What are the objectives of employee compensation planning?

What motivates an employee to work better? people in his workplace? an awesome manager? employee’s nature of job? 

Well, these could just be one of the reasons, but employee compensation always tops the list.

What is employee compensation?

effective compensation planningTo be precise, Compensation is what an employee gets in return to his contribution to the organization.  The term compensation includes pay, incentives, and benefits offered by the employers for hiring the services of employees. Compensation planning plays an important role in any HR department’s efforts to obtain, maintain and retain an effective workforce. Compensation planning follows a set of objectives.

The most important objective of any pay system is fairness and equity. The term equity has three dimensions:

  1. Internal equity: This refers to the pay corresponding to difficulty level of the job assigned to an employee. More difficult jobs should be paid more.
  2. External equity: External equity ensures that an employee is compensated equally in comparison to similar jobs in the labor market.
  3. Individual equity: Individual equity highlights equal pay for equal jobs, i.e. each individual pay is fair in comparison to others doing the same/similar job.

The ultimate goal of compensation planning is to reward and encourage employees to do well in their jobs. Some of the objectives of are sought to be achieved through effective compensation planning like:

  1. Entice the employees: Compensation should be high enough to attract the best talent in an organization. If an organization wants the service of a competent employee, then the salaries must be high enough to motivate them to apply and join you. 
  2. Retain the best talent: An employee would leave an organization if compensation levels fall. So, it is essential to have a proper compensation panning to retain the best talents.
  3. Ensure equity: Pay should always be equal the worth of the job of an employee. Employees doing similar jobs should be paid equally and likewise, more qualified employees should be paid better.
  4. Reward new ideas and behaviors: Pay should reward an employee’s loyalty, commitment towards work, his experience, the amount of risk the job holds and the initiatives taken. When companies fail to reward such contributions, employees will fall apart.
  5. Cost control: Hiring cost should never be too high. The compensation planning should ensure that workers are neither overpaid nor underpaid.
  6. Compliance: The compensation planning and management should invariably satisfy governmental compliance of minimum wages, bonus, allowances, benefits etc.

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