Compensation Management is one of the critical strategic functions of the Human Resource department across all organizations. Efficient application of the same can induce maximum productivity and employee retention.
In the United States, 57% of applicants consider the compensation aspect as their top priority in accepting employment. This data only proves that an efficient compensation system helps organizations in achieving business growth.
This system reflects a company’s initiatives to provide the best welfare measures to its employees, which, in turn, will motivate them to perform well. A study revealed that employees who are satisfied with their benefits packages are top performers in their respective functions.
Types of Compensation
State and federal laws aim to regulate labor rights, and this objective entails the following benefits:
- Direct – This includes a fixed process where the employee regularly receives salary payments. The salary range depends on the nature of the industry and specific job responsibilities. He or she receives either monthly or bi-monthly salary, depending on the signed agreement.
Apart from the salary, some variables constitute direct compensation. These include transportation, clothing, and food allowances, performance-based bonuses, health insurance, and medical care fees.
- Indirect – Companies can provide a wide array of non-monetary benefits that aim to develop the physical, mental, and emotional well-being of their employees. These can include training courses, promotional opportunities, public recognition through awarding rites, company-sponsored trips, and employee engagement activities.
Drafting a Compensation Plan
Because of its positive impact on the overall success of organizations, management teams usually invest in developing the perfect compensation plan that can benefit the workforce. Here are some of the necessary steps of the methodology:
- Determine your philosophy by choosing the right program that aligns well with your brand’s mission and core values. At this stage, you must consider the sufficiency of this plan and its influence on the individual and overall performance of all the employees.
Further, determine what factors can help your workforce in job performance. These factors should be parallel to the nature of the industry and the employees’ specific duties.
- Create an outline of the responsibilities at each level of the position. From that outline, measure the complexity of the skill set and use it as an anchor in assigning a salary grade. If a role is particularly valuable and requires complex skills that are difficult to find, you need to increase its financial rate.
- Consider the compensation system of your competitors in the industry and ensure that your packages offer stronger incentives so that your people will not think about leaving your company.
- Factor in the difficulties of a particular job and study projected patterns. For instance, if a job tends to be tedious and the workforce is limited, you have to offer overtime pay and other bonuses to compensate for additional efforts.
- Establish performance metrics so that the incentives plan, which includes bonuses and salary increases, aligns with the standardized requirements that warrant bonuses and rewards. Employees should earn these rewards by meeting high-quality job standards.
- Affiliate your medical plans with compliance acts and current medical trends. This way, you can ensure better health for employees while reducing costs.
All businesses need to exert maximum effort and consideration in providing compensation packages that will cater to different employee needs. The Human Resource department must carefully evaluate various factors to ensure sufficient and reasonable compensation plans.