Goals of Compensation Management

Compensation management is aimed at helping the organization achieve strategic success while ensuring internal and external equity. The goals of an effective compensation management, as Werther and Davis (1996) point out, are:

1. Acquire Qualified Personnel: Compensation needs to be high enough to attract applicants. Pay levels must respond to the supply and demand of workers in the labour market since employers compete for workers.

2. Retain Current Employees: Employees may quit when compensation levels are not competitive, resulting in higher turnover.

3. Ensure Equity: Compensation management strives for internal and external equity. Internal equity requires that pay be related to the relative worth of a job so that similar jobs get similar pay.

4. Reward Desired Behaviour: Pay should reinforce desired behaviors and act as an incentive for those behaviors to occur in the future. Effective compensation plans reward performance, loyalty, experience, responsibility, and other behavior.

5. Control Costs: A rational compensation system helps the organization obtain and retain workers at a reasonable cost. Without effective compensation management, workers could be overpaid or underpaid.

6. Comply with Legal Regulations: A sound wage and salary system considers the legal challenges imposed by the government and ensures the employer’s compliance.

7. Facilitate Understanding: The compensation management system should be easily understood by human resource specialists, operating managers, and employees.

8. Further Administrative Efficiency: Wage and salary programs should be designed to be managed efficiently, making optimal use of the human resource information system, although this objective should be a secondary consideration compared with other objectives.

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