Administration of Compensation and Benefits in HRM
Recently I posted an article on succession planning, its need, importance and challenges to an organization. In this article, let’s discuss about Compensation & Benefits in Human Resource Management and its impact to the success of an organization.
Compensation and Benefits is a fundamental element of Human Resource Management. Employee Motivation and Retention is a dream if there is no fair and transparent compensation policy. Effective compensation planning ensures fairness, equity and motivation amongst the employees and creates a loyal workforce.
Compensation and benefits refer to the
compensation/salary and other monetary and non-monetary benefits passed on by a
firm to its employees in return for their services. Compensation and
benefits is an important aspect of HRM as it helps to keep the workforce
motivated are the most important hygiene factors. It helps give benefits to
employees based on their performance and actions and brings the best out the
employees at workplace
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Types of Compensation |
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Primary |
Secondary |
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Primary pay involves the direct
payment of money in exchange for work, which is often a monthly salary and
sometimes performance-based pay, over time pay and allowances. |
Secondary benefits are any
non-monetary rewards. These can include extra holidays, flexible working
hours, childcare, pensions, a company car and laptop, and much more. |
Five Impacts of Compensation and Benefits
Making an appropriate salary offer is a
key element in attracting the best talent. This offer should be balanced with
the company's budget and profit margins. HR should monitor salary increases and
establish merit standards
Job Satisfaction – Fair and competitive
compensation package creates a sense of satisfaction and employees will feel
that they are treated with fairness in response to their good services.
High Performance – Human capital is significant, but it becomes a waste when it is not performing the assigned job
at the best. To ensure solid performance at work, employers are expected to
maintain an impactful pay scale.
Loyalty & Commitment – The stability
and longevity of an organization don’t just rely on strategic moves of the
management, the loyal and committed staff have major contributions. Loyal and
committed staff are not free, they are expensive, and they should be compensated
in the best possible way.
Motivation – As motivational factors
change from time to time; an effective HR Management pattern should include
employee benefits that are most relevant and innovative. Money is not always
the factor. During Covid, employees mostly wanted remote working facility and
access to health care during an emergency. Some companies signed contracts
with Health Care Service providers to obtain medical emergency services for
their staff and upgraded the existing health insurance plan.
Employee Retention – An organization is
nothing without human resources. Not all the jobs can be carried out by
machines. Understanding the financial need and non-financial need of your
employees is critical to retain your employees. Setting standards and benchmarks
are the strategic way of retaining your best employees through effective
compensation management.
Concept of Fringe Benefits
Fringe Benefits refer to various extra benefits provided
to the employees, in addition to the compensation paid in the form of wage or
salary. These benefits can be defined as any wage cost not directly connected
with the employees’ productive effort, performance, service, or sacrifice. It
is also defined as those benefits which are provided by an employer to or for
the benefit of an employee and which are not in the form of wages, salaries,
and time-related payments
Fringe benefits is a pure motivation, and an
initiative focuses on employee welfare services. Some organizations, depending
on their resources, include dependents of the employees in the various welfare
services offered. The aim here is to reward people in a way
that motivates them.
(Test Gorilla, 2021)
Principles in Administering Compensation & Benefits
- Develop an integrated compensation policy by taking into consideration the views of employer, the employees, the clients and the community/market.
- The compensation policy should be clearly defined to ensure uniform and consistent implementation.
- The compensation plan should be in line with organizational objectives and organization’s affordability.
- Compensation planning should be part and partial of financial planning and budgeting.
- Employee representatives should be involved in the development, formulation and implementation of the compensation related policies to ensure transparency.
- All salary related decisions should be verified with the established policy to avoid discrimination or deviation.
- Maintain adequate information/data related to compensation management for future planning and assessment of the salary scale.
- Carry out a market salary survey at least annually to be competitive with the pay packages. An outdated compensation policy will easily let employees go for better options.
- Periodically assess the effectiveness of existing fringe benefits and address required changes taking the affordability in to consideration.
The administration of Compensation &
Benefits plays a vital role in Human Resource Management to uplift performance and productivity of
the employees. To be competitive and in the business environment, the compensation
policy is key and one of the primary elements for survival and employee
retention. Employee motivation, job satisfaction, commitment and loyalty are
some primary results of effective compensation policy. Therefore, the
above outlined principles and strategically designing the pay packages are must
for any organizations for a successful run.
References
Lecture Notes - Institue of Perosonnel Management, 2016. PQHRM
Lecture Notes on Compensation Management. Colombo: CIPM.
Good article. Looking forward an article from you about the facts that why people leave a company even after they receive a good compensation and many benefits.
ReplyDeleteThanks Lahiru for the comment. As the motivational factor varies from person to person and priorities of employees keep changing, good compensation will not only be the deciding factor to retain employees. For further reading, I would suggest you to access this link until I come with my own article if time permits. https://www.achievers.com/blog/employee-retention-strategies/
DeleteI agree with your statement that any organisation seeking success must carefully create pay packages. When establishing their pay plans, organisations must take their employees' wants and needs into consideration. By doing this, they can develop a work atmosphere that encourages commitment, loyalty, and job happiness, all of which lead to increased output and performance.
ReplyDeleteOverall, your blog effectively summarizes the importance of Compensation & Benefits Administration in Human Resource Management, and the critical role that it plays in achieving organizational success.
Thanks Nadeer for sharing your view with me. Effective compensation management is key for employee retention and motivation. Many studies have proven that!
DeleteThis article provides an understanding on administering benefit for your employees. Having attractive benefits would improve the branding of the organization and attract a better calibre of talent to the organization.
ReplyDeleteI totally agree. Employee branding can be improved through effective compensation management. An employer brand may be used as a tool for positioning the business as a leading employer in the market. The employer branding approach acts as a means of communicating organizational characteristics and how the corporation distinguishes from many other companies as an employer and eventually, that becomes a competitive advantage for attracting skilled employees.
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