17 December 2017

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Compensation: Buzz Word that Attracts the Best Talent

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Compensation is the key attribute in attracting, maintaining and retaining the best employees in an ever changing competitive world. Compensation management is an effective tool in the hands of officials in differentiating between the remuneration strategies employed within the organisation and those followed by competitors.

Compensation is actually the monetary benefit which an employee receives in return of his services to the organisation. This compensation occupies an important place in the life of an employee since it determines his standard of life, status, productivity, motivation and loyalty. From employer’s perspective also, compensation is essential since it constitutes a significant portion of cost of production.

Compensation works as the base for strategic planning of remuneration and pay strategies. It empowers the managers to formulate a flexible budget and control mechanism and control bottom-line expenditures.

Components of compensation

Compensation is actually a mix of certain elements, some of which are basic and some are rewarded by results. The major ones are:

• Wage
• Incentives
• Fringe Benefits
• Perquisites
• Non-monetary benefits

Relation of compensation to organisational functions

Compensation is no doubt an integral part of any organisational strategy. It relates to the attraction and retention of the best employee out of the crowd and an assessment of what the organisation requires to meet its strategic goals. The compensation management programme takes into consideration the following:

• Legal considerations
• The company policy
• Equity
• Competitive strategy
• Union membership

How compensation increase affects small businesses

Small businesses are characterized by low turnover, small teams, less number of processes and operations and every business function in comparatively lesser magnitude. If we talk of competition and competing in the market place, the biggest weapon required here is talented and effective work force.

This work force can be attracted and retained by offering handsome salary packages and perquisites which motivate them to stay back, otherwise there are number of firms paying them more.

In order to face the competition, businesses have no other way than to recruit expert professionals for various departments and units. Now we all know that a selection process from the very beginning is a tedious and expensive one. Before coming to compensation, there comes the recruitment charge, training costs, following the legalities of registering the new employee which again incurs costs. This is the first step which burdens small businesses.

Now after the selection of trained employees, you expect them to deliver more but definitely, the competition has not retarded. There is an ever increasing demand for experienced employees and in order to sustain your workforce, you have to spend on their training and also provide them with more monetary and non-monetary benefits so that they feel the glue to remain stuck to your organisation. Thus, attracting employees in the first place was an investment burden and now retaining them is an operational burden for small businesses.

Many a times, compensation is the foundation for altercations and conflicts within an organisation. To resolve such discrepancies, an organisation has to have a sound compensation plan in place. Now again, the formulation of a flexible plan, its communication to the employees, implementation and control mechanism calls for adept people. So an entirely spate team might be demanded to handle this single task, adding to the burdens of the business already scarce in resources.

Firms are termed egalitarian when they place all their employees under one compensation plan. On the contrary, they are known as elitist if they put employees into different compensation plans based on performance, output and results. To stay ahead of competition, small businesses would have to go for the former one but definitely with an increased compensation to reduce dissimilarities.

 

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