What is Compensation Management? 3 P’s and 4 Important Objectives of Compensation Management You Should Know

When the question is raised,” What is compensation management?” The most known answer is salary management. This answer is correct, but only partly. Compensation management includes several other tasks than just salary. While studying compensation management, remember that the main motivation for employees is compensation.

Compensation management is the most known and core function of human resource management. HR plays an important role in an organization for retaining and attracting talent. Because compensation is not just about paying salaries and hoping the employees stay. Compensation management refers to a long game.

Compensation management is a strategically thought process. The aim is more than just paying salaries. The main goal of compensation management is to retain employees in the long run. Aside from employee benefits, compensation is also an aspect that benefits the organization if carried out with the correct strategy.

Let us study in detail “What is compensation management?”

What is Compensation Management?

Compensation management is the process of evaluating and managing salaries, incentives, allowances, and other benefits that employees are entitled to receive. Compensation management not only deals with monetary benefits but only non-monetary benefits. Non-monetary benefits include paid leave, travel, company-provided cars, laptops, etc.

The HR must ensure they care for their employees’ monetary needs. They have to evaluate and ensure the employees are compensated for their services. HR has to compensate employees fairly while ensuring the pay is competitive according to the market. This ensures the employees are treated and paid according to their roles and skills.

A good compensation management system can be beneficial to the organization. A fair compensation system can also ensure employees are motivated and loyal. It also helps to attract the top talents in the market. It also makes sure that the organization successfully retains its employees.

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Now that we are aware of What is compensation management let us move on to the next part.

3 P’s of Compensation Management

When we study “What is compensation management?” We should also be aware of what is the driving force behind it. Compensation management is based on the concept of 3 P. The 3 P’s of compensation management are Position, Person, and Performance.

Position

This concept is based on payment based on the employee’s position. The position could be manager, head of the department, assistant manager, worker, etc. This concept does not consider the skill of the employee. The payment is completely based on the position of the employee.

This form of payment concept is considered in the traditional forms. This method was used in the 90’s era. HR considers the employee’s position, qualification, experience, and seniority in this form.

Person

The second P – Person refers to a person-based payment concept. This concept refers to payment based on a person’s skills, knowledge, competency, and abilities. Depending on all these factors, the salary of an individual is decided. Person-based pay also considers the experience and provides competitive and fair pay.

Performance

Performance-based pay is exactly as it sounds. Here, the payment is based on the performance of the employee. The HR considers the performance of the individual, group, or branch while determining the payments. Performance is measured based on various KPIs.

Next up, we will learn about What is compensation management objectives –

Objectives of Compensation Management 

The last part of the question,”What is compensation management?” is its objectives.

You cannot completely understand What is compensation management without understanding its objectives. The objectives of compensation management are listed and explained below :

To Acquire Top Talent

Compensation management helps to attract and recruit top talents in the market. An attractive payment can attract many experienced and skilled employees to the organization. With the help of a competitive and fair compensation system, organizations acquire top talents.

To Retain talent

The next objective of compensation management is to make sure that they retain their existing talents. Compensation management helps to fairly reward existing employees and keep them in the organization.

It helps to determine the market value of the employees’ skills, positions, and experience. This provides the organization with the value of the employees. Which they further use to compensate the employee.

For Boosting Motivation

A fair and rewarding compensation system can also help to boost motivation among the organizational workforce. When employees know that the organization treats them with good pay and rewards them accordingly, it makes them feel appreciated. In the end, everyone wants to be appreciated for their work. This increases the job and work satisfaction of the employees. And ultimately help to increase the motivation of employees.

To Comply with Legal Regulations

The HR has to ensure that everyone in the organization is compensated according to government laws and regulations. HR has to ensure they follow compensation laws such as labor law, minimum wage laws, etc.

ALSO READ : 6 Basic Importance of Human Resource Management

FAQs

Closing Statement 

Now that we are at the end of this article, I hope your question about “What is compensation management?” have been answered. To summarize, compensation management is a core duty of the HR of the organization. It manages everything regarding compensating the organization’s workforce. It includes monetary and no monetary benefits for employees. HR uses the 3 P’s concept to decide on a fair and competitive employee payment system.

Compensation management helps the organization recruit and retain employees at a fair price that benefits both – The employee and the organization. It helps the organization comply with laws and regulations according to the compensation laws.

I hope this article about “what is compensation management?” is informative. If you have any doubts or suggestions, pay it in the comment box.

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