Difference Between Compensation And Compensation System

Compensation & Benefits Compensation Systems: Design and Goals The design process is started by identifying desired outcomes and goals for your organization. This is often referred to as developing your compensation philosophy. Your philosophy is formed by considering a number of factors. The balance of direct and indirect rewards, the complexity and responsibility of a role and the candidate or employee filling it, as well as your focus on internal versus external equity are just few factors explored in this section. It is the ability to achieve results that is critical to organizational success. Compensation defined Compensation can be defined as all of the rewards earned by employees in return for their labour. This includes: • Direct financial

For example, if employees feel they are being compensated unfairly, they may restrict their efforts or leave the organization, damaging the organization’s overall performance. Internal Equity “Internal equity exists when employees in an organization perceive that they are being rewarded fairly according to the relative value of their jobs within an organization”. Another way of stating this is to say that a person’s perception of their responsibilities, rewards and work conditions is seen as fair or equitable when compared with those of other employees in similar positions in the same

One key to remember is that your compensation strategy must help to create the work culture you want. How you structure your systems and manage the internal and external equity issues, will directly inform the culture of your organization. Develop a compensation philosophy A compensation philosophy is developed to guide the design and complexity of your compensation programs; this is done by identifying your goals and objectives, considering your competitiveness in attracting and retaining employees, your emphasis on internal and/or external equity, and whether performance is tied to increases. Understanding what balance you want to achieve between direct salary and indirect benefit is critical in developing your overall total compensation approach. A consistent philosophy provides a strong foundation for both the organization and the employee. Without a philosophy, leaders often find themselves unsure of what to offer as a starting salary for a new