Question

Question 3:

Examine the principles of compensation administration in organisation. (20 marks).

Answer 1

As we know that Compensation is very important part and function of HRM in an organization. Compensation and its effective management helps in keeping employee's performance higher and lower business cost and retain talent in the organization.

the principles of compensation administration in an organization are-

Principle of Ability to pay – Organization should pay their employees as per their financial capacity and capability. If an organization pays more than its ability, then the organization may get bankrupt.On the other hand, if the organization pays much below its ability to pay, then such organizations are unlikely to attract / retain competent employees, which will ultimately adversely affect the effectiveness of the organization.so there should be proper balance between how much organization should pay to its employees.

Principle of Internal and external equity – Organization must compensate their employees according to their qualification, experience, skills, knowledge, job responsibilities and performance. This is called internal equity. Organizations must pay their employees a compensation which is at least comparable to their competitors or industry standards. This is called external equity.

Principle of  Performance orientation – Compensation should be in commensuration with individual and organizational performance. Performance linkage is essential for creating a performance driven work culture.

Principle based on Non discriminatory – Organizations must pay their employees without any discrimination on the ground of race, religion, gender, nationality and ethnicity.

Principle of Simplicity and Flexibility – Compensation system should be simple to design, understand and administer. Compensation plans and policies must be flexible to adapt with ease to the changing profile of the workforce.

Principle based on  Foster employee development – Compensation should be such so as to motivate employees to acquire, sharpen and develop their skills and competencies in conjunction with changing technology, innovations and organizational requirements.