LO2

• Objectives of Compensation Management

  • Internal equity
  • External equity
• Internal equity


  requires that pay be related to the relative worth of jobs within a company.
• External equity


  paying workers at a rate perceived to be fair compared to what the market pays.
• THE OBJECTIVES OF COMPENSATION sought through effective compensation management
• Effective compensation (ARRCL)

  1. Acquire qualified personnel.
  2. Retain present employees
  3. Reward desired behaviour.
  4. Control costs.
  5. Legal Compliance
• Acquire qualified personnel


  Compensation needs to be high enough to

  attract applicants.
• Retain present employees


  • To prevent employee turnover, pay must be
  • kept competitive with that of other employers. Additionally, employees will compare their duties and responsibilities and the pay they receive relative to others in the organization, and they expect to be compensated more when they are providing higher value
• Reward desired behaviour


  Good performance, experience, loyalty, new responsibilities, and other behaviours can be rewarded through an effective compensation plan.
• Control costs


  • A rational compensation program helps an organization to obtain and retain its workforce at a reasonable cost.
  • Paying employees is typically the largest expense line for the employer.
  • Without a systematic wage and salary structure, the organization might overpay or underpay its employees.
• Legal regulations

  • As with other aspects of HR, wage and salary management must comply with applicable provincial or federal regulations.
  • A sound pay program ensures adherence to all government regulations, such as minimum wage, overtime, and vacation provisions that affect employee compensation.
• Major Phases of Compensation Management

  Phase 1: Compensation Philisophy

  Phase 2: Job Analysis

  Phase 3: Pricing jobs

  Phase 4: Matching employees to pay