Every industry or corporation develops its compensation models based on three components. The basic components of the pay model are: Compensation objectives, the strategic policies that form the foundation of the compensation system, and the techniques of compensation.
Compensation systems are designed and managed to achieve specific objectives in any company. The fundamental objectives include efficiency, equity, and compliance with laws and regulations. The efficiency objectives aim at improved performance, increasing quality, delighting customers, and controlling labor costs. Equity objectives focus on designing pay systems that recognize employees' contributions and needs. Equity is fundamental to a compensation system, signifying fair treatment for all employees and fair pay for a fair day's work. Compliance objectives involve adhering to various central and state wage legislations and regulations, with adjustments made to the compensation system as laws change.
The strategic policies that underpin the compensation system include internal consistency, external competitiveness, employee contribution, and administration of the pay system. These policies serve as the foundation on which the pay system is built. Internal consistency involves comparing jobs or skill levels within an organization to determine pay rates based on their contributions to organizational objectives. External competitiveness refers to aligning pay with competitors to attract and retain employees while controlling labor costs. Employee contribution emphasizes performance, influencing employee attitudes and behaviors. The administration of the pay system is crucial for achieving the system's objectives, requiring proper management, planning, communication, and evaluation.
Pay techniques form the pay system in an organization, linking the four basic policies to pay objectives through internal alignment and job analysis. The pay model suggested by Milkovich is preferred by companies due to its ability to depict relationships among jobs and skills, ensure fairness, define relevant labor markets, attract and retain a competent workforce, and control labor costs.
Compensation systems are designed and managed to achieve specific objectives in any company. The fundamental objectives include efficiency, equity, and compliance with laws and regulations. The efficiency objectives aim at improved performance, increasing quality, delighting customers, and controlling labor costs. Equity objectives focus on designing pay systems that recognize employees' contributions and needs. Equity is fundamental to a compensation system, signifying fair treatment for all employees and fair pay for a fair day's work. Compliance objectives involve adhering to various central and state wage legislations and regulations, with adjustments made to the compensation system as laws change.
The strategic policies that underpin the compensation system include internal consistency, external competitiveness, employee contribution, and administration of the pay system. These policies serve as the foundation on which the pay system is built. Internal consistency involves comparing jobs or skill levels within an organization to determine pay rates based on their contributions to organizational objectives. External competitiveness refers to aligning pay with competitors to attract and retain employees while controlling labor costs. Employee contribution emphasizes performance, influencing employee attitudes and behaviors. The administration of the pay system is crucial for achieving the system's objectives, requiring proper management, planning, communication, and evaluation.
Pay techniques form the pay system in an organization, linking the four basic policies to pay objectives through internal alignment and job analysis. The pay model suggested by Milkovich is preferred by companies due to its ability to depict relationships among jobs and skills, ensure fairness, define relevant labor markets, attract and retain a competent workforce, and control labor costs.
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