Comprehensive Exam preparation notes for Compensation Management formative assessments. The subject is an important element of human resource management because it influences the decision of potential employees to join an organization and also determines the employer-employee relationship after emp...
2022 NOTES (Comprehensive
Summaries for 2022 Exams)
HRM3705
, TOPIC 1 - Strategic compensation: a component of HR
systems
Define and critically discuss the context of compensation
Compensation is a systematic approach to providing monetary value to employees in
exchange for work performed. Compensation may achieve several purposes assisting in
recruitment, job performance, and job satisfaction.
Differentiate between tactical and strategic decisions and discuss
the relevant concepts
• Strategy - the set of compensation practices that are good for firms will vary based
upon the firm’s goals.
• Determining compensation relative to the market.
• Striking a balance between fixed and variable compensation.
• Deciding whether or not to utilize team-based versus individual pay.
• Creating the appropriate mix of financial and non-financial compensation.
• Developing a cost-effective compensation program that results in high performance.
Tactical
• Pay the person for individual worth (knowledge, skills and competencies) rather than
for the value of a job they perform.
• Reward excellence through a pay for performance compensation that establishes a
clear relationship between a significant amount of pay and attainment of
organizational objectives.
• Individualize the pay system to give employees choices in how they are rewarded and
what reward they receive.
Describe how the compensation function fits into the HR
department
Like employee and labor relations, the compensation and benefits functions of HR often can
be handled by one HR specialist with dual expertise. On the compensation side, the HR
functions include setting compensation structures and evaluating competitive pay practices.
A comp and benefits specialist also may negotiate group health coverage rates with insurers
and coordinate activities with the retirement savings fund administrator. Payroll can be a
component of the compensation and benefits section of HR; however, in many cases,
employers outsource such administrative functions as payroll.
Critically discuss the compensation department's main objectives
Compensation may be used to:
, Recruit and retain qualified employees.
Increase or maintain morale/satisfaction.
Reward and encourage peak performance.
. Achieve internal and external equity.
Reduce turnover and encourage company loyalty.
Modify (through negotiations) practices of unions.
, Discuss the difference between cash compensation (direct
compensation) and benefits (indirect compensation), and define
each of the direct and indirect forms of compensation
• Cash Compensation is the total of fixed and variable components that are given to an
employee this include wages and salaries paid for an agreed time period
• Benefits (Indirect compensation) are form of compensation to an employee’s so as to
retain the best talent and competitively remunerate them for their effort retirement,
medical aid, travelling allowances etc.
Discuss how compensation professionals relate to various
stakeholders
Compensation professionals prepares HR professional and other stakeholders to have a
considerable impact on an organization's effectiveness by developing and retaining talent,
formulating performance management systems, and designing competitive compensation
plans.
Study unit 2: The essence of strategic compensation
Define strategic compensation and its rationale
The compensation strategy is derived from the HR Strategy and it defines the position of the
organization on the job market, the level of the total cash, the main bonus principles in the
organization and rules for the base salary setting.
The compensation strategy is the strategy, which is approved by the Board of the
organization as the owner of the compensation strategy is always the top executive
management of the organization. The compensation strategy has a huge impact on the
costs of the organization and that is the main reason for the top management approval. The
rest of managers are the users of the compensation strategy.
The compensation strategy defines the pay market, the organization follows, the desired
position on the pay market and the way, how the desired level and position on the pay
market will be achieved. The compensation strategy defines the basic compensation
components used in the organization and the standard rules applied to each compensation
component. The compensation strategy has to be in line with the business and HR
Strategies as the compensation of employees is aligned with the expectation of the top
management from them. The compensation strategy does not change often as the
compensation principles cannot be changed within few days.
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