Compensation of employees for the services rendered to an organisation is an important responsibilty of Human Resource Management. Every organisation must offer good wages and fringe benefits to attract and retain the talented employees with the organisation because if the wages offered are not competitive as compared to other firms, the efficient workforce may leave the firm.

‘Compensation’ refers to a wide range of financial and non-financial rewards given to the employees. It is paid in the form of wages, salaries and employees benefits such as insurance, maternity leave etc.

An organisation has to design its ‘compensation system’ in such a way that it is able to achieve the following goals-

  • By offering the well designed package, an organisation can ‘attract the talent’ available in the job market.
  • The practice of lifelong employment and commitment between the employer and employee is fast disappearing as new employees don’t hesitate to leave and join other organisation if they are offered better pay package therefore, each organisation should design such a package which can ‘retain the talent’ within the organisation.
  • compensation system should be designed to ‘motivate’ the employees to contribute their maximum towards the organisational goals.

Compensation Administration

Wages and salaries represent a significant part of the total costs in most of the organisation. The general objectives of the compensation administration are the following-

i) control of wages and salary bills.
ii) to establish the fair and equitable remuneration for various categories of staff.
iii) maintenance of a satisfactory public relations image.

The ‘traditional approach’ to wages and salaries has been to maintain wages and salaries at a level to which is adequate to attract and retain the employees but it fails to recognise human factors, including a desire for a better way of life. Due to this criticism, many other forms of policy statements have been adopted by different organisation.

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