Compensation Definition

Compensation Definition



Compensation is a systematic technique and a strategic tool used by any business that has employees. This system is used to compensate the employees for their works perform by providing monetary value to them.

Compensation also assists Human Resources department to achieve several goals. Plus to recruiting and retaining excellence and qualified employees, it encourages high performance, increase loyally and decrease turnover. Moreover, compensation assists in job satisfaction and maintaining moral as well as achieving internal and external equity.

Organization can compensate their employees by utilizing systematic components that determine positions' value. One of the components of a compensation system is job analysis which is the process that analyzes the job by conducting interview, using questionnaires and observation. Another component that is developed from the job analysis is job description which defines job's responsibilities, requirements, functions, duties, skills and other aspects of jobs. Also, job evaluation is another component that is used to determine the compensation level of an individual job. Further to the mentioned, salary ranges/structures, and written procedures are also considered as important components of a compensation system.

The purpose of a pay structure is to organize and demonstrate organizations’ compensation philosophy and to reflect and support the advancement of companies’ culture. An effective pay structure also allows companies to attract and retain the people who can help achieve their business goals.
There are three challenges in developing a pay structure which are determined as follows:
1. The appropriate data for establishing the relative value of a particular job to your organization.
2. The appropriate pay range for a job with the stated value to your organization.
3. The value of each job position within the allotted pay range....

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