Define compensation Discuss the most important issue in comp

Define compensation. Discuss the most important issue in compensation and how can companies overcome this issue.

Solution

Compensation can be defined as total amount of monetary and nonomonetary benefit provided or given by an employer to the employee. It can be combination or cumulative effect of money, vacation bonus, additional perks, health insurance, free events, leave reimbursement, vehicle allowance, free lunch/events etc.Compensation are designed majorly from Human resource department by taking inputs from various internal and external sources. Some companies pay according to the industrial standards, some pay based on the certain bands and employees role and contribution to the company.

Some of the major issues in compensation are:

1: External competitveness: An organisation strive to establish a moderate platform to pay their employees based on the standards. But increasing competition from other organisation may results in changing the pay structure to match with them , otherwise employee tend to switch based on the salary offers from others.

2: Executive compensation: All employers need to put some rational on defining or establishing salary for their top executives. Many public sector companies have been criticized by the media and also by group of shareholders, government for providing compensation with large rewards for executives.

3:Differentiating High & low performers: It is very difficult to distinguish performers who are working in different function or domain. This may results in irrational way of compensation attimes.

4:Budget constraints: Compensation involves lot of money to spend on resources and sometimes based on the cash flow crunch an organisation may find difficult to meet the requirement

5: Annual appraisal: Appraisal system is very much aligned to compensation as well. Thus conflict and disagreement on appraisal also affect the compensation strategy.

Companies overcome the challenges mentioned above in the category of compensation issue through developing platform which has 365 degree appraisal system where employees can rate themself and can understand their position in the organisation by the evaluation done by managers or higher management. Proper budgetary management and forecast can reduce the risk involved in funding problem for compensation distribution. Appraisal strategy shoudl be forumalted based on internal and external factors such as ( based on economic situation, specific industry condition, future projects on pipeline, realisation of bills etc.).Market pay structure evaluation can give good hold on standardised pay and on exceptional cases companies can use flexble pay system inroder to get the right candidates on board.