What are the objectives of compensation management?

The objectives of compensation management are to attract, engage, and retain top talent through competitive compensation plans that align with the company budget, corresponding job market, and government regulations.

Good compensation management should:

  • Attract and recruit talent
  • Motivate your people
  • Maintain morale
  • Adhere to government regulations and company compensation philosophy
  • Reflect the current job-market

Compensation management can achieve its objectives by offering:

  • Attractive salaries
  • Useful benefits
  • Bonuses, incentives, and programs to improve employee wellbeing
  • Retirement savings
  • Insurance

Why should HR leaders care about the objectives of compensation management?

HR leaders play a pivotal role in building compensation plans that fit employees’ needs and desires and align with the company’s vision. Maintaining excellent compensation can lead to an increase in:

Companies that offer competitive and life-enhancing compensation can raise motivation in the workplace and improve work performance, which ultimately leads to greater company success.

Tips for achieving your compensation management objectives

HR leaders can support effective compensation packages by collaborating with managers to build an inclusive compensation program that addresses their people’s needs and the fluid job-market.

  • Develop and apply a compensation philosophy. A compensation philosophy formally documents the company’s reasoning behind people’s salaries, bonuses, and benefits. Consistently adhering to the compensation philosophy demonstrates company integrity and transparency to current team members and job candidates.
  • Gather employee feedback. Your people can provide the most accurate feedback regarding compensation plans. HR leaders can conduct anonymous surveys, allowing people to relay their honest opinions and suggestions. Before conducting the survey, HR leaders can explain why they will run it, that people’s opinions and experiences are invaluable, and that their job satisfaction matters.
  • Follow through on employee feedback. HR leaders and compensation managers can implement changes based on employee feedback. While there are numerous aspects to consider when building compensation plans, adjusting compensation plans to address people’s financial and lifestyle needs can lead to greater retention and engagement.
  • Explain the compensation plan. Your people may receive competitive compensation packages but aren’t aware of how to access their benefits. HR leaders can review compensation plans with managers, who can clarify the plans to their team members. This helps team members appreciate and benefit from every aspect of the compensation package.
  • Offer compensation to improve quality of life. In addition to base pay, compensation can include life-enhancing benefits, such as a shares and options plan, a pleasant work setting, flexibility in where and when they work, a workplace wellness program, extra vacation days, or daily fresh catering.

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What are some examples of compensation objectives?

There are two types of compensation, reflecting a broad spectrum of benefits and incentives to attract, engage, and retain talented professionals: 

  • Direct compensation
  • Indirect compensation

Direct compensation describes any benefit an employee may receive with a tangible monetary value. This includes regularly distributed pay such as salaries, wages, bonuses  and commissions, medical benefits, holiday pay, and conveyance.

Indirect compensation refers to any benefit that does not hold a material value. This can include anything from legally required protection programs and insurance to career development, advancement opportunities, and retirement programs.

The last couple of years have seen organizations increasingly adopt the four-day work week, reducing working hours without cutting pay. This is an example of indirect compensation, whereby people are given increased autonomy over their work environment in a demonstration of mutual trust.

What are some challenges to meeting  compensation management objectives?

Even with the best intentions—and rational analyses—challenges to compensation management objectives can prompt additional adjustments to a compensation strategy.

  • Current wage rates. Economic climate and demography influence an organization’s compensation objectives. External market pressures can inflate the pay for some jobs, exceeding their relative worth.
  • Unions. Part of the workforce may convey their interests through representative organizations like unions. As such, unions should feature in the objectives of compensation administration.
  • Government constraints. The government regulates pay—regardless of job worth—in accordance with minimum wage, overtime pay, equal pay, child labor, and record-keeping requirements. Employers are also obliged to pay “equal wages for comparable work,” a pay-parity initiative created to eradicate historical income disparities such as those between men and women or minorities.
  • Strategy and policy. Compensation is subject to the changing landscape of an organization’s people and compensation strategies and policies. Commonly, an organization may award people not affiliated with a union the same raise as unionized employees to deter additional unionization.
  • International compensation challenges. International compensation presents a unique challenge as foreign subsidiaries must be mindful of local context and culture.
  • Productivity and costs. Employers will always prioritize profit. The survival of their business depends on it. In this sense, compensation must be reciprocal: An organization can’t pay people more than their value to the firm.

What are the objectives of international compensation?

International compensation aims to attract professionals with the desire (and ability) to engage in international assignments. A competitive compensation plan is vital for multi-national companies that wish to retain top talent.

Good international compensation should:

  • Attract talented, qualified professionals willing to commit to international relocation
  • Facilitate the movement of expatriate employees
  • Manage a consistent and reasonable relationship between the pay of domestic employees and foreign subsidiaries
  • Remain cost-effective through the reduction of unnecessary expenses

How can HRM tech help fulfill compensation objectives?

HRM tech can support compensation strategies by helping HR leaders align the company’s financial operations with their overall people and business goals to ensure sustainable success.

HRM tech fulfills the objectives of compensation by:

  • Assisting with talent acquisition and turnover, performance management, equity, and attendance
  • Making critical information more accessible and transparent
  • Outperforming manual processes—like manually inputting data into spreadsheets—with better versatility and efficiency
  • Providing vital resources to ensure efficient remediation, should a crisis occur
  • Transforming HR teams from “paper pushers” into strategic business leaders who can provide invaluable input on staffing decisions

How can achieving your compensation management objectives improve company culture?

Attracting, retaining, and engaging your people through a comprehensive compensation program is integral to building a thriving company culture. Compensation packages that provide market-range salaries and address employee wellbeing demonstrate how much a company values its people. Professionals who receive such all-inclusive compensation are bound to contribute positive energy and a good attitude to the company culture.