The Role Compensation Plays

Topics: Employee benefit, Employment, Wage Pages: 7 (2245 words) Published: January 17, 2013

The Human Resource department has never been as critical and significant as it is today to compensation philosophies. The HR department has a responsibility to handle compensation, in communicating with leadership to set up compensation packages, creating job descriptions and assisting companies in attracting, retaining and motivating employees to meet objectives. It’s a good thing when organizations have the ability to attract and capture the right kind of people or talent to achieve success for the organization. Having qualified talent is very vital for any organization to survive and a necessary tool of business strategy.

It would be nice to work for an organization that care about their employees and have elements in place to retain staff with valued talent. This can happen when organizations have a good total rewards package that has a good blend of elements. Though all retention isn’t desirable, creating a retention strategy with appropriate steps would be vital.

Organizations want employees that can get the job done or accomplish the goal. Having the ability to motivate is great, especially when it causes employees to react or behave in such a way that it can achieve good outcomes and high performance level.

One particular tool that organizations tend to use to attract, retain and motivate employees is compensation management. Let me use a scenario in defining compensation and benefits and also discuss its advantages for organizations and its workers.

Let’s say that I was an entrepreneur of Designer Fashion Boutique. I have hired three fashion designers and a fashion model. The designers are responsible for creating fashion wear and the fashion model will fashion or model the fashion wear.

As I think about the three fashion designers, I ask myself the question, would the three fashion designers and model work for free? I don’t think so, but they would definitely, like many other people, expect something in return for their work. Compensation, according to the article, ”The basics of a good compensation program-Part I, can be defined as, “all of the rewards” that employees receive in exchange for their work, this includes commissions, base pay, bonuses, and other incentives,”(Darlington, 2005,p.74), which are additional rewards that can come in many forms.

Compensation has four core elements. One is called fixed pay or it is sometimes known as “base pay”. This pay is a nondiscretionary compensation that does not vary according to performance or results. It is determined by the organization’s pay philosophy and structure. Another element is variable pay or pay at risk. This pay changes directly with the level of performance or results achieved. This is a one-time payment that is reestablished and re-earned each performance period. Another element is the short-term incentive and lastly, the long-term incentive pay. The short term is a form of variable pay that is designed to focus and reward performance over a period of one year or less. The long-term is a form of variable pay that is designed to focus and reward performance over a period longer than one year which can include stock options, restricted stock, performance shares, performance units and cash.

Thinking of the phrase, give and take, you have to give things to employees in return to what is taken from employees. Compensation somewhat relates to this giving and taking, it’s a monetary value that companies give to employees in return of their services provided to the business. Gary Dessler in his book Human Resource Management says, “Employee compensation refers to all forms of pay going to employees and arising from their employment” which means financial compensations.

Another vital tool, (Garvey, 2005) talks about compensation and how it is used to help grow companies and organizations that are in the expansion mode. As...
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