Explain the role of compensation and its influence on employee behavior

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Running Head: COMPENSATION AND EMPLOYEES BEHAVIOR

Compensation and Employees Behavior

Memorandum
Date: August 9, 2009
To: XYZ Company
From: HR Manager
Subject: COMPENSATION AND EMPLOYEES BEHAVIOR
Employee compensation is a vital part of human resource management. Wages, salaries and other forms of employee's compensation constitute a very large component of operating cost. Salary and wages of the employees are one of the biggest factors that affect industrial relations.
Introduction:
The pay structure of any job profile plays a significant role in attracting, stimulating and retaining the employees in the organization (Fisher, Schoenfeldt & Shaw, 2004). Compensation is one of the major tools to enhance the positive behavior and performance of the employees in the organization (Allen & Kilman, 2001). Performance management and Compensation system provide knowledge about the analysis of the performance of the employees and about the strategies adopted to reward the capable employees (Ding, n.d.).
Performance appraisal is a systematic and periodical rating of an employee's excellence in matters concerning his present job and his potential for a better job (Denisi & Pritchard, 2006). It is a system of obtaining, analyzing and recording information about the relative worth of an employee. It is a systematic examination of the employee's strengths and weaknesses in terms of the job (Schweiger & Sumners, 1994). For the employees pay is more than a means of satisfying their physical needs. It provides them a sense of recognition and determines their social status (Fisher, Schoenfeldt & Shaw, 2004). Remuneration is directly or indirectly one of the mainsprings of motivation in our society. Wages and salaries have significant influence our distribution of income, consumptions, savings, employment and prices. Thus employee's compensation is a complicated issue in the organizations from the view point of both employers and employees (Denisi & Pritchard, 2006).
Objectives of Compensation Administration:
A sound Compensation management seeks to achieve the following objectives:
To establish a fair and equitable remuneration: There should be internal and external equity in remuneration paid to employees. Internal equity means similar pays for similar works. In other words, wage differentials between jobs should be in portion of differences in the worth of jobs (Schweiger & Sumners, 1994). External equity implies pay for a job should be equal to pay for a similar job in other organizations (Fisher, Schoenfeldt & Shaw, 2004). Payment based on job requirements, employee's performance and industry level minimize favoritism and inequities in pay (Allen & Kilman, 2001).
To Attract Competent Personnel: A sound compensation and incentive system to help the organization attract qualified and hard-working people by ensuring an adequate payment for all jobs (Fisher, Schoenfeldt & Shaw, 2004).
To Retain the Present Employees: By paying at competitive levels, the company can retain its personnel. It can minimize the incidence of quitting and increase employee's loyalty (Fisher, Schoenfeldt & Shaw, 2004).
To Improve Productivity: It also helps to improve the motivation and morale of employees, which in turn lead to higher productivity (Fisher, Schoenfeldt & Shaw, 2004).
To Control Costs: With the help of compensation administration, administration labor and administrative costs can be kept in line with the ability of the company to pay. It facilitates administration and control of pay roll. The company can systematically plan (payroll budgeting) and control labor costs (Schweiger & Sumners, 1994).
To Improve Union Management Relations: Wages and salaries based on systematic analysis of jobs and prevailing pay levels are more acceptable to trade unions. Therefore, sound compensation administration simplifies collective bargaining and negotiation over pay. It reduces grievance arising out of wage inequalities (Fisher, ...