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Compensation & Benefits

In: Business and Management

Submitted By brandyjefferson
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HRM 430 Compensation & Benefits
Devry University

Compensation Definition
Compensation is defined as the amount of total monetary and non-monetary pay to an employee from an employer in return for work performed as directed in the job description (Heathfield). Compensation can also be thought of as direct financial compensation, indirect financial compensation, and non-financial compensation. Compensation is the reason why millions of people go to work every day. Some forms of monetary compensation can include payments such as profit sharing, bonuses, overtime pay, sales commissions, and checks. Then there are the forms of non-monetary compensation that could include things like a company-car or a company-paid house. For example, in the military we have company-paid housing. Some people might not think of the military as a company but many companies have modeled their staffing just like ours and we have forms of monetary and non-monetary compensation as well.

Overview of Compensation Philosophy A good compensation philosophy shows an employers’ commitment to how much it values its employees. It gives employees something to reference when talking about pay during any type of negotiations. Its purpose is to attract the best candidates and to motive and retain its current employees. In order to ensure that a company can attract, retain, and motivate its employees it compensation plan must contain the following components: base pay, incentive pay, and benefits. A good compensation philosophy will contain a mixture of all three of these components. A compensation philosophy should also be in line with the size of an organization.

Critical Components of a Compensation Strategy
A compensation strategy is an important statement and it defines the position of the company on the job market. The compensation strategy sets the tone and rules for the compensation and benefits packages in the organization. The compensation strategy comes from the HRM strategy. These two strategies must be fully united. When preparing you compensation strategy the critical components that should be considered include: salary & wages, bonuses, long term incentives, life/disability insurance, retirement plans, time off & flexible schedules, and other forms of miscellaneous compensation. It may seem simple of enough to put together a compensation strategy but if it is not well thought out a lot of money could be spent and the organization may not have funds to provide all those types of compensation. Building a well thought out compensation strategy and compensation package is critical to recruiting and retaining employees.

Example of an Effective Compensation Practice/Policy While there are several compensation plans to choose from, a total compensation philosophy would remind employees that their compensation includes more than just their base pay. An effective compensation practice would be to tailor the plan to the organizations culture and values. I t would also combine compensation with the organizations vision, mission, and strategy. Another good practice would be to reward employees for their skills and behaviors. Changes can be made to the culture and the environment of the company by using compensation. A good example of this type of compensation program would be the Microsoft Corporation. Microsoft has been recognized as one of the leading companies for having one of the strongest compensation and benefits packages in the country. They offer competitive pay, bonuses, and stock awards to eligible employees based on individual performance (Perks & Benefits, 2012). Rewarding employees through compensation can make those changes permanent. Finally, rewarding individuals and groups should be a company-wide mission.

References

Perks & Benefits. (2012, November 17). Retrieved from Microsoft Careers United States: http://careers.microsoft.com/careers/en/us/benefits.aspx
Heathfield, S. M. (n.d.). Compensation. Retrieved from About.Com Human Resources: http://humanresources.about.com/od/glossaryc/g/compensation.htm…...

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