Compensation refers to all forms of financial return and tangible services and benefits employees receive as part of employment relationship. Other than that compensation means something that counterbalance, offsets, or makes up for something else. However in the different language the compensation itself have richness of meaning, which combines entitlement, returns and reward.
Compensations are related with the employee and the employer performances, it means by employee performance of their works and the employer as the organization performance. Compensation need to be consider in all aspect especially in internal or external factor such as technology advancement, human capital, economic, government and others because it may affect the organizations itself. Other than that, the benefit of compensation toward the employees is it may increase the employee morale and it’s also a way to attract and retain employees.
The variety of returns people receive from their work that are categorized as total compensation and relational returns. The total compensations are transactional and the relational returns are psychological.
Total compensation can be divided into two. First is cash compensation that means by they include pay directly as cash such as base, merit/cost of living, short term incentives and long term incentives. That normally employer pays for the work performed based on their result in performance appraisal.
Second is indirectly as benefits such as income protection, work/life balance, and allowance. That is non-monetary benefits for the employees, for example all female employees are entitled for maternity allowance, transportations allowance, EPF or SOCSO and others.
The relational returns are involved learning opportunities, status, challenging work and so on. By means the compensation is intangible. For example for recognition and status, as human being normally people are loved to be respect by the others because that is a human nature. The increase of status means position of the employee may improve their morale and individual self-esteem. It also may influence other people to compete and improve their performance and gain the competitive advantages.
2. Pay system are designed to achieve certain objective, list and briefly describes the three compensation objective? (10 marks)
➢ Customer and stockholder
Can be stated more specifically first in improving performance, increasing quality, delighting customers and stakeholder and second is controlling labor cost. It also means by the pay of the employees are equivalent with the employee performance.
When the employees are satisfied with their payment it will improve the quality of work indirectly will also increase the product quality. When the employees feels satisfied with their payment it will make the organization stable and it will help for the customer and stockholder loyalty (good image of organization). The organization also my control labor cost because they are able to attract and retain their employees.
It is call as a fair treatment for all of the employees by recognizing both employees contributions for example higher pay for greater performance, experience, or training and employees needs for example fair wage as fair procedures. The procedural fairness is refer to the process used to make pay decisions.
It suggested the way a pay decision is made be equally as importance to employees as the result of decisions. For example, the CEO position are received the higher pay in organization it is because the...