Sunday 9 December 2018

Compensation Management

Compensation management is the practice of the organization that involves giving monetary as well as non-monetary rewards to the employees, in order to compensate for the time they allocate to their job.


One of the functions of the MSDM is compensation. Compensation is part of management. A good compensation system can contribute significantly to the success of the business. Compensation is something that is accepted as a substitute for employee contributions to their services at the company.

Compensation is also the main cost of expertise or work and loyalty in business.An organization will always strive to obtain the highest possible profit. However, this must be adapted to the environmental conditions of the Organization, both within and outside the organization. Compensation arrangements is an important factor to attract and retain the workforce. Compensation may take the form of financial and Non-financial.

In the employment world, the financial rewards are the compensation resources provide to employees for the return of their services. The terms "Remuneration, wage and salary. Also are use to describe this financial between employers and employees. A remuneration is a reward, payment or reimbursement for services render. Most forms of remuneration are financial, although these reimbursements on occasion also may be non-financial in nature.

From the above statement it means compensation or also call the remuneration can only shape the financial and non financial is essentially an award for an employee in the organization. Compensation components: wages, salary, Incentive, and fringe benefits.

The factors that affect compensation

  1. The truth and fairness; the grant of a compensation match with ability, skills education and services that have been shown to the organization. Thus every employee can feel that organizations have to appreciate his services.

  2. The funds of the Organization; an organization in providing compensation to officers should be adjust with the ability of funds own by the organization. Therefore, that the Organization should be able to muster the funds as much as possible through the accomplishment of work shown by the officers. So with increasing achievements then the Organization will get many advantages.

  3. States employees is a symbol of strength employees in demanding improvement of fate, that needs to get attention. States employees in an organization will serve as a control tool in the determination of compensation.

  4. Labor Productivity; increasingly high levels of productivity an employee then this will be a consideration for the Organization to provide compensation. Because productivity is one of the indicators of achievements of the work of employees.

  5. The cost of living; the Organization must also pay attention to the cost of living employees and their families. This means that the need for adjustments to the grant of compensation with the cost of living. However, it is quite difficult to determine the cost of one's life. This is cause by its nature is very relative, therefore need to be very difficult to determine a proper life.

Government; as the protector of the community needs to intervene in the determination of compensation to a worker. The Government should make laws and regulations for in determining compensation.

Justice in the organization

Justice in compensation management known as the equity theory. The organization provides compensation to officers is to motivate employees to work better. The Organization must not only have a reasonable and fair system, but more than that the system should be explain to his officers. As for the fairness in the management of compensation are: External Equity and Internal Equity.

External Equity is associate with the salary they receive is similar to the labor market in which they work. External Equity this is comparing similar employees among organizations that are comparable. Two terms that must be met to compare:

  1. Employees compare to must be the same and setup,

  2. Organization that should be similar, both of size, fields, mission, sectors.

Internal Equity is the balance between input individual brought in a staffing system with the results achieve. Employee input can be either; experience, education, expertise, effort & work time. While the output of the form; salary, benefits, recognition, and rewards. Internal Equity also means the level of salary that is worth/value of internal employees deserve bag an organization. The bottom line is the staffing system within an organization.

The purpose of compensation management in general the goal of compensation is to help companies achieve success corporate strategy and ensure the creation of external and internal justice.

Goal Management Compensation;

  1. Obtain the qualify HUMAN RESOURCES

  2. Retain existing Employees

  3. Ensure the Justice

  4. Appreciation of the desire behavior

  5. Appreciation of the desire behavior

  6. Controlling Cost

  7. Follow the rule of law

  8. Facilitate Understanding

  9. Improve the efficiency of the administration of the compensation system should be complete.


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