Compensation Payment for services rendered.

One is due compensation when one has performed a service for an employer or client. Examples of compensation include wages, salaries, tips, fees, and commissions. Compensation Compensation is a systematic approach to provide monetary as well as non monetary values to employees in exchange of the work performed in the organization. Total compensation = Direct + Indirect Compensation Base Pay Incentives Benefits

MPORTANCE OF COMPENSATION
Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour expects wages from the process. Labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos Labour therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following:
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An ideal compensation system will have positive impact on the

efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed.
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It will enhance the process of job evaluation. It will also help in setting

up an ideal job evaluation and the set standards would be more realistic and achievable.

Such a system should be well defined and uniform. It will be apply to The system should be simple and flexible so that every employee

all the levels of the organization as a general system.

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would be able to compute his own compensation receivable. It should be easy to implement, should not result in exploitation of

workers. It will raise the morale, efficiency and cooperation among the workers. Such system would help management in complying with the various Such system should also solve disputes between the employee union The system should follow the management principle of equal pay. It should motivate and encouragement those who perform better and Sound Compensation/Reward System brings peace in the relationship It aims at creating a healthy competition among them and encourages The system provides growth and advancement opportunities to the The perfect compensation system provides platform for happy and

It, being just and fair would provide satisfaction to the workers.
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labor acts.
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and management.
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should provide opportunities for those who wish to excel.

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of employer and employees.

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employees to work hard and efficiently.

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deserving employees.
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satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.
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The organization is able to retain the best talent by providing them

adequate compensation thereby stopping them from switching over to another job.
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The business organization can think of expansion and growth if it has

the support of skillful, talented and happy workforce.

The sound compensation system is hallmark of organizations success

and prosperity. The success and stability of organization is measured with paypackage it provides to its employees.

LINKING COMPENSATION TO PERFORMANCE

Appraisals Home Linking Compensation to Performance One of the latest strategies being followed in all sectors through out the world for retention and talent management is "linking compensation to performance". Commonly known as "Performance pay" or "Performance based pay", it links the compensation of the employees to their performance and their contribution to the organizational goals. Therefore, periodic performance reviews play a vital role and provide the basis of performance related pay. Commissions, incentives and bonuses, piece rate pay help the employer to pay the employee according to their productivity and hard work. The process of performance based pay involves: Deciding and clearly defining the performance goals and the performance measures Setting the target bonus for different levels of performances Measuring the performance of the employee Giving rewards and bonus according to performance

Organizations are also designing variable compensation plans for various roles and positions in the organization. Types of Performance Pay Merit pay The first step to performance pay, merit pay means setting some basic salary according to the position and the rank of the employee and the variable part of the salary is based on the periodic performance reviews.

Profit Sharing Sharing the profits of the enterprise with the employees as bonus.

Incentives and Performance Bonus Rewards for special accomplishments or fulfillment of the targets set such as sales commission.

Gain sharing - Sharing of gains as a result of the increased performance of the employees with them.

Although performance related pay has always been a topic of discussions and controversies with many arguments against it, but it has also been proved that performance based pay motivates employees to perform better and earn, and encourages learning, innovation, creativity, problem solving and empowerment which .can be facilitated through proper performance measurement and reviews