Determinants of Compensation Structure

There are many factors for compensation determination are:
1) Worth of the job: The relative influence of the size, responsibility, skill requirements and objectionableness of duties differ worth of one job from other.

2) Worth of the individual characteristics: The influence of age, experience, seniority, general qualifications, special skills, contribution, performance and potential of the incumbent which cause variance in individual pay.

3) Labour market: The supply and demand of the required skills in the labour market will dictate pay rate. Scarcity will shoot the pay high, and surplus will lower the pay. The market will cover local and national and often international.

4) Economic realities: The ability to pay of the organization and the inflation situation of the country.

5) The cost of living: The cost of living index calls for pay adjustments and determination of basic pay.

6) Prevailing wages and salaries: The going pay rate in the market, particularly in the industry wherein the firm is operating.

7) Government intervention: The government directly affects compensation through wage controls and guidelines, which prohibit an increase in compensation for certain workers at certain times. The government of Bangladesh establishes minimum wages, work hour, regular and over time, deductions from wages, medical allowances, provident fund, and compensations for injuries and deaths, and often income taxes, social security taxes etc.(GOB,2006)

8) Union influences: Unionized workers have tended to be pay setters in demands for pay, benefits and improved working conditions. Other issues including time off with pay, income security, cost of living adjustment, and various benefits like health care are also important bargaining elements of unions. The Bangladesh Labour Code 2006 amended 2013 and associated legislation and court decisions legitimatized the labour union’s influential participation in this matter in Bangladesh.

9) Internal Influence: In addition to the external influences on compensation, already discussed, several internal factors affect pay: the size of the organization. Labour budget, remuneration policy and strategy of companies, and who is involved in making pay decisions for the organization.

10) Equity: The need for equity is a crucial factor in determining pay rates, especially external equity and internal equity. Externally pay must be comparable favourably with rates in other organizations and internally, pay rates must be such that each employee may view his or her pay equitable as other pay rates in the organization.

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