Compensation Management Explain The Need For Designing Of Compensation Policy. What Is The Importance Of Compensation System In Business Organization?

1146 words - 5 pages

IntroductionOrganizations should establish and communicate clear principles by which employees are paid. At a minimum, organizations need to ensure that their compensation policy adheres to employment legislation. Policy guidelines should reflect the thinking, values, and basic strategies of the company, and they must be set consciously and thoughtfully by top management. Before setting compensation policies, management should address some basic policy questions:• How will jobs be valued (by content, skills required, etc.)?•How should pay compare to similar positions in relevant markets?•What is the policy with respect to pay for performance?•Is there a commitment to pay in relation to inflation, and if so, what is that commitment?•Will all persons and jobs be treated in the same way regarding compensation policies, or will there be differentiation according to title, tenure, or some other criteria?•What will be the policy regarding employee contributions to company sponsored health and retirement benefits?•What will be the policy on communicating the compensation program? Will the company have an "open" system?•What federal and state laws apply to delivery of compensation and benefit programs, and how will these be implemented?Additionally, best practice organizations adopt compensation principles that ensure fairness and equity in pay rates and salary administration, and transparency in compensation practices.

TextAn effective compensation policy is based on objective and up-to-date job descriptions, effective job evaluation and performance management, and relevant salary administration. Salary administration encompasses establishing: salary ranges; decision-making criteria for salary increases; and time frames for salary review.

•Establishing Salary RangesOrganizations need to determine where they want to pay specific jobs/job categories in relation to the employment market (industry and regional compensation norms). Based on availability of qualified employees, funds available for salaries, ability to offer non-monetary attractors (such as vacation, benefits or alternative work arrangements) organizations make a choice to pay at the low end of the market, in the middle, or at the high end.

Organizations should conduct periodic reviews of their salary ranges to ensure that they are in-line with the current employment market and their targeted position within that market. While large organizations may conduct their own salary benchmarking on a yearly or on-going basis, smaller organizations can purchase salary surveys when needed. Additionally, organizations need to determine the number of salary ranges that are appropriate for their organization. Organizations normally have a number of jobs within one salary range - for example, an organization may establish one salary range for all...

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