4 objectives of a compensation system

Pay systems translate the strategy into practice in order to achieve certain objectives. The basic objectives are efficiency, fairness, compliance with laws and regulations and satisfaction of the employees.

1.Efficiency consists of:a.Improving performance, increasing quality, delighting customers and stockholders.

When the organization improves the performance she will get the benefit from the employees, which will affect the organization’s strategy and will lead to the competitive advantages among other competitors and will achieve the upward momentum, and continuous improvement (virtuous circle).

And by improving the performance the employees will get more compensation controlling labour costs. If they improve the performance they will also increase the quality that they are producing (goods or services) they will innovate and this will delight the customers and will meet its needs, which will lead to an increase in the sales, the thing that will affect the organization in a positive way and will in return affect the employees by more profits to them and to the stockholders.

b. controlling labour costs:1.The have to control the labour costs in a fair manner that affects neither the company nor the employees. They have to find the balance. What the employee performs should be more than what he gets.

2.Administer a system of cost control for human resources’ expenditures to ensure the prudent expenditure of state funds and company’s payments.

2.Fairness:It is a fundamental objective of the pay system. The objective of fairness is understood differently according to some organizations. Some see fairness as “ensure fair treatment” and “be open and understandable” others acknowledge the definition of fairness is difficult, but they believe it is helpful to question the relative fairness of alternative courses of action in a routine way.

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They see fairness isn’t that everyone gets treated equally, but treated fairly or with justice given the appropriate situation. The fairness objective calls for fair treatment for all employees by recognizing both:a)Employee contributions (higher pay for greater performance, experience and training)b)And employee needs (a fair wage and procedures).

Procedural fairness is the process used to make by decisions. It suggests that the most important thing for the employee is the way a pay decision is made rather than the results of the decision. For him to know what the pay decision procedure is taken or made is more important than taking more salary, even if it is not much.

3. Compliance:It means conforming to federal and state compensation laws and regulations.

a.If they change, pay systems may need to be adjusted to ensure continued compliance.

b.The pay objectives differ with each organization. The company or organization should comply with the laws and regulations, especially the rights of the employees and labour. When the laws and regulations change, there should be a similar change in the same content and in the right and proper direction.

4. Satisfaction of the employees:Salaries equal competitorsa.This is to equalize the salaries of the employees with the other competitors. That go up with increased skills or knowledge, in order to assure they will stay in the organization. Ensure fair distribution of salaries and wages based upon a proper and equitable evaluation of the job, work performance, and compensation paid within the marketplace.

b.Assure a fair distribution of salaries, wages, and fringe benefits by adopting and maintaining a formalized job evaluation system which establishes internal equity between jobs and by administering an effective employee appraisal system to evaluate work performance.

c.Provide a well-qualified staff to perform the work of the organization by establishing a compensation program that is competitive in the marketplace.


Milkovich & Newman: Compensation (8th edition)

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4 objectives of a compensation system. (2016, Jul 30). Retrieved from http://studymoose.com/4-objectives-of-a-compensation-system-essay

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