UNIT 1

Compensation Management What is compensation management Compensation Management is designing and implementing total compensation package with a systematic approach to providing value to employees in exchange for work performance, 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.

DEFINITION OF COMPENSATION Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship The term compensation means any form of payment made to an individual for services rendered as an employee for an employer; services performed as an employee representative; and any separation or subsistence allowance paid under any benefit Compensation referred to as tangible return, include cash compensation and benefits

Compensation of employees measures the total income both wages and salaries and supplements to wages and salaries earned by employees in return for contributing in production. Compensation of employees measures the total income both wages and salaries and supplements to wages and salaries earned by employees in return for contributing in production. Employee compensation is comprised of annual salary plus, as appropriate, variable compensation awarded at the end of the year Compensation is about what employees receive in exchange for their contribution to the organization in terms of tangible and intangible return All remuneration which is payable to an employee for work done in respect of his contract of service

Objectives To recruit & retain qualified employees. To increase or maintain morale. To determine basic wage & salary. To reward for job performance.

Compensation Management Its importance Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Effectiveness in terms of: Attracting & Retaining Talent Motivating talent for better performance Cost effectiveness

Compensation Management Its importance Effective Compensation Motivate & Retain Staff Attract talent Image Building Administratively Efficient Reward Valued Behavior Ensure Equity Institutional effectiveness Legal Compliance Employee Management

Compensation Management Types of Compensation

PURPOSE OF COMPENSATION EMPLOYER Attracting candidates Motivating employee for high performance Retain talent Consistency in compensation EMPLOYEE Work life balance Recognition Planning for better quality of life (Nazri, 2012)

PURPOSE OF COMPENSATION Retain current employees: When compensation are not competitive, resulting in high turnover. Reward desire behavior: Effective compensation plans rewards performance, loyalty, experience, responsibility and other behaviors. Control cost: Rational compensation helps an organization obtain and retain workers at a reasonable cost. Facilitate understanding: Easily understood by human resource specialist, operating manager and employees. (William, 2013)

11 Compensation Objectives: IBM IBM’s compensation programs are kept as simple and flexible as possible in order to keep the control at the first line manager level. Pay for Performance: Pay our best performers like the best in the marketplace. Pay Competitively: Attract, retain and motivate, as well as enable competitive prices for IBM services and solutions Differentiate Strongly: Give larger increases/bonuses to those who are most deserving. (IBM Corporate report,, 2013)

Compensation objectives: Medtronic Support company mission and increased complexity Minimize increase in fixed cost Attract and engage top talent Emphasize personal and team performance Ensure fair treatment