Compensation
A rigorous review of compensation and all its components
Compensation is what is paid to an employee, whether in the form of wages, salary or incentives by the employer for a specific amount of time, skill and effort made available by the employee in fulfilling specific job requirements (Biesheuval, 1984).
Compensation is important in organisations as it conveys information to an employee about their relative importance to the organisation and provides a scale to identify how much recognition they are receiving for their contribution (Harley and Stephenson, 1992). Compensation shows employees how much they are appreciated and worth. The most important differentiating element between jobs is the effort involved in performing a job (Biesheuval, 1985).
Objectives of pay systems (Harzing and Van Ruysseveld, 1999):
Objective: How to achieve it.
To attract employees: Job salary
To keep qualified employees: Bonus or incentive to stay e.g. shares
To stimulate effective performance: Payment by results
To teach employees new behaviours at work: Multi-skill bonus
To compensate for inconvenient working conditions: A separate allowance
Monetary and non-monetary compensation
Compensation is made up of many parts. Although money (extrinsic compensation) is the most recognised, other factors can be just as rewarding.
Employee benefits are one type of non-monetary compensation and are intended to improve the quality of work life of an organisations labour force (Sherman and Bohlander, 1992). These benefits make up a significant portion of the wage bill. Although benefits were initially introduced as a bonus to employees, they have since come to be expected in the workplace (ibid). Employee input is integral in determining the type of non-monetary compensation that is the most desired (ibid).
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