Compensation management entails more than just paying a salary and keeping up with inflation.

Employee performance concerning organisational goals is used to determine salary in many

organisations. Human resources departments encounter problems in efficient compensation
management, whether due to economic constraints, technological developments, or other
business factors.

A typical employee compensation plan or package includes a fixed component, or base salary
paid regardless of employee performance or contribution in most reputable firms. There's also
variable compensation based on employee performance and regular benefits like HRA (House
Rent Allowance), Medical Allowance, and Transportation Allowance. Aside from that, some
bonuses are typically awarded based on performance appraisal ratings. Employee compensation
plans have become more challenging to design in recent years, as social security nets and
medical and other allowances are no longer sufficient for employees to feel motivated and secure
knowing that their employer will take care of their retirement and their families medical needs.

Payroll issues are unpredictably unpredictable, and even the best-laid payroll plans can go
wrong. Overtime pay, fines, bonus deductions, taxes, and a variety of other concerns are all
common payroll issues. This is when the knowledge of a seasoned payroll professional comes in
handy. They are far more capable than you or your team of employees in dealing with all of
these issues.

compensation management is more than providing a paycheck and cost of living increases. In
many organizations, employee performance relative to organizational goals serves as the basis
for compensation. Whether brought on by economic difficulties, changes in technology or other
business factors, human resources departments face challenges in effective compensation
management.

Forms of Pay
Employee pay begins with a cash base and bonus pay, but may also contain non-cash forms of
compensation. The valuation of non-cash compensation is often most difficult for employees to
appreciate, but it offers the most opportunity for creativity on the part of the organization.

Underlying Pay Philosophy

“All organizations pay according to some underlying philosophy about jobs and the people who
do them”, says KP Kanchana, a professor at CFAI National College in Bhopal, India.
Compensation programs must consider and value the work of those who provide internal support
to the organization as well as those who directly impact financial results. An organization’s
compensation strategy will dictate the rate and timing of pay increases, which jobs are eligible
for bonuses, and the level of competitiveness with similar organizations.

Employee Incentives and Compensation

Pay-for-performance has become increasingly popular. Companies use compensation to reward
and boost the morale of high-performing employees, but also to motivate underachievers.

Presentation of Compensation
How a manager speaks regarding pay can inadvertently create ill will when the intention was to
deliver good news. It is important to use specifics when speaking with employees rather than
categorize any pay increase as “good”, “significant” or some other qualifier. Employee
perceptions of compensation are based on individual values, needs and expectations.

Offering Competitive Pay

Businesses wishing to compete for the best of the available talent pool must offer a competitive
compensation program compared to other companies within their industry and at large.

Automation and Outsourcing

Automating compensation, including outsourcing some compensation functions, enables
businesses to standardize its system throughout the organization, eliminate paperwork and help
departments to communicate more effectively. It minimizes payroll errors and makes it easier to
compensate performance based on quantifiable measures. Organizations may also use
technology to benchmark jobs and survey employees.

Generational Differences in Expectations

People are living longer, and thus, working longer. In a look at physician compensation, Max
Reibolt of The Coker Group noted a difference in work ethic and expected compensation that fell
along generational lines. Older workers were more likely to work longer hours in exchange for
their pay while younger workers expected high levels of pay even when their productivity was
aided by technology.

Multinational Business Operations

Multinational corporations must balance the needs and expectations of employees from various
countries. Compensation must balance conformity with local laws and customs against global
corporate policies.

Controlling Labor Costs

Labor costs often constitute the largest line in a corporation’s budget. In a tight economy,
companies are faced with a flat, if not shrinking, pool of funds. The cost of labor is broader than
the amount paid to employees, taking into account recruitment, training, turnover, infrastructure
and overhead, and the impact of these things on productivity.

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Recruitment
While a number of issues impact small-business recruitment efforts, including work-life balance
and corporate culture, compensation packages are a critical factor to many would-be employees.
In other words, while employees may be attracted to your business for a variety of reasons,
salary and benefits are important, and they play a major role when it comes to recruiting top
talent to a small company.

Retention
Compensation management is important not only to recruiting top employees but to keeping
them in their positions once hired. Small businesses often invest significant amounts of time and
money in training new staffers and bringing them up to speed. A company that loses a key player
to the competition because of poor compensation management not only loses a talented
employee in which it has invested, but the business also incurs additional expenses when it
comes to rehiring and retraining for the vacated position.

Motivation
Job satisfaction and a positive workplace culture often motivate staffers to perform at top levels,
particularly in a small or close-knit business. Compensation also is critical to staff motivation,
making compensation management a vital area of operations. Staffers who feel they are
adequately rewarded for their contributions and their efforts are more likely to perform their jobs
well, have a decreased level of absenteeism and have greater longevity than staffers who feel
underpaid or under-appreciated.

Finding the Balance

According to the U.S. Small Business Administration, many small-business owners meet the
challenge of compensation management by using their small-business status and flexibility to
their advantage. For example, small businesses often allow creative scheduling options such as
flex time, job sharing, telecommuting and work-from-home options as incentives for attracting
talented staffers. Mentoring, professional development and a policy of promoting from within
can also help offset compensation challenges by providing staffers with incentive for internal
advancement. Other perks that can help a small business manage compensation include a
company wellness program and free memberships, such as a gym membership.

Incentive Programs
According to the U.S. Department of Labor, utilizing profit-sharing, bonus or incentive programs
can help small-business owners bolster the earning potential of staffers. The DOL also notes that
incentive plans have the ability to help a small business retain top performers. In this sense, the
company is able to offer the potential for higher degrees of compensation based on the
performance of the company or of individual staffers.