Compensation Management Syeda Zakeerin Bakht Nasir

Overview of Compensation Management

The aim of this chapter is to provide a

general introduction to compensation

management. It starts by

Defining Compensation Management

Aims of Compensation Management

Characteristics of Compensation Management.

Aligning Compensation with the Business Goals and Objectives

Important factor governing compensation

Before knowing about Compensation management one must know

the labor laws of the country which are governing employees compensation or

remuneration system.

Income Tax Law of the country which will have an impact on designing the tax

efficient compensation.

What is compensation?

Compensation is money or other benefits

provided by the organization to employees

in return for their work.

Compensation is the remuneration received by

an employee in return for his/her contribution to

the organization. It is an organized practice that

involves balancing the work-employee relation

by providing monetary and non-monetary

benefits to employees.

Compensation Management

The fundamentals of compensation management is

concerned with deciding how and what staff should be

paid and with the techniques and procedures for

designing and maintaining salary structures,

Rewarding staff and exercising salary control.

Strategic Compensation Management: Aligning

Compensation with the Business Goals and Objectives

Of the Organization.

Compensation Management Includes

It includes such areas as :

Job evaluation,

Surveys of wage and salaries,

Analysis of relevant organizational problems,

Development and maintenance of salary structure,

Establishing rules for administering salary, salary payments,

Incentives,

Profit sharing,

Salary changes and adjustments,

Supplementary payments,

Control of compensation costs and other related items.

Compensation Traditional Perspective

In traditional organizational structures, employees were expected to work and follow top-down orders of a boss or supervisor.

These employees could expect job security, pay rate increases each year, and promotions based on seniority.

Salary was determined on the basis of work performance and the years of experience the employee held.

Additionally, some organizations provided pension and superannuation plan.

Money was considered the primary and only need of the employee.

With the creation of labor and trade unions, employees began asking for their rights and facilitated a change in compensation systems.

Compensation Current Perspective

Behavioral Science Theories also contributed to the change in compensation systems. Abraham Maslow brought in the need hierarchy for the rights of the employees.

He stated employees did not work only for money but there are other needs an employee must fulfill from their job, i.e. psychological needs, safety needs, needs of love, affection, and belongingness, needs for esteem, and need for self-actualization (Simons, Irwin, & Drinnien 1987).

Employees were considered a valuable resource to the organization. Todays compensation systems should be aligned to the business goals and strategies.

Employees are expected to contribute individually to the organization and diversity is embraced. Companies expect employees to make decisions, accepted delegated authority, and understand their position in the organization.

Total Rewards & the Future Workforce

Although the concept of compensation has changed a great deal in recent decades moving from a traditional base pay and bonus structure to a broader Total Rewards approach its evolution is hardly complete.

A new employment model is evolving, as organizations face pressure to perform domestically and globally in a tightening labor market while balancing cultural and generational differences in employee wants and need along with long-term sustainability of employment cost.

Adapting to anew model requires the creation of alternative employment arrangements that recognize the role of flexible work plans, contingent staff and nonlinear careers.

Compensation Employee Vs Employer Perspective

To employees the most recognizable deliverable in a compensation program is their own pay package. Getting paid for the work that we do.

From the perspective of the employers, the money that they pay to the employees in return for the work that they do is something that they need to plan for in an elaborate and systematic manner.

The total compensation horse must be put in front of the employee performance and skill cart.

Compensation Employee Vs Employer Perspective

It can be said that compensation is the glue that binds the employee and the employer together and in the organized

sector, this is further codified in the form of

a contract or a mutually binding legal

document that spells out exactly how

much should be paid to the employee and

the components of the compensation

package.

Aims Of Compensation Management

The basic aims of Compensation Management are to attract, retain and motivate staff by developing and maintaining a competitive and equitable salary structure.

To ensure that a sufficient number of suitable employee is attracted to join the organization;

To encourage suitable employees to remain with the organization;

To develop and maintain a logical salary structure which achieves equity in the pay for jobs of similar responsibility and consistency in the differentials between jobs in accordance with their relative values;

To ensure that salary levels match market rates; To keep the salary levels adjusted in line with increases

in the cost of living;

Aims Of Compensation Management

To maintain consistency in methods used to fix and review salary levels and differentials;

To provide for progression within the salary structure in accordance with performance and level of responsibility;

To operate the salary system fairly and convince the staff that the system is fair;

To maintain a flexible salary system which will accommodate changes in the market rates for different skills and in the companys organization structure;

To achieve simplicity in operations as an aid to staff understanding and to minimize administrative effort;

To operate effective systems of controlling salary costs and the administrative procedures required to achieve the above aims at the least cost to the organization.

Aims Of 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 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.

Importance of Compensation

If you pick the right people and give them the opportunity to spread their wings - and

put compensation and rewards as a carrier

behind it - you almost dont have to manage them.

Jack Welch

Importance of employees compensation or

reward system

Compensation or reward system of the organisation is most

influencing factor for employee motivation, must remember.

If we observe history of causes of industrial disputes, employee compensation a reward system issues were the main reason in most cases.

good compensation system of rewards system in the organisation will minimize industrial disputes and helps in maintaining peace and harmony within the organisation.

Compensation system plays a key role in employee attrition.

Compensation system mostly influences retention of employee in the organisation.

Importance of employees compensation or

reward system

Most of employee satisfaction depends upon compensation a reward system of organisation.

Effective compensation system builds employer brand, which plays a key role in attracting talent.

Effective compensation system makes employee to put his/her full efforts for achievement of organization's goals and objectives.

Effective compensation system builds initiative towards work, which in turn enhances the productivity of organisation.

Effective compensation makes employees feel belongingness towards the organisation.

Compensation Management : In Bangladesh

Scenario

With the technological developments taking place at a higher rate, the salary packages are too increasing at a

much higher rate. Pay packages in Bangladesh have

witnessed an increase of more than 10% - 14% in last

2-3 years over current salary packages.

The compensation package comprises of monetary and non-monetary benefits that includes salary, special

allowances, house rent allowance, travel allowance,

mobile allowance, employee stock options, club

memberships, accommodations, retirement benefits and

other benefits.

Compensation Management: In Bangladesh

Scenario

Globalization is being considered as the cause for such salary hikes. The establishment of multinational

companies and privatization has led the Bangladeshi

industry to witness higher salary package.

With the immense competition of attracting and retaining talented human resource, compensation package is the

only motivation factor available with the organizations be

it Bangladesh origin organizations or foreign-owned

multinationals.

With the high attrition rate organizations are increasing their salary packages to attract and retain talented

human resource.

Bangladesh Industry Analysis

Bangladesh industries are aiming for high growth and are looking for talented human resource. For the purpose they are offering most

competitive compensation packages.

Besides the monetary and non-monetary benefits some organizations also offer development benefits such as online degree

programmes or certification courses.

Telco sector has succeeded in increasing the compensation packages at highest rate followed by Banking and Pharma sectors.

In Bangladesh industry rate of salary hike also depends on the job position in the organizational hierarchy.

During last few years technical and professional skill oriented jobs were offered more salary hikes than the senior management.