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Compensation Management.

Compensation Management

Mousumi S. Bhattacharya & Nilanjan Sengupta

Excel Books, New Delhi, 2009

ISBN (13): 978-81-7446-696-9

Pages: 195, Price: Rs. 225

Human Resource is the most vital resource for any organization. They are creative and social beings in a productive enterprise. Their development is a framework for high organizational productivity. Hence, they should be managed properly and motivated by providing best remuneration and compensation as per the industry standards.

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Adequate compensation also serves the need for attracting and retaining the best employees. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. In absence of compensation it may not be possible to attract suitable people to work for the organization. Compensation helps in running an organization effectively and accomplishing its goals. Modern day organizations need to design the compensation systems aligning with the business goals and strategies

The book written by Mousumi Bhattacharya, and Nilanjan Sengupta deals with various facets of compensation management. It is comprehensive and provides information consolidated at one place. The book is divided into thirteen chapters:

Chapter One introduces the concept of Compensation Management. The authors trace the compensation practices followed since ages. In early days, the employees were simply asked to follow their superior's instructions, unlike, today where employees are expected to perform and take decisions related to their tasks as well. Authority is now delegated. Earlier the compensation management philosophy believed in satisfying the physical needs only, leaving out the psychological and social needs of employee. Today, compensation management philosophy believes in satisfying the various needs of an individual, such as social needs, psychological needs, safety needs, self-actualization needs etc. The Chapter discusses compensation systems which are designed and aligned to the organization goals and strategies. The chapter deals with common types of compensation, as a means to maintain employment relationship and as policy decision for the pay models.

Chapter Two discusses a wide range of economic theories, classified as, macro theories and micro theories. The macro theories deal with three major categories: social wage theories, wage control theories and justification theories. Each of these attempts, in some way, to describe or account for the broad economic influences of society that affect the level of compensation of all workers. The micro theories on the other hand treat the wage structure within a given industry or even a company, directly involving the bargain and the exchange between employer and employee. The micro theories are further classified as marginal productive theory, bargaining theory, productive efficiency theory, human-capital theory and labor theory of value.

Chapter Three explains job analysis, which is a process of identification and determination of the particular job duties, requirements and responsibilities. This chapter also focuses on reasons for job analysis. The authors mention that in compensation management, job analysis helps to establish the similarities and differences in the work content of jobs and also helps in establishing an internally fair and aligned job structure. The authors explain pre-requisites, purposes, methods, aspects and process of planning job analysis.

Job analysis is followed by Job evaluation which is essentially a comparative process. It is the most effective way of determining internal pay relationships. It also serves as a foundation for incentive or bonus plans or merit increase programmes and provides a reasonable basis for personnel moves like transfers, promotions, or demotions.

Chapter Four explains the process methods, advantages and disadvantages of job evaluation. It tells us how evaluation is based on a combination of job content, skills required, value to the organization, organizational culture, and the external market.

Chapter Five delves on the concept of performance management. Performance management is defined as a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of obtaining desirable results by understanding and managing performance within an agreed framework of planned goals, standards and competency requirements. The authors focus on the features of performance appraisal and performance objectives. The chapter discusses additionally methods, techniques of appraising performance and strategies for better understanding and measuring job performance

The issues on performance management are expanded in Chapter Six, where the concept of Performance-Related Pay (PRP) is explored. Performance-Related Pay is a method of remuneration that links pay progression to an assessment of individual performance, usually measured against pre-agreed objectives. This chapter focuses on the two types of pay: Individual performance-related pay and Team performance- related pay and brings out advantages and disadvantages.

In today's world of intense competition, every organization needs to encourage a work culture that motivates employees to offer their best performance. In doing so, employees have to be motivated as they are ultimate source of organizational profit. The authors in the Seventh Chapter have elaborated the importance of person-based pay rewards. The chapter focuses on the types of person-based pay with special focus on the strategies for their implementation.

In, Chapter Eight, the concept of wage differentials has been discussed. Wage differentials are necessary concomitant of the wage system in the modern industrial organizations and have been recognized in all countries, irrespective of their political and economic background. This chapter focuses on the economic and social significance of wage differentials and the sound principles and rationalism on which it must be based on. The chapter concerns considerations on which wage differentials must be established, factors that influence the same and the types of wage differentials.

Chapter Nine focuses on wage fixation. The chapter elaborates several institutions which determine the wage and salary income in India. These include collective bargaining, industrial wage boards, government-appointed pay commissions and adjudication by courts and tribunals.

Once the wages/pays are fixed, these have to be structured and designed. The pay structure represents the levels or hierarchy of job. It is the inter-relationship of the levels of pay for different types of employees. It reflects the way the total wage of a worker or group of workers is composed. Chapter Ten highlights major rationale for decisions in setting externally competitive pay and designing the corresponding pay structures.

Before making any decision to motivational or greed value of compensation, the major components of executive incentive compensation package has to be identified. Chapter Eleven identifies major components of executive compensation plan such as base salaries, annual bonus plans, short-term bonuses, enquiry and equity related components, long-term performance bonus, severance packages, and special package of benefit and perquisites.

Like Executive compensation, International compensation is a very complex and crucial activity of Multinational Corporations (MNCs). There is a wide gap between wages/ salaries paid for comparable positions in different countries due to different economic systems, development levels, political factors, traditions and culture. Chapter Twelve discusses various forms of compensation, factors that influence compensation policy, objectives and key components of International Compensation. This chapter also discusses approaches to compensation, management compensation practices and social security schemes of different countries.

To survive and sustain in business, organizations have realized the significance of acquisition and retention of effective talent. In order to do so, compensation strategies may play vital role in terms of rewarding and recognizing the star performers, planning the individual employees' career, meeting the industry rate and motivating employees to be retained in the company. The last chapter of the book discusses the strategic perspective of compensation management, with regard to, the structure, components and significance of compensation strategies.

Mousumi and Nilanjan's book throws an analytical light on employment relationship. It refers to all forms of financial return, tangible services and benefits employees must receive in an organization. Through this book, one can clearly understand the complex process of compensation, directed towards remunerating people for the services rendered and motivating them to attain a desired level of performance. This book also provides an in-depth knowledge about the taxation laws, social security systems, customs, and cost of living indices of different countries. The book is recommended to students of management and practicing managers in the field of Human Resource Development.

Tanushree Sanwal

Research Associate

IMT, Ghaziabad
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Author:Sanwal, Tanushree
Date:Jan 1, 2009
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