Effective Compensation Component



Effective Compensation Component

Introduction

The compensation paid to the employee is one of the largest expenditure for a company, thus Human resource managers need to carefully look into the various types of compensation packages and try to effectively minimize the impact of it on the budget. In the present era, setting compensation has turned into a very complicated task (Jackson et al., 2011). Strategic compensation policies try to reward the employees past performance and allow the employees to be competitive in the present job market , try to keep compensation equity amongst employees ,try to align the performance of the employee with that of the companies goal ,try to keep the compensation budget under control and try to minimize the cost of turnover .

Thesis Statement and purpose

Compensation component have positive effect on the performance and efficiency on employees in the organization. The purpose of using compensation as tool by management is to retain and recruit qualified employees. It is also done for the purpose of reducing turnover and increasing loyalty, and as an increment to employee satisfaction and morale.

Discussion

Many of the organization now a day's try to ground their compensation policies in their companies' vision and mission. This helps them ensure that the human resource they are hiring is most effectively leaned towards achieving the organization goals. If we look into the types of compensation we can see that there are mostly three categories in it. Base pay and performance pay occupy the highest proportion in compensation budget, but the indirect pay which is the third form of compensation is now increasing in size too(Hamel, 2008). Thus the company need to design their compensation packages in a balanced way which keeps the employees motivated for the achieving the goals of the company and at the same time keeps the budget in control .

Base Pay

Base pay is the compensation received for the time worked, like hourly wage, annual salaries and excluding overtime and incentive pays. In other words Pay received for the time worked, whether an employee is able to meets its target, base pay is what he is going to receive. This sort of pay usually occupies the largest share in the compensation budget as well as on the employees pay cheque. Employees have their wages or salaries guaranteed by employers for the fixed period of time they spent at work (Jackson et al., 2011). Since being a fixed pay most of the employees prefer this form of pay in higher proportion in their salary, for it gives them the social security. Trade unions when pushing for the employee's right prefer this form of pay as their primary target.

Performance Pay

The synonyms through which the performance pay is known can be 'performance-contingent pay', 'at risk pay' or 'variable pay'. Performance based plan is like giving cash to a person when he hits a particular target. Performance pay can be based on the individual employee, whole team or the overall performance of an organization within a certain ...