COMPENSATION AND REWARDS

Compensation
Is what employees receive in exchange for their contribution to

the organization. When managed correctly, it helps the organization achieve its objectives and obtain, maintain, and retain a productive workforce.

Compensation (Contd)
Without adequate compensation, current employees are likely to

leave and replacements will be difficult to recruit. The outcomes of pay dissatisfaction harm productivity and affect the quality of work life.

Forms of compensation
Direct Financial Compensation

pay received in forms of wages, salaries, bonuses and commissions. Indirect Financial Compensation(benefits) - All financial rewards not included in direct compensation. For examples workers compensation, Family & medical leave, Disability Protection,

Forms Of Compensation (Contd)

Nonfinancial Compensation

- Satisfaction person receives from psychological & or physical environment in which person works. For examples, skills variety, experiences, good working conditions, flextime

Objectives in compensation management

To help the organization achieve strategic

success while ensuring internal and external equity. Internal equity- ensures that more demanding positions or better qualified people within the organization are paid more. External equity - assures that jobs are fairly compensated in comparison with similar jobs in other firms.

Objectives in 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(berjuang) 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.

Organization As A Determinant Of Direct Financial Compensation

 It is based on

- Compensation policies
- Organizational level - Ability to pay

Compensation policies
Pay leaders- pay higher wages & salaries
Pay based on market rate- pay what most

employers pay for same job Pay followers- pay below market rate because poor financial condition or believe do not require highly capable employees

Organizational level
Upper management often makes decisions to ensure consistency
Having problems when pressure to retain top

performers may override desire to maintain consistency in pay structure

Ability to pay
Organizations assessment of ability to pay is important factor in determining pay levels.

Labor Market As Determinant Of Direct Financial Compensation

Employee will be pay based on labor market conditions:

It includes: Compensation surveys- what are other firms paying?, geographic area of survey Cost of living- when prices rise over a period of time Labor Unions- mandatory collective

bargaining management & unions as wages, hours & other terms and conditions of employment, cost of living (COLA) allowance has been disappearing

Employee will be pay based on labor market conditions (Contd):

The economy- cost of living often rises as

economy expands. Compensation legislation- states in wages council Act 1947, government has generally resisted any suggestions for a minimum wage applicable throughout industry and region.

Job as determinant of direct financial Compensation

 Job itself continues to be factor.

Organizations pay for value they attach to certain duties, responsibilities, and other job related factors as working conditions. E.g, professional positions different level of salary

Employee as determinant of direct Financial Compensation

Employees may demands for their salaries based on:

Performance Competencies Skills Experiences Seniority