Emily Clarke

The Compensation Management Process Explained

An organization's output is dependent on its workers' performance. Compensation has a significant influence on workers' performance; thus the compensation plan should be well thought out. The compensation management process follows a particular set of steps to achieve its objectives.

We will look at the things compensation management must do to be successful.

Organizational Strategy

The organization's strategy determines how the company will run its operations, including the compensation of employees. Companies in different industries have different compensation strategies and methods. In an expanding market, a business can achieve growth through internal expansion or mergers.

In such fast-growing industries, human resources might not grow at the same pace as the industry. For this reason, firms in such industries must pay top dollar to attract talent.

In some industries, companies achieve growth by increasing the effectiveness of their strategies rather than making additional investments. In such industries, the compensation strategy may involve moderate incentives and average pay.

In a declining market, organizations must consider reducing costs to stay afloat. In such industries, the compensation strategy involves reduced incentive payments and below-average pay. These scenarios show that a compensation strategy is dependent on the industry in which the organization is operating.

Compensation Policy

The organizational strategy determines the compensation policy. The compensation policy should clearly state the factors considered in deciding base pay, benefits and compensation. The policy should consider job evaluation and job analysis. Job evaluation and job analysis determine how much each job is worth in the organization.

Contingent Factors Analysis

A company should consider both internal and external factors when developing a compensation strategy. Internal factors include the employees' performance, skills and seniority. External factors include the cost of living, trade union requirements, social factors and the level of economic development.

Compensation Plan Design and Implementation

The above factors help an organization design a comprehensive compensation plan. Therefore, the organization can decide each employee's salary and provide increment plans over time.

Review and Evaluation

A compensation plan should be flexible to adapt to the changes that come with time. After the plan is implemented, it will provide results such as level of employee satisfaction and productivity. If the plan does not produce the intended results, then the company should consider a review.

Author Resource:-

Emily Clarke writes about business software and services like commission tracking platforms, softwares etc. You can find her thoughts at tracking commission blog.