Importance of Compensation Management

Compensation means the basic returns that an employee obtains from his/her work. Every organization offers a good compensation to attract and retain the ablest employees on the actual work floor. It is because if the company does not offer an attractive package of compensation, compared to other competitive firms, the efficient employees may leave the firm. Hence, the employees should be compensated adequately. A well-designed job evaluation program helps to determine an appropriate compensation system.

In simple terms, compensation is everything that a company offers its employees in return for their talent and time. When organized the right way, compensation dollars can be strategically leveraged to reduce turnover, boost employee engagement and attract top talent. The purpose of compensation management is to make the most of company dollars in a way that rewards employees for their work.

Why is Compensation Management so important?

Compensation management makes a company vigilant. It drives managers to be on the lookout for star performers who must be given rewards for their efforts, which ultimately decreases the risk of losing a valuable employee.

Objectives of compensation may be controlling cost, establishing fair and equitable pay structure, attracting and retaining competent human resources, improving motivation and morale, improving labor relation, improving the image of an organization and comply with the legal framework and policies of the organization.

It is positive reinforcement. Yes, money doesn’t make the world go round and if line managers are not friendly, helpful and supportive retention is difficult. But cash prizes and consistent monetary perks in conjunction with a great work environment allow companies to grow by leaps and bounds through motivated, hard-working employees.

Compensation management enhances the company’s reputation. When workers are satisfied with their monetary and intangible rewards, they attract better prospects for vacant positions, bringing new, fresh talent to the organization.

The thing that holds most employers back from investing in compensation management is the tediousness of the process. Costly spreadsheet errors and the inability to efficiently process and apply the different ‘rules’ and ‘best practices’ of comp leave organizations hesitant. Software designed specifically for Compensation Management can offer planning support, advice, alerts and real-time reviews to simplify, align and automate the compensation planning process.


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