Compensation system is an important part of organizational management and effective resource allocation. Managing compensation is based on plans and involves three distinct goals: attracting and retaining qualified staff, motivating employees, and controlling costs. Although the HR manager would like to achieve each goal, it is also true that it is very difficult to achieve the best in each strategic aim at the same time. On the one hand, attracting and retaining staff will likely involve establishing fixed base salaries at very high rates. It implies that the company has to set wage rates and salaries at or above the market average. Thus, high salaries violate the basic impulses of cost control and motivating people. Compensation management involves analysis of skills and knowledge of employees, their productivity and contribution to the organization. The compensation reflects skills and professionalism of workers and their position in the company.
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One of the popular compensation methods is pay-for-performance. Under such –schemes, workers receive a performance appraisal from their supervisor about their individual performance. For instance, one issue revolves around the question of how much of a reward is essential to stimulate extra effort. According to this perspective, there is so little difference between what a manager and non0manager earn that there is very little reason for a n individual to seek becoming a manager, especially given all the headaches the management position must face in trying to supervise under an intractable federal employment system. Effective pay-for-performance plan should draws together the various goals and issues involved into an integrated scheme for paying for employee performance. Each company has distinctive goals and conditions that require a pay-for-performance plan best suited for that organization (Armstrong 32).
Another method of compensation is employee benefits. This method represents a significant cost to the organization and provides important yet often intangible values to the workers. As part of the overall compensation scheme, benefits can enter into the competitive position to attract, retain, and motivate staff. At the same time, the organization wants to minimize costs of the benefits provided. Again, the ability to design and implement effective benefits schemes is a critical skill for the HR manager. In the development of a Benefits Plan, a manager works with other consulting teams and recommends the most competitive and cost-effective benefits plan possible for employees. In this exercise, HR manager develops a benefits plan design, costs, and impact on workers to suggest a plan with the best outcomes for employees and the organization. With the possible exception of layoffs and terminations, compensation and benefits schemes are the most high-profile HR< activity performed (Reed 31).
Method of compensation is incentives rewards. These plans and schemes are important in their own way. Incentives rewards can consume a sizable portion of total compensation costs. For that expense, organizations would like to receive–but often have trouble obtaining–returns in goodwill and performance. For these issues, effective incentives rewards design is often a silent but important part in HR planning and administration. Workers who are judged to perform the job acceptably should receive rewards that match the rate of inflation. Workers who are judged to be exceptional professionals should receive adjustments that are about double the rate of inflation. Adjustments will be permanently added to the worker’s base rate of pay on an approximately annual basis. Workers will be regularly assessed by their managers, and those who are not meeting minimal acceptable standards will not be rewarded (Baron and Kreps 87).
In addition to compensation plans, employers should pay a special attention to safety and health needs of employees. These involve maternity leaves and medical insurance for employees and their family members. Employee job performance is used in making decisions about medical coverage. The amount of bonus adjustment for which any worker is eligible will be at the discretion of the supervisor. Medical coverage is not permanently added to base pay. In addition, in order to intensify appropriate behavior, the percentage amount of increases awarded to each employee is noted in the organization-wide communication each year (Snell 87).
In sum, compensation system is a complex process based on work assessment and personal skills of the worker. In many companies, all workers who meet the minimum accepted standards of performance become entitled for a year-end cost of compensation increase, if it is granted. Though, whether a cost of living increase is rewarded and the amount of the increase is only at the discretion of management. In some organizations, rewards may become ongoing additions to the worker’s base rate of pay once awarded. Though, management reserves the right to reset wage rates whenever it supposes essential. Effective compensation management is always sensitive to competitive labor market conditions. In this case, using salary survey information effectively becomes very important for the organization. Beyond grounding pay rates in competitive labor market conditions, compensation schemes are properly structured and designed to support organizational goals. Such factors as how much money it takes to serve as a lure to more effective and productive performance, ethical concerns in using incentive schemes, and fully developed incentive plans with organizational requirements are all core factors to effective compensation design.
Armstrong, M. Human Resource Management. 8th edn. Kogan Page, 2001.
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Baron, J., Kreps, K. Strategic Human Resources; Frameworks for General Managers. Wiley; 1 edition, 1999.
Reed A. Innovation in Human Resource Management. Chartered Institute of Personnel and Development, 2001.
Snell, B Managing Human Resources. South-Western, Div of Thomson Learning; 14th edition, 2006.