Compensation and Benefits
The overall objective of a compensation plan is to recruit the best human capital, motivate employees to perform at their peak and retain employees. The compensation package is critical to the strategic HRM plan since much of an organization's budget is devoted to employee compensation. This chapter details compensation options, compensation theories, and applicable laws regarding compensation. It also differentiates between financial, indirect, and non-financial compensation. Perform and answer exercise question one, which asks you to research your intended career and consider your compensation expectations with what you learn.
Developing a Compensation Package
Key Takeaways
- Before beginning work on a pay system, some general questions need to be answered. Important starting points include questions ranging from what is a fair wage from the employees' perspectives to how much can be paid but still retain financial health.
- After some pay questions are answered, a pay philosophy must be developed, based on internal and external factors. Some companies implement a market compensation philosophy, which pays the going market rate for a job. Other companies may decide to utilize a market plus philosophy, which pays higher than the average. A company could decide its pay philosophy is a market minus philosophy, which pays less than the market rate. For example, an organization may decide to pay lower salaries but offer more benefits.
- Once these tasks are done, the HR manager can then build a pay system that works for the size and industry of the organization.