensation packages with good pay and advantages can help attract and retain the best employees. A quick survey of employees about compensation is likely to expose an expectation that wages are fair and cover basic living expenses, keep up with inflation, leave some money for savings (perhaps for retirement) and leisure, increment over time.

A company’s compensation scheme also informs a great deal about the firm’s values and cultures. Employees often look at what a company pays rather than what it says. In many aspects, people behave as they are rewarded.

A compensation scheme projects what the company expects of its employees. For example, if quality is an essential value, then it should be implemented through some element of the total compensation system.

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