compensation management objectives

The government sets minimum wage, overtime pay, equal pay, child labor, and record-keeping requirements. Fourth, a functionally related firm in the same industry requires essentially the same quality of employees, with the same skill and experience. Comply with legal regulations. Fourth, functionally related firms in the same industry require essentially the same quality of employees, with the same skills and experience. So, regarding the compensation there is a conflict between employees and employers in many organizations. Companies that have good sales and, therefore, high profits tend to pay higher those who are running at a loss or earning low profits because of a higher cost of production or low sales. Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing an organizational task. On the other hand, older employees are more concerned about retirement and pension programmes. 2. Under section 3 of the Minimum Wages Act, DA is described as cost of living allowance. The Government’s statutory responsibility is to protect the sweating workers, ensure social justice and formulate and enact legislations to control exploitation and provide security to the employed persons. Preparing a job specification is always not easy. A significant change has come into the compensation management system over the last few years. retirement benefits, expenses incurred for employee welfare as social security etc. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. The implications of these demands may cause analysts to make further adjustments to compensation. The factors affecting the determination of fair and equitable compensation are many and are very complex. 8. Future Trends. Premium wages are sometimes needed to attract applicants working for others. To recognize the values of all jobs and positions 4. Regarding the human resource requirements of a job, there is scope for disagreement. Qualification 10. The employers and employees have to comply with the same, willingly or unwillingly. (c) The level of national income and its distribution. External equity means paying workers what comparable workers are paid by other firms in the labor market. (ii) These plans are very costly. The employee’s involvement in systems, schemes to encourage skill and level of development, considering consolidated allowances and flexible pay systems, and spelling out clearly career advance are being debated as the future needs of compensation management. Incentive schemes are playing another important role in this competitive era, and different types and forms of productivity and personal growth schemes are operating in our country. Agarwala (2007) defined compensation as the sum to­tal of all forms of payments and rewards provided to the employees for performing tasks to achieve organizational objectives. It is paid generally on fixed hourly / daily rate. Skill in writing job descriptions, conducting job analysis interviews, making group presentations, performing statistical computations ability to conduct meetings, to plan and prioritize work. The perceptions of employees and employers about compensation are changing and the emphasis is being laid on how important is pay for the employees and how it affects investment to hire competitive employees and how it compares with three main factors, namely, job contents, work environment, and pay attraction to retain an employee. Factors 7. It is a particular kind of price, that is, the price of labor. 7. These days, the organizations are also beset with the problem of ‘take home salary’ concept. Examples are career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions. Objectives of Compensation 1. The amount of compensation received by an employee should take into account several factors such as the amount of effort put in, competitive rates prevailing in labour market, demand for and supply of labour, the firm’s ability to pay, labour policy, etc. This is one area which needs all the attention as it can have a direct impact on all others. Wages may be expressed in terms of money called nominal wages, or in terms of purchasing power with reference to some base year called real wages. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. Objectives of Compensation and Benefits Compensation and Benefits is more than just the means to attract and retain talented employees. Disclaimer Copyright, Share Your Knowledge The cost for development and administration exceeds those for traditional plans. 8. gross payment). Lester observes “Top management’s desire to maintain or enhance the company’s prestige has been a major factor in the wage policy of a number of firms. An instrument that enables an organization to achieve its objectives. Sometimes trade unions force wages up faster than increases in productivity would allow and become responsible for unemployment or higher prices and inflation. Share Your Word File MBA with specialization in HRM/ MA in social work/PG Diploma in HRM/MA in industrial psychology. Share Your PPT File, The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. Attracting and Retaining Personnel. 4. How much compensation a worker wants depends upon his economic needs. 6. The growing globalization of business also means a greater movement of employees among countries. When you have a competitive … Regarding benefits to the employees, especially to executives and above, stock option schemes, interest free loans for housing or conveyance, free medical insurance and foreign tours are likely to gain momentum in future. As a result, today we find that the number of components of the compensation have been increased and the nomenclature of some of these components have been changed to keep the same out of income tax net by the management under pressure from their employees. This had brought into sharp focus the question of income tax planning. However, the employers hope that it will improve the understanding of the benefits provided. The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike. Similarly, higher compensation is attached to higher performers in the same job. Job-hopping is one of the results of these factors. Privacy Policy3. Every organisation requires suitable human resources to achieve its objectives. If pay levels are not competitive, some employees quit the firm. In Health FSA employees may set aside money to pay for health plan deductibles and co-payments as well as other uninsured medical care expenses, such as dental or vision expenses, on a pre-tax basis. To attract competent employees within its plans, 2. Facilitate understanding. These have a decisive influence on the wage structure and wage level since judgement is exercised in many areas of wage and salary administration — including whether the firm should pay below average, or above average rates, what job factors should be used to reflect job worth, the weight to be given for performance or length of service, and so forth, both the structure and level of wages are bound to be affected accordingly. It is the wage that provides some of the comforts of life. The Pay Model of Compensation and benefits helps managers to structurally design and understand the compensation system for their employees. It is paid to workers, especially maintenance and production workers, iii. According to Dale Yoder, “Compensation is paying people for work.”, “Compensation is what employees receive in exchange for their contribution to the organization.” – Keith Davis, In the words of Edwin B. Flippo, “The function compensation is defining as adequate and equitable remuneration of personnel for their contributions to the organizational objectives.”. During the time of prosperity, employers pay high wages to carry on profitable operations and because of their increased ability to pay. The basic concept of compensation administration—compensation management… To encourage and motivate the employees to grow with the organization … To effectively maintain and retain the talents, 8. Thus, higher compensation is attached to higher-level jobs. Without profits, they cannot attract enough investors to remain competitive. The basic objective of establishment of a sound compensation administration is to establish and maintain an equitable compensation structure. To be legal: It must get approval from the govt. Levels of employee motivation, need satisfaction, and employee retention are directly linked with designing and practising compensation packages. TOS4. This minimum wage has to be paid to the worker irrespective of the capacity of the industry to pay. If the demand for certain skills is high and the supply is low, the result is a rise in the price to be paid for these skills. Hence, they should be nurtured properly and paid well for their work, performance, services, etc. The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. HUMAN RESOURCE MANAGEMENT CHAPTER 8 Compensating Human Resources Objectives of Compensation Compensation is the set of rewards that organizations provide to individuals in return … Acquire qualified personnel. 3. They may not take pride in their work, or in the wages they get. Another problem is that productivity can be measured at several levels — job, plant, industry or national, economic level. The compensation management system should be easily understood by human resource specialists, operating managers, and employees. For this, it influences the compensation in two ways – (1) Direct Influence, enforcing minimum and fair wages (2) Indirect Influence, to provide social security, health hazard protections and retiring benefits. It also can be used to further an employer’s strategy. Also, they feel that the level of living prescribed in a worker’s budget is open to argument since it is based on subjective opinion. This is known as the ‘comparable wage’ or ‘going wage rate’, and is the widely used criterion. To retain present employees by paying competitive remuneration. To satisfy the conditions of equity, fairness and justice, a management should take these factors into consideration. To effectively administer and manage the compensation and satisfaction of the employees. Allure suitable staff. Recently, there have been a number of cases where very large organizations have been caught for not deducting tax at source properly. The employees, therefore, are anxious to minimise the income tax incidence. The minimum-wage and overtime provisions require employers to pay at least a minimum hourly rate regardless of the worth of the job. Productivity is another criterion, and is measured in terms of output per man-hour. In India it has become integral part of the wage system. Pay levels must respond to the supply and demand of workers in the labor market since employees compare for workers. living, “escalator clauses” are written into labour contracts. Rewards and recognitions, promotions, responsibility, etc., are some factors that induce confidence in the employees and motivate them to perform better. This plan converts what would otherwise be after-tax employee contributions to pre-tax contribution by means of an employee’s election prior to the beginning of the year, to reduce pay and to have the company contribute the amount of the reduction to pay for the coverage selected by the employee. Compensation Management is one of the important jobs of human resource management. Beach has defined wage and salary administration as follows; “Wage and salary’ administration refers to the establishment and implementation of sound policies and practices of employee compensation. 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