Meaning of compensation

Compensation refers to all forms of financial returns, tangible services, and benefits employees receive as part of employment relationship. Compensation management is one of the main parts of every HRM. It includes all forms of employee’s pay or rewards arising from the employment. Total compensation includes both intrinsic and extrinsic rewards. Extrinsic rewards are pay, promotion,

commission, fringe benefits and working conditions. These rewards are paid the result of management policies and practices. Compensation is one of the important motivating factors for employees, willingness of employees to stay in the job determined by fair compensation practices.

A pay system consists of all the arrangements made in organizations for what and how people should be paid for the jobs they do. The system will also provide rewards for how well they, their team or the organization does, and for what they contribute because of the levels of capability (competence/ or skills they have achieved).

Objectives of Pay System
The objectives of a pay system are to help the organization and its managers to:

• Compete in the job market-attract and retain high quality people.
• Motivate people-encourage them to active superior levels of quality performance.
• Achieve value for money-ensure that expenditure on pay is cost-effective in that it encourage value-added performance without under-expense.

Pay Policies
The pay policies of an organization will be concerned with

• The achievement of equity: Paying people in accordance with their relative contribution. 
• Consistency: Paying people consistently according to the level of their job and their performance.
• Fairness: Ensuring that pay decisions are fair in the sense that they do not discriminate against people, based on objective and unbiased judgment are properly reflect the contribution of the person concerned.
• Transparency: The pay system are disclosed to people so they know the basis upon which they are awarded.
• Relationships to market rates: The extent to which the organization intends to match market rates or to pay above average.
• Pay structure: Pay structure define the different levels of pay for jobs or groups of jobs by reference to internal relativities as established by some form of job evaluation, to external relativities (market rates) and, where appropriate to negotiated rates for jobs. There are a number of different types of structure, but the main ones are:

1. Spot Rates: A spot or individual job rates structure allocates a specific rate for jobs. There is no scope for that rate to progress through a defined pay range or scale. Individual can, however, earn more pay through incentive schemes or bonuses.

Spot rates schemes are typically used for manual worker where, in its simplest form, there are rates for skilled, semi-skilled and unskilled jobs. Payment-by-result schemes may provide for additional earnings over the base rate for the job.

2. Graded structures: A graded pay structure consists of a sequence of job grades into which jobs of broadly equivalent value are slotted. A pay range is attached to each grade that provides for pay to progress through the range in accordance with an individual’s performance, competence or skill. The merit of this system being that it is easy to explain to employee. It allows better control over the fixing of rates of pay and pay progression. It clearly indicates pay relativities. It thus, provides a framework for managing those relativities and for ensuring that jobs of equal value are paid equally.

3. Broad Banded Structures: Broad-banding, so called, has become more popular in recent years as organizations have delay are and operated more flexibly with increased emphasis on continuous development laterally rather than on promotion upwards through an extended hierarchy. The advantage of the system is that it enhances the ability of the organization to reward people for what they bring to the business beyond their job description. It also provides for greater flexibility for rewarding people as they grow in their roles and grow their roles.

4. Job Family Structure: A job family structure consists of separate pay structures for job families. A job family consists of job in a function such as research and development (R&D), marketing, finance, computing or personnel which are related through the basis activities carried out and sills used but will be differentiated by the amount or degree of responsibility, competence or skills which are used at different levels.

Each level in a job family may have its own pay range in a conventional graded structure. The advantages of this type are that they enable special treatment to be given to selected key occupations from the point of view of rates of pay and pay progression. Career progression can be planned on the basis of increases in competence or skill.

5. Pay Spines: Pay spines of a series of incremental pay points extending from the lowest to the highest-paid job in a structure. Pay ranges of so many increments are then superimposed on the pay scale. A typical increment is 3% and grade may be covered by 5 such increments. Thus, someone who starts at the bottom of a grade will gain a pay increment of 3% for each year of service until the top of the grade is reached after five years. This system may be called a service related fixed incremental pay structure. It is based on the assumption that the value of the people to the organization is related directly to their length of service.

Factors/ Determinants Affecting Levels of Pay Systems
Factors/determinants affecting levels of pay systems and decisions in pay have to take account of the following factors affecting pay levels:

• Supply and demand: If people are in plentiful supply pay levels will be lower, if they are much in demand and therefore scare, pay levels will be higher. This means that the principle of internal equity may have to be sacrificed sometimes to the need to be externally competitive, i.e. to attract and retain people with a higher scarcity value.
• The value of the job to the organization: Pay levels are related to the size of the ob the relative contribution to the achievement of the organization’s objectives that jobs make. The bigger the job, the more people are paid.
• The values of the person to the organization individuals are paid in line with their contribution, performance, competence and skill.
• Affordability: What the organization can afford to pay.
• Collective bargaining: Negotiations with trade unions can lead to agreements on rates of pay and other item and conditions of employment.

Career Planning and Succession Planning

Career planning is the process of selecting career goals and path to reached the goals. It is basically a planning process for future purpose. It can be done by all level of employee and it is an individual responsibility. HR (Human Resource) encourages career planning of employee through career education counseling.

Succession planning is generally done for top level and middle level managers. As for example, many people join in organization, all their aim are to become manager or CEO, but due to several reasons like retirement, resignation, death, people become unable to become manager, thus preparing some people for future manager is succession planning.

Career Planning

Succession Planning

Career planning is for all the employee from lower level to upper level. Career planning is a matching process between individual aspiration and organizational opportunities. Time frame for career planning has no limit. And it is guaranteed the development of career in every course of stages are needed. In career planning, plans and goals are developed all the employee. It considers individual employee. Time frame is unlimited.

Succession planning is concerned for the higher-level executives only. Succession planning is a detail career path multiple back up group of manager in reserve to fill any position opening that might occur. Time frame is of 12-36 months. It is not guarantee. In succession planning, plans and goals are set for specific selected employee that succeeds for manager in future. It consider employee and the position. Time frame is limited.

Why one should plan career?

A career can be defined as all the jobs held by a person during his working life. It consists of a series of properly sequenced role experience leading to an increasing level of responsibility, status, power and rewards. Career is sequence of separate but related work activities that provide continuity, order and meaning in a person’s life.

Career, thus, represents and organized, well timed and positive move taken by a person across time and space. It must be noted that a person’s career is shaped by many factors e.g. education, experience, performance, parents, caste links and some occasional luck. Similarly, while some people like creative personnel and artists may deal independently with shaping their careers, there are others those employed by somebody do not have much scope for their own pursuits and, in turn, career.
 

Career planning is the process of selecting career goals and the paths to achieve individual and organizational goals. The steps involved in the process of career planning are as follows.

Process of Career Planning

1. Individual Needs and Aspirations: The first step in career planning process is counting of individual needs and aspiration. What the individual is really seeking from the organization should be identified by the organization otherwise in lack of it, labour turnover may occur.
2. Organizational Need and Opportunities: The next process in career planning is counting of organizational need and opportunity. What kind of manpower it is seeking and what opportunity for career development, it can provide to the employee should be identified.
3. Personnel Counseling and Assignment: The organization should counsel to the employee or individual. In organization, there is HRM department. The HR staff’s duty is to counsel the individual. Counseling for new hires existing employee in the mid career and in the pre-retirement stage should be done. Counseling are of two types:
1. Formal Counseling is performed by career development center, assessment center, workshop etc.
2. Informal Counseling is performed by HRM staff in organization for those who wish to assess their ability and interest.
4. Personal Planning and Career Information: Organization should make a detail inventory about the people working in the organization. The people working in the organization are currently in which career position of his career should be identified. The information of employees career position should be obtained and how they be advanced should be planned in organization.
5. Individual Development Effort: Individual tries to develop themselves for their development. Organization should back up the individual, to develop individual. Organization can do it through different programmes like training, counseling etc.
6. Formal Training and Development: Organization should provide training and development to develop employee career. But which individual need training should be identified and should make a match in between it.

If these are matched, employee can be placed on career path. So, every career planning process leads to the placement of employee in the career path.

With sound process, employee can be rightly placed on career path, through it employee proceed for career development.