HRM3705-Compensation Management REVISION EXAM PACK. Compensation refers to all forms of financial returns and tangible services and benefits
employees receive as part of an employment relationship while compensation management
deals with the formulation and implementation of strategies and polici...
,Compensation refers to all forms of financial returns and tangible services and benefits
employees receive as part of an employment relationship while compensation management
deals with the formulation and implementation of strategies and policies that aim to
compensate employees fairly, equitable and consistently in accordance with their value to
the organisation.
Compensation management addresses issues affecting the design, implementation and
maintenance of compensation processes and practices that are geared to the improvement
of organisation, team and individual performance. However, the main areas of compensation
management for which strategies are developed consist of processes for:
Compensation is the single most important cost in most companies. Personnel costs can be
as high as 60% of total costs in certain types of manufacturing environments and even
higher in some service organisations. With regards to compensation, an organisation’s
compensation system can be either intrinsic or extrinsic.
In the context of compensation, the concept of equity relates to perception of fairness in the
distribution of rewards. Equity is generally considered to be one of the most important
objectives of any compensation/remuneration. However, the remuneration principle relates
to “equal pay for equal work”. There are different types of equity which includes:
External equity: involves the comparisons of rewards across similar jobs in the labour
market. Pay surveys are usually used for information regarding external equity.
Internal equity: deals with comparisons of rewards across different jobs within the same
organisation.
Procedural fairness: is concerned with the extent to which an employee’s remuneration is
reflective of his or her contribution and the fairness with which pay changes such as
increases are made.
Distributive fairness: the distributive justice model of pay holds that employees exchange
their contributions or input to a company for a set of outcome s.
Three business strategies entails:
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