What are the functions and objectives of compensation in an organizational context?

Answer Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing organizational tasks. Compensation is the major cost incurred by the business organization. However, today the human resource is considered as human capital and compensation hence is not cost but rather investment. People trade labour and loyalty for financial and non financial compensation with business organization. Employee gets the compensation in two forms. They are direct compensation and indirect compensation. Direct compensation is given in the form of salary, wages, bonus etc while indirect compensation is given in the form of benefits such as health care, educational, travel, etc. Poor compensation management may lead to absenteeism, turnover, job dissatisfaction, psychological withdrawal, poor mental health etc.

Objectives of compensation in an organisational context could be as follows: Serve all the stakeholders of an organization Indentifying the compensation needs Grouping the employees Reflect an organizations culture and norms Provide equal opportunities to employees based on job evaluation To enable the organization to attract, motivate, and retain the calibre of staff To motivate the employees. To run an organization effectively and accomplishing its goals.

Functions of compensation could be as follows: External Competitiveness: It should maintain a total program which offers base salary and other remuneration at a level which is competitive with other premier research and development organizations with which it competes for talent. Internal Equity: Internal equity will establish a compensation program which reflects a fair relationship in pay levels for positions based on an evaluation of job requirements, accountabilities and their relative contribution to the organization.

 Individual Equity: A good compensation program should be able to maintain pay levels within pay ranges which reflects and rewards the individual based on their level of contribution. Pay outcomes have to be based on a detailed assessment of the individuals role knowledge, skills, abilities and performance record. Legal Compliance: An organization should maintain compensation practices which are fully compliant with all laws and regulations governing organizational pay systems Determinants of compensation