HRM Compensation Management
Compensation is the monetary value which an employee gets in exchange for their services. Compensation not only includes salary but it also includes Bonuses, benefits packages, commission, etc. it also includes non-monetary perks like paid leave, family vacations, medical allowances, etc.
Compensation management is practiced to keep its employees motivated and perform their best.
A manager should always offer a compensation package to an employee according to their work and skills as it is important for both not because it costs monetary value, but since it is probably the main reason for the employees work in the firm.
Salary or compensation is the "glue" that ties the worker and the business together.
Decent compensation packages may help managers in retaining the employee. A package which covers basic living expenses and helps employees in savings too is the package which makes them satisfied.
Objectives of compensation management:
Framing and maintain a company’s compensation policy is clearly not a cakewalk. It is very difficult to systematically maintain these policies.
To be precise, compensation is an integrated practice that incorporates adjusting the work-worker connection by encouraging financial and non-money related advantages for the employees.
Importance of compensation management:
Compensation management is important to every organization, as it helps in retaining the potential candidate.
Proper compensation attracts, motivates and retains the employees.
Compensation management leads to more productivity as the employees feel valued and motivated.
Compensation management helps in controlling of disputes within the between the employer and employee as it is framed according to the labor laws.
No conflicts lead to a strong and smooth relationship between the employer and employees.
It helps in setting a more reasonable and attainable target as it reinforces the process of job evaluation.
Different Types of Compensations includes:
Compensation can be divided into two types i.e. Direct and Indirect Compensation.
Direct compensation is the payments to the employees in terms of money and indirect compensation are the benefits other than the salary to the employees.
Components of compensation:
Straight salary compensation: Straight salary includes the salaries and wages given to the workers. Generally, companies decide the basic pay according to the job role. The basic pay may vary according to the potential and performance of the employee.
Salary plus commission: under this the employee receive the salary along with the commission if he achieves his fixed targets.
Allowances: They are paid to the employees along with the basic pay. It includes HRA, DA, Travel allowance, etc.
House rent allowance: Companies provide HRA to the employees to whom they do not facilitate any living accommodation.
Dearness allowance: This allowance is given to secure genuine pay of employee against value rise. Dearness allowance (DA) is paid as a level of fundamental pay and it is taxable with salary and has to be filled in income tax returns.
Travel allowance: it is paid to the employees to travel from their home to the workplace. A fixed sum is paid each month to cover a piece of traveling cost.
FRINGE BENEFITS/PERQUISITES: Fringe benefits are the extra benefits other than the salary paid to the employees such as medical and dental insurance etc. They are often called as perks.
Lately, compensation is not only limited to salary and money benefits it has gone beyond that. These aspects of compensation are important to attract and retain employees.