All the rewards that are given as a return to the employees for their services are known as workers compensation. There are different ways and types of workers compensation, especially how to determine financial compensation. All of these activities are managed by Human Resource Management.
Types of Workers Compensation
Direct and Direct Financial Compensation
Direct financial compensation includes the following items that can be received by any employee, such as salaries, wages, bonuses, commission, etc. and all the financial returns that are not present in the direct compensation are known as indirect financial compensation.
It can take the form of satisfaction that an employee may get from his work or from the physical and psychological environment of the work. The total compensation program is composed of all such rewards.
Equity in Financial Compensation
Competent employees must be attracted, motivated, and retained by the employees. Moreover, organizations should keep their workers compensation system equity-based, because all the efforts for the accomplishment of organizational goals depend upon the compensation system of the organization.
Equity means that the employees perceive that they are fairly treated by the organization in such a way that the employee compensation system should be fair to all the employees of the organization.
External equity is associated with paying the employees in comparison with the employees of other organizations who are performing the same jobs.
When employees are paid in relation to the value of their jobs inside the organization, there exists internal equity.
In this kind, the employees of the organizations are paid. According to some unique factors like seniority or performance level etc.
When such higher productive teams are paid more than lower productive teams then there exists team equity.
Determinants of Financial Compensation of Individual
The theory of employee compensation is not good enough to give an accurate explanation of the worth of an employee in relation to his job.
- Labor Market
All of the elements affect the pricing of a job which in turn specifies the financial compensation of an employee.
Organization as Deciding Factor of Financial Compensation
The compensation policies are established by the organization that makes the organization pay follower, pay leader. Moreover an average pay provider in the labor market.
An organization that pays its employees below the market rate either on the basis of poor financial performance is referred to as a market follower. Such an organization reflects the idea that it does not require potential employees.
The organization that pays salaries and wages to its employees which are relatively higher than the competitive organizations is referred to as a market leader.
Going Rate or Market Rate
It is the average market pay that most organizations offer to their employees for a particular job.
Labor Market as Deciding Factor of Financial Compensation
The labor market is related to the geographical area from which the potential employees are recruited.
Prevailing pay rates are ascertained by the large organizations in a routine manner in which the information is obtained. Basically for the development of direct and indirect compensation.
A job that is famous in the industry and organization and that shows the complete structure of the job. Therefore it includes a relatively higher portion of the workforce.
Cost of Living
The pay should be increased according to the increasing level of cost of living.
The management can obtain accurate labor market data when labor unions employ comparable pay in their demands as a standard for making compensation.
The pricing of goods or services of an organization is also affected by the compensations given to employees. Moreover, the customers of the organization also take interest in the compensation decisions.
The compensation decisions are influenced by the ups and downs of the economy.
The legislator’s policies also influence the decision of compensation made by the company.
The Job as Deciding Factor of Financial Compensation
The compensation is generally paid according to the worth of the job which is linked with the responsibilities and duties of the job. For this following are certain techniques that are employed to find the value of a certain job.
Job Analysis and Job Description
The worth of a particular job is ascertained by analyzing the contents of that job. For this purpose, a technique called job analysis is applied which is used to find the required knowledge and skills for performing the duties of a particular job. Thus another technique called job description is used as a by-product of job analysis for documenting the responsibilities and duties of a job. However, there are many purposes of job description like job evaluation.
In job evaluation, the organization compares one job with another in order to ascertain the worth of a certain job.
The Employee as Deciding Factor of Financial Compensation
The factors related to the employee also play a significant role in ascertaining the compensation. So following are some of the important aspects of the determinant of an employee.
Performance Based Pay
The performance appraisal is helpful in determining the performance base pay for the employees of the organization. Thus these may take the following forms.
- Merit Pay
- Skill Base Pay
- Competency-Based Pay
Therefore the seniority of an employee can also influence the compensation system. Seniority is referred to as the duration of the time period that an employee spends in working a certain division or department of the organization.
The experience of an employee can serve as an influential factor in the determination of compensation. Since it greatly affects the performance of the employee.
The potential of the employees can also influence the compensation system.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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