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Compensation Management Explain the need for designing of Compensation Policy. What is the importance of compensation system in business organization?

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Compensation Management Explain the need for designing of Compensation Policy. What is the importance of compensation system in business organization?
IntroductionOrganizations should establish and communicate clear principles by which employees are paid. At a minimum, organizations need to ensure that their compensation policy adheres to employment legislation. Policy guidelines should reflect the thinking, values, and basic strategies of the company, and they must be set consciously and thoughtfully by top management. Before setting compensation policies, management should address some basic policy questions:• How will jobs be valued (by content, skills required, etc.)?•How should pay compare to similar positions in relevant markets?•What is the policy with respect to pay for performance?•Is there a commitment to pay in relation to inflation, and if so, what is that commitment?•Will all persons and jobs be treated in the same way regarding compensation policies, or will there be differentiation according to title, tenure, or some other criteria?•What will be the policy regarding employee contributions to company sponsored health and retirement benefits?•What will be the policy on communicating the compensation program? Will the company have an "open" system?•What federal and state laws apply to delivery of compensation and benefit programs, and how will these be implemented?Additionally, best practice organizations adopt compensation principles that ensure fairness and equity in pay rates and salary administration, and transparency in compensation practices.

TextAn effective compensation policy is based on objective and up-to-date job descriptions, effective job evaluation and performance management, and relevant salary administration. Salary administration encompasses establishing: salary ranges; decision-making criteria for salary increases; and time frames for salary review.

•Establishing Salary RangesOrganizations need to determine where they want to pay specific jobs/job categories in relation to the employment market (industry and regional compensation norms). Based on availability of qualified


Bibliography: ompensation Management in a Knowledge based World by Richard I. Handerson Professor Emeritus, Georgia State University
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