Compensation Strategy Challenges | * Human resource want to increase the performance, to retain key employees, bring new skilled talents to the company and they want to keep costs under a strict control. * Finding, motivating, developing and keeping employees is a key component of business success * The compensation components cannot be managed discretely, they have to be a part of the overall strategy - the company has to define the competitive compensation strategy.Compensation Strategy * Compensation systems in organizations must be linked to organizational objectives and strategies. But compensation also requires balancing interests and costs of the employer with the expectations of employees. * A compensation program in an organization should have four objectives: * Legal compliance with all appropriate laws and regulations * Cost effectiveness for the organization * Internal, external, and individual equity for employees * Performance enhancement for the organization * For employers, compensation costs must be at a level that both ensures organizational competitiveness and provides sufficient rewards to employees for their knowledge, skills, abilities, and performance accomplishments. Balancing these facets so that the employer can attract, retain, and reward the performance of employees requires considering several types of compensation |

Nature of Compensation | * Compensation is a critical component influencing how and why individuals work at one organization over others. * Employers must be sensibly aggressive with a few sorts of compensation so as to hire, keep, and reward performance of people in the organization. * Compensation is a key factor in attracting and keeping the best employees and ensuring that organization has the competitive edge in an increasingly competitive world. * Without adequate compensation, current employees are likely to leave and replacements will be difficult to recruit.Financial type * Direct Financial Compensation - Pay that person receives in form of wages, salaries, bonuses, and commissions. * Indirect Financial Compensation (Benefits) - All financial rewards not included in direct compensation such as paid vacations, sick leave, holidays, and medical insurance. * Nonfinancial Compensation - Satisfaction that person receives from job itself or from psychological or physical environment in which person works. |

Motivating Employees through Compensation | 1. Expectancy Theory: * a theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward. 2. Pay Equity Theory: * Equity is balance between the inputs an individual brings to a job & the outcomes they receives from it. * Employees inputs includes experience, education, special skills, efforts and time worked. * Outcomes includes pay, benefits, achievement, recognitions, and any other rewards. * Inputs and outcomes are in different units, and are hard to compare to each other directly. * Equity theory suggest that individuals determine whether they are being fairly treated by comparing their own inputs/outcomes ratio to the input/outcome ratio of others. |

Pay Equity Theory | * Three element of equity can be distinguished: external, internal & individual.1. External equity: refers to comparison of similar jobs in different organizations * Setting pay rates, organization seek to integrate the external information with what they have learnt through internal evaluation of jobs this process is called pricing the wage structure. * (Wage and salary surveys, Identifying key jobs, Selecting organization to survey, Collecting data, Pay level policy). 2. Internal equity: refers to the relationship among the jobs within a single organization. * To measure the value of jobs in relation to organizational objectives rewards are usually based on important components to make one job worth more than other these aspects called compensable factors. * The five most frequently used job evaluation methods are: ( Job ranking, Job grading, The points method and ,Factor comparison). 3. Individual equity: refers to comparison among the individual in the same job with the same organization * Wage grades are established & all the jobs within grade are paid identically. * Designing pay ranges: (Establishing pay ranges, Broad branding, Above and below range employees) * Setting individual pay: (Seniority, Merit pay, Skilled based pay) |

Benefits | The major reason for the increased attention in benefits is costs. * Role of benefits: a. To attract new employees b. To retain the customers * Types of benefits: Mandatory protection programs a. Social security b. Unemployment compensation c. Workers compensation d. Compensation for time not work: ( Holidays , Vacations, Sick leave, Personal days, Other leave) * Other benefits a. Child care assistance b. Wellness program c. Educational assistance d. Insurance benefits e. Retirement benefits: (Social security, Pension plan, Cash balance pension plan,Early retirement plan) |

Linking pay to performance | Employers believes that reward in general and incentives in particular influence performance.” Reason to link pay to performance * Motivation * Retention * Productivity * Cost savings * Organizational objective. |