Compensation management is a part of the business that is dealt with by the human resource team. This is due to the fact that it can contain elements that have a direct effect on an organisation reaching its goals. Compensation is used to attract, retain and motivate your employees and if it is not managed effectively then it can have a very serious impact on the success of your business. Below, you can find out more about compensation management and what it means for your business.
The Different Types of Compensation
When it comes to compensation management, you will tend to find that it is split into two main types. The first is direct financial compensation and the second is indirect financial compensation. The first is when you pay your employees their salary, commission and bonuses. The latter is when your business pays out any financial rewards that are not direct compensation such as extra benefits. For example, direct compensation is the money that an employee receives as their wages in their bank account, while indirect financial compensation is when the company contributes to an employee’s pension plan.
While most compensation is financial, this is not always the case. Other forms of compensation include an enjoyable working environment. Sometimes, some companies will even let employees decide on their own compensation package that will specifically suit them.
What is the Objective of Compensation?
So, why should you be investing in great compensation management? Well, the objective of compensation is to build a system of rewards that suit both the employer and employee, and everyone should be kept happy. If an employee is happy where they work, then they are far more likely to be motivated and do a fantastic job which means your business will, in the long run, be more successful. For many businesses, it is the employees who are the ones that really make it what it is!
There is a wide range of things that should be covered by compensation management. For most people having balanced pay, great benefits and other rewards are the most important, as well as having their salary be secure. On the other hand, compensation management should ensure that the business is still being cost-effective and is not overpaying its workers as no one wants to be out of a job because the company cannot afford to keep them. Along the same lines, every employee should also be paid fairly and in line with their abilities, training and effort. Furthermore, what you are paying in compensation should be a great incentive for your employees to be more motivated and productive when they are at work. Lastly, all minimum governmental, managerial and union levels should be met, and all employees should be kept updated on the pay system.
If you can provide your employees with a great compensation package for working at your company, you are likely to have a much happier workplace, improved productivity and a lower turnover rate. Invest in your compensation management today for the future.