Defining Compensation, Compensation Philosophy, and Critical Components of a Compensation Strategy
The modern system of the workers’ compensation begins shortly after the advent of the written history itself. The compensation system started approximately 2050 B.C when the law of Ur used to provide financial compensation for particular injury to workers’ body parts which normally included fractures. Also the code of Hammurabi from 1750 B.C used to provide the related set of rewards for particular injuries and their implied lasting impairments. During that time the Ancient Greek, Roman, Arab, and Chinese law were providing sets of compensation schedules. From that period till now the compensation system as real grown so much in its operations and services. On the other hand compensation philosophy is the organization management strategy which formed many years ago. It mainly deals with the set of standards and beliefs that an organization depends in issues relating to compensation decision making.A critical component of a compensation strategy simply is the company’s approach which deals with the relationship of his employees and it was founded in the 1970s and 1980s. In those early years the critical component of a compensation strategy was recognized as professional practice and was mainly based on formulas that served all employees in the company.
Definitions of compensation, compensation philosophy, and critical component of a compensation strategy
Compensation is mainly defined as a systematic approach which is used to provide monetary value to the employees in the exchange of the amount of the work they performed. Compensation may also bring out the meaning of the joint agreement between the employer and the employee as to the significance of the labor services. Many employees are given wages and remuneration compensation in return to the labor services. Workers not only get the traditional pecuniary items in the form of wages and remuneration but also nonpecuniary stuffs. Nonpecuniary working conditions which are positive include: job amenities like good looking office surroundings, freedom from poor supervisory rules, safe and good working conditions and good training facilities. A lot of procedures involving the setting of the value of the nonpecuniary job characteristics have been explored in the hedonic labor market literature, however it is very difficult to determine the value of them. Hence, measures of compensation that mainly deals with wages and payments for remunerations are more statistically constructive.
Compensation philosophy is defined as the actual plan for how the employees are normally paid, when they payments will be increased and when their bonuses will be appropriate. In many cases this plan is made available to every employee, in order he/she will have a sense of the organization’s philosophy and this helps them to determine their treatment by the organization, as it is concerned with compensation, not only at the present situations but also the future ones. A compensation philosophy is mainly developed to guide the design and complexity of the company’s compensation programs; this is done by identifying the company’s goals and objectives, bearing in mind its competitiveness in attracting and retaining employees, its emphasis on internal or external fairness, and if the operation is tied to increases. Any good compensation philosophy must provide definite guidance that will assist the compensation program to take strategy execution. In order to reach this end, the philosophy must clearly define the mission of the company and reflect on key strategic areas and talent requirements. It must be also consistent with the company’s operating style, compensation history and shared values. Critical component of a compensation strategy of an organization is defined as the criteria that the company uses to get the skills and knowledge required to undertake the work and the resources required.
One solid example of an effective compensation practice/policy is the Human Resources.Human talent is the asset, it represents the only difference asset of a company.Since human assets are very important to an effecient enterprise, the management of it is very essential.Many companies may prefer to make changes in their compensation programsto make penetration into the up coming markets, the introduction of the new goods and changes in the available labor.