Compensation Management in HRM

Compensation Management in HRM

Compensation management is vital for employee motivation. Employees recognised for their value are more likely to be motivated, loyal and higher performing than those who are not.

There are different ways that management and HR departments can communicate appreciation. Compensation management policies must be in place. Policies that make it clear exactly what the employee is receiving in total reward.

What is Compensation Management

Compensation management is the process of managing, analyzing, and determining the salary, incentives, and benefits each employee receives. Compensation management is a crucial part of any talent management and retention strategy. Creative compensation includes monetary and non-monetary benefits companies can employ to boost engagement and productivity, reduce attrition, and attract top talent.

Compensation managers aim to attract, retain, and engage employees by offering broad and competitive compensation plans within the company budget.

Key Objective of Compensation Management in HRM

 

5 Reasons Compensation Management Is Important to Organizational Success

There are many reasons why compensation management is important to organizational success. Here are five of the most important:

1. Employee satisfaction

As we mentioned earlier, employees come to work expecting to be compensated fairly for their time and effort.

If they feel that they are not being paid enough, or that their compensation is not in line with the value they are providing to the organization, this can quickly lead to dissatisfaction.

Imagine if your employees were constantly thinking about how underpaid they are. Would they be able to give their best performance?

2. Attracting and retaining top talent

In order to be successful, organizations need to attract and retain the best employees. This is becoming increasingly difficult in today’s competitive job market.

One of the key ways to differentiate your organization from others is by offering a competitive compensation package.

If you can’t offer a high salary, there are other benefits and perks that you can offer which will make your organization more attractive to prospective employees.

3. Improved performance

Employees who feel they are being fairly compensated are more likely to be motivated and perform at a higher level. This is because they feel valued by the organization and are therefore more invested in its success.

On the other hand, employees who feel undervalued or that their compensation is not fair are more likely to be disengaged and less productive.

4. Reduced turnover

Employee turnover can be costly for organizations. Not only do you have to find and train replacements, but you also lose the knowledge, skills and experience of your departing employees.

By offering a competitive compensation package, you can reduce turnover and keep your best employees happy and engaged.

5. Enhanced reputation

An organization’s reputation is important for a number of reasons. It can influence everything from customer satisfaction to employee recruitment.

If your organization has a reputation for being fair and generous with compensation, this will only enhance your reputation further.

There are a number of other benefits that can be gained from effective compensation management, but we feel these five are the most important. As you can see, getting it right is essential for organizational success.

Findings

Compensation management can be inferred by psychological factors, for example, it is not just monetary compensation which motivates an employee, and the study says that employees need to be motivated by the content of their jobs. That is the employees in any organization need to be constantly provided with opportunities for learning new skills so that they do not feel monotonous. The organizations should emphasize on work-life balance and should provide options to employees, training and development, leave travel concession etc. They must be encouraged to participate in decision making and they need to get challenging tasks.

 

 

Warning symptoms of an ineffective compensation plan

1. Increasingly poor performance and absenteeism from employees in certain areas of the company.

When employees are unhappy about their jobs, they tend to stop working so hard. One possible sign of a compensation plan that needs a redo is poor performance coupled with high absenteeism rates. Employees become resentful of the low pay and lack of upward mobility they experience; therefore, hard work goes out the window. Take this sign seriously and start planning ways to improve the status quo.

 

2. Lower than usual retention rates for entry to mid-level employees.

Keeping a loyal workforce is challenging when the organization is not paying people what they are worth. Savvy employees can and do shop around looking for better earnings, and they may leave with little notice to your company once offered even a little more in terms of salary or benefits. If you are noting that entry and mid-level jobs are losing staffers, it’s time to take a good look at your compensation program as a possible cause.

 

3. Outdated, complicated or ineffective employee performance review system.

When a performance matrix ceases to serve its true purpose, often this can be a sign that your compensation program needs a total make-over. A performance evaluation system that’s complicated, outdated, or ineffective at establishing performance trends is no longer useful. Go with a compensation program with built-in performance measurement tools.

 

 

4. No clear relationship between performance and pay as demonstrated through incentive programs.

Employees will respond well to a performance-for-pay effort that’s clearly laid out and regularly administered. If the relationship is not made between the two, there can be problems. Give your employees a good way to gauge their efforts with their financial goals.

 

5. The presence of a new competitor in the market that offers higher starting salaries.

Another clear sign that your business needs to revamp the compensation program is when a new contender comes into your space. Competitors will do their best to try to steal away your best employees, therefore you need to step it up a notch to retain your high-performance staff. Use a renewed compensation program to establish better salaries and benefit perks.

 

6. Imbalance between salaries of similar job types in varied geographic areas of your company.

Pay disparity is something that sneaks up on even the best of human resource compensation teams, especially if you are operating across several geographical locations. Don’t let this happen – putting our organization at risk for a lawsuit! Use a compensation and salary survey product that gives you the current market rates for similar job types in different regions and skill sets so you can set up equitable compensation policies.

 

7. Negative feedback from employees in regard to the salary and benefits they receive.

360-degree surveys can be a good way to check for any problem areas in your compensation offerings. Gather feedback from employees at least once a year and note any specific areas that relate to your salary, benefits, and employee development programs that you can take steps to improve.

 

Compensation Philosophy

Conclusion

compensation management is an essential part of human resource management that involves designing and implementing a compensation system for employees. It plays a critical role in attracting and retaining top talent, motivating employees, and achieving business objective.

Reference List-

 

• 1.    www.britannica.com/ compensation management - the article was most recently revised and updated by Jeannette L. Nolen.
• 2.    Compensation management – 2023
• 3.   Economics discussion/human-resource-management/compensation-management/32258Managing compensation -
• 4.    Key Objective of Compensation Management in HRM - 2023
• 5.    Onwuka, M.E. & Onwuchekwa, F. (2018). Compensation Management and Organizational Performance a study of Selected Pharmaceutical Companies in Awka, Anambra State. IOSR Journal of Business and Management (IOSR-JBM), 20(9), 36-47.
• 6.    Long, R.J. (2017). Strategic Compensation in Canada (3rd ed.), Toronto: Thomson Nelson