Every organization must have a well designed and appropriate compensation policy. A compensation policy defines the criteria for promotions, appraisals, job evaluations etc. It is required for setting the expected standards for employees. It outlines the need for training, provisions for fringe benefits, welfare schemes etc. It prescribes the manner in which such benefits are extended and levels within the organization to which such benefits are extendable. The incentive schemes and its details, Pay package structure, Tax implications etc. are matters of concern while designing the compensation Policy.
By designing a compensation policy an organization achieves a template or blue print on which to base its various activities like evaluations, appraisals, trainings etc. all in accordance to labor laws and provisions.
A compensation system helps in amicable resorting of conflicts among workers and management. A good compensation system rewards performance. It encourages employees to perform better and aims at creating healthy competition among them. It provides opportunities for growth and advancement to deserving employees. It ensures equal wages for equal work thereby creating parity in relationships. By providing the employees a good environment to work and competitive wages it ensures employee satisfaction and hence reduces the labor turnover ratio. The organization is able to maintain stability by retaining the best talents.
A skillful, talented and harmonious workforce depicts expansion and growth for an organization. A sound compensation structure is a symbol of organizational success. An organization’s reputation and image in market is built by the pay-packages its employees avail. Sound compensation system enables organization to cope with wage levels across industries.
Sound Compensation System minimizes the complaints from the employees, provides them the congenial work environment to perform better and sets the targets to be achieved. Definite targets help employees know their role in the organization, which minimize wastage, and enhance overall efficiency.
A good compensation structure reduces a negligent or too casual approach towards work thus helps organization to reduce the cost of production and maximize profits.
