Essay Sample on Compensation Management

Published: 2024-01-14
Essay Sample on Compensation Management
Type of paper:  Essay
Categories:  Company Management
Pages: 5
Wordcount: 1204 words
11 min read

Compensation management involves managing analysis and deciding on the incentives, salaries, and benefits that each employee should receive (Berber & Slavic, 2016). In an organization, the main aim behind compensating employees is to attract, retain, and engage the employees by offering them huge competitive compensation plans. The various types of compensation that employees receive include; hourly wages, sales commission, salary, tips, bonuses, stock options, incentive pay, paid leave, and health care insurance (Berber & Slavic, 2016). Some of the components of an effective compensation plan include; statement of overall objectives, the relative importance of compensation, performance measures, competitive reference points, competitive positioning, Internal equity and consistency, communication and involvement of employees, and governance.

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Statement of overall objectives helps to identify how programs pertaining to rewarding employees provide employees, business, shareholders, and customers (Goel, 2012). The roles of each reward element should be well defined. The relative importance of compensation involves where before making the plan, one questions whether they want the plan to be a part of the company's reputation. Also, it is essential to identify how the rewards compare with that of other organizations. The performance measure is vital in determining the various performance measurement levels and the criteria to be used to determine performance (Patnaik & Padhi, 2012). In addition, it shows the extent to which the rewards are used in determining employees' actions. The competitive reference point depicts the groups that need to be compared in order to determine the employees' reward package.

A competitive position in a compensation plan helps the company to compare the position it desires to be placed in the market and the previous position. Internal equity and consistency help the company to identify whether the compensation strategies will apply to all employees (Berber & Slavic, 2016). It also helps the company identify whether they will use external or internal consistency in compensation management or balance between them. Communicating and involving the employees about the compensation is important as it helps the various managers to identify who is in charge of designing the compensation program. Governance is an important component as it helps in establishing the frequency in which the compensation programs will be reviewed.

The most beneficial ratio for internally and market consistent compensation systems is 1:1. Internally consistent compensation systems help to compare the value of different jobs in n organization. In an organization, jobs requiring high qualification levels have more duties and responsibilities than others who are paid higher wages (Berber & Slavic, 2016). The qualifications of employees involve the knowledge and skills which are required in performing the job (Goel, 2012). On the other hand, less paying jobs are associated with low wages. Usually, in all organizations, internal compensation jobs have fixed salaries set for the position. Analysis of the job and helps determine its content; hence it is crucial in setting the salaries (Patnaik & Padhi, 2012). Market consistent compensation systems involve the use of market data in determining the pay for various jobs in an organization. Its main aim is to attract and retain the most qualified employees in the market. Due to market pressure, organizations should not pay the employees more than their financial capability as this burdens the company and sometimes can lead to its closure.

Some of the ways the organizations can use to determine the employees' satisfaction with their pay structure involve the use of surveys, focus groups, and individual interviews. A survey is the most accurate method used to measure employee satisfaction (Goel, 2012). It involves the use of statements and questions regarding the compensation plan and management (Berber & Slavic, 2016). The responses from the various job levels and departments are analyzed, which helps determine how the employees feel about the organization's compensation plan. Focus groups involved the use of a trained facilitator who leads the group discussions (Patnaik & Padhi, 2012). Through the responses from the various members, the organization can determine whether they are satisfied or not. Individual interviews involve where a face to face conversation is conducted with each employee in the organization. The interviewers can use questions in conducting the interview.

Some of the ways in which companies use to determine whether their employer-sponsored retirement plan and health insurance plans are competitive include conducting a needs assessment (Berber & Slavic, 2016). Doing this is essential as it helps the organization look at how these benefits benefit their employees. After conducting the needs assessment, they put various measures in areas of whether the benefits are not conducted efficiently (Goel, 2012). It is also important as it helps them improve the healthcare and retirement plans in areas where gaps are assessed. Once the gaps are identified, the organization needs to replan again on the benefits. Doing this is essential as they strategize on how they can improve the current programs so as to remain competitive. The companies can also conduct discussions with employees to know how they feel about retirement plans and health insurance programs. They can also ask the employees what can be done to improve the current programs. The organizations also monitor the programs closely to ensure their effectiveness to the members of the organization.

The most high-value discretionary benefits for employees include health insurance and retirement benefits (Patnaik & Padhi, 2012). Most employees value health insurance because all their medical bills are catered to by the organization they are working for. Employees can set up the health insurance through various ways, for instance, where the employees choose their health care providers and the insurance company pays directly or managed care where employees must use the health care services and practitioners provided to them by the company (Berber & Slavic, 2016). Doing this is important for the company as it improves employees' morale because they know their health is catered for by the company, hence increasing productivity. Retirement benefits are benefits that affect the present and future lives of employees. Through the organization's retirement plans, the employees are encouraged to save because it is easier to do so. It motivates the employees as they work without pressure because they know their future is ensured.

Various organizations should aim at providing attractive compensation packages in their organizations. Doing this iis essential as it improves its competitive power because it improves their corporate image. As a result, the organization attracts well-qualified individuals who are fit for the job. Well, qualified personnel is important as it leads to increased efficiency in the organization's operations. Efficiency in operations helps improve the organization's position in the market. In addition, it boosts employees' morale, and this leads to an increase in general productivity in the organization. In turn, it makes an organization to realize immense profits leads to organizational growth. All organizations should adopt various compensation strategies to ensure they maintain their positions in the market system due to having a competitive advantage over their competitors.


Berber, N., & Slavic, A. (2016). Human resource (HR) outsourcing in European compensation management in the light of CRANET research. Acta Polytechnica Hungarica, 13(3), 207-225.

Goel, D. (2012). Performance appraisal and compensation management: A modern approach. PHI Learning Pvt. Ltd..

Patnaik, B. C. M., & Padhi, P. C. (2012). Compensation management: A theoretical preview. TRANS Asian Journal of Marketing & Management Research (TAJMMR), 1(1), 39-48.

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