Compensation is a methodical approach to provide monetary value, financial return, tangible services and other benefits that the employees received as part of their employment relationship. There are 2 types of compensation that can be given to the employees; monetary and non-monetary. Monetary includes wages, salaries, bonuses, insurance plans, social assistance benefits and paid absences. Non-monetary involves meaningful and challenging works, recognition and career advancement, safe and healthy working environment, and fair treatment. It can be used by the management to further the existence of the company because of its variety of purposes that can be adjusted according to the business’ goals, needs and available resources. These purposes are—to employ and retain employees; to boost morale/satisfaction; to reward and encourage exceptional job performance; achieve internal and external equity; encourage the employees’ company loyalty; and to modify the practices of unions. Compensation is needed to employ qualified applicants for open positions and to retain qualified employees in the company in order to achieve the desirable organizational results. There must be an equity between the monetary value and the sentiments of worth felt be the employee to increase the morale and job satisfaction. It can also be used as a reward for excellent job performance in the form of bonuses, commissions, stock, profit sharing, gain sharing etc. Increasing salaries and salary levels can prevent the turnover of the employees to another company and can develop their company loyalty. There are factors that influence the salary levels, namely, conditions of labor market, compensation policy of organization, worth of job, employee’s relative worth, employer’s ability to pay, legal requirements, collective bargaining, area wage rates and conditions of labor market.
Pay Model Structure includes 3 components: I. Compensation Objectives