Compensation System Compensation System

Compensation is one of the human resource strategies that enhances productivity, employee motivation and overall performance. Compensation is categorized into three groups direct financial compensation, indirect financial and non-financial compensation. The following paper will investigate the goals of an organization`s compensation system and its operation in an actual organization.
One of the main goals of a compensation system is attracting experienced and talented employees into an organization`s workforce. An effective compensation system also enhances retention rate among employees, especially in a competitive business environment. Any form of compensation reduces rates of employees` turnover by increasing sustainability. Similarly, compensation systems motivate employees, hence increasing overall productivity, increasing returns and enhancing an organization`s competitive advantage (Martocchio, 2011). Since compensation strategies are mainly based on employees` performance, an organization can estimate the average performance of its employees and use the information against its major competitors. Another aim of designing and implementing a compensation system is compliance with pay laws (Martocchio, 2011). The system enhances compliance by making a follow up and comparison with all employment policies. The system ensures that not only are employees` rewarded for their efforts, but also remunerated within the labor and pay standards. A compensation system simplifies administrative roles, thus reducing cost and enhancing employer-employees relationship.
One of the ways through which a compensation system works in an organization is by strengthening an organization`s culture. A compensation system supports high employee involvement and empowerment, hence improving productivity. In addition, the system enhances employee loyalty and job security. To support business innovation and growth, all job aspects should be measured and rewarded accordingly. In addition, performance should be evaluated using multiple data to avoid biasness (Martocchio, 2011). Similarly, all employees should be involved in compensation decisions. Through employees` involvement, it becomes easier to transfer the compensation rationale from management to the employees in order to facilitate organizational development.
Martocchio, J.J. (2011). Strategic compensation: A human resource management approach. Upper Saddle River, NJ: Prentice Hall.

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