Compensation Practices in the Public and the Private Sector



Compensation Practices in the Public and the Private Sector

Compensation System

Compensation systems are often designed keeping in mind the volumes of production and time employees invest in their organizations, be it in public or private. Compensation refers to all forms of financial rewards received by employees. It is a direct result of their work efforts in the course of their employment and it is one of the biggest costs for an employer. Dissatisfaction to employees with regards to compensation can lead to low performance, job dissatisfaction, absenteeism, turnover, grievances and strikes. Moreover, majority of labor-management disputes relate to compensation (Zenger & Lawrence, 1989).

Strong emphasis on corporate governance has derived the way compensation systems are designed in organizations. Moreover, this inclination has asserted some of the following alterations in the compensation system, these are:

Compensation programs should be designed to be supportive of major drivers of performance in businesses;

Compensation programs should help enable services and functions, that best support business needs;

Compensation programs should encourage managers to increase their engagements in processes of compensation. Furthermore, they should act as advocates for the implemented policies of compensation;

Compensation programs should leverage information technology to support managers, model costs and obtain pertinent market insights, and;

Compensation programs should essentially make aware employees of the values, benefits and the basis of design of their compensation system (Carter, 1994).

The art of being aware of what to pay employees, is as much essential, as knowing how much to pay these employees. It is rather surprising that seventeen percent of organizations in the US are not effective in managing their compensation systems. The statistics are direr for public enterprises and government establishments, where transparency and performance mapping of compensation is highly limited.



Compensation Strategy and Practices

The needs and requirements of businesses determine the employment of compensation functions. These can either be decentralized or centralized. Centralized functionalities are pursued by more than 60% of the organizations, in the private spheres. Devolvement of compensation responsibilities have led to over complications in compensation systems in many organizations. The shift by private organizations towards centralization is with hopes to establish superior controls on the compensation system. Further these practices are aimed to increase the efficiencies of the system by removing duplicate practices and programs and consolidating compensation activities. Conversely, companies that are switching towards a decentralized approach are motivated to bring along their autonomous and distinct business units towards decision making that identifies talent.

An articulated compensation strategy is the hallmark through which effective compensation management practices are pursued. This strategy identifies for employers achievement outcomes and behaviors that essentially motivate them towards accomplishing the stated goals and objectives. Further, this strategy also aims to harness the employee's capability and graft values for the organization. Such initiatives essentially are aimed to transform compensation to not be viewed as costs, rather be considered as investments by employees. These initiatives also suggest that compensation systems designed on the back of business priorities, are often comprehensive frameworks ...