1. LESSON 8 COMPENSATION MANAGEMENT
Dr. SALIM ALSHUKAILI

2. Introduction
Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing organizational tasks.
Today the human resource is considered as human capital and compensation hence is not cost but rather investment.

3. Employee gets the compensation in two forms
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.

4. Objectives of Compensation Management
1. Acquire qualified personnel:
Compensation needs to be high enough to attract applicants.
Pay levels must respond to supply and demand of workers in the labour market since employees compete for wages.
Premium wages are sometimes needed to attract applicants who are already working for others.

5. 2. Retain present employees:
Employees may quit when compensation levels are not competitive, resulting in higher turnover.
3. Ensure equity:
Compensation management strives for internal and external equity.
Internal equity requires that pay be related to the relative worth of jobs, so that similar jobs get similar pay.
External equity means paying workers what their counterparts in other firms in the labour market are being paid.

6. 5. Control costs:
A rational compensation system helps the organization obtain and retain workers at a reasonable cost. Without effective compensation management, a worker could be over or under-paid.

7. Types of Compensation They are direct and indirect.
The direct and indirect compensation is also called as extrinsic and intrinsic or tangible and intangible.
Direct, extrinsic or tangible compensation can be both monetary and non-monetary forms.
With direct compensation, the employer exchanges monetary rewards for work done.

8. Base pay and variable pay are the most common forms of direct compensation.
Indirect, intrinsic or intangible compensation commonly consists of employee benefits.

9. Base Pay
Base pay: The basic compensation that an employee receives, usually as a wage or salary.
Base pay may be hourly and salaried, which are identified according to the way pay is distributed and the nature of the jobs.

10. Variable Pay
Another type of direct pay is variable pay, which is compensation linked directly to individual, team, or organizational performance.
The most common types of variable pay for most employees take the form of bonuses and incentive program payments.

11. Benefits
Many organizations provide numerous extrinsic rewards in an indirect manner.
With indirect compensation, employees receive the tangible value of the rewards without receiving the actual cash.
A benefit is an indirect reward-health insurance, vacation pay, or retirement pensions given to an employee.

12. Factors Influencing the Compensation Management
Labour market:
When there is a demand for some specific type of human resource and during employment season, it is necessary that to attract the people, the organization has to provide high end package.

13. International Labour Force:
With the out sourcing concept and multinational companies being operating in the countries, the organization has to keep a balance between the in house and international labour force.

14. Economic condition:
The economic condition is understood by considering the degree or level of competitiveness in the industry which affects the organization’s ability to pay high wages.
Government:
The Government directly affects the compensation system of an organization through wage controls, hourly wage rate, and minimum wage rate etc.

15. Labour Union:
Labour union influence the compensation system. Generally unionized workforce gets better pay than non-unionized group.

16. THE END