Compensation - Meaning, Purpose & Determinants of Compensation Policy

Compensation: 

Compensation refers to all forms of financial returns, tangible service, and benefits employees receive as part of an employee relationship. -Milkovich

Designing pay structure that will attract, retain and motivate the competent employees and which is perceived as fair by the employees, by considering the paying capacity of the organization is compensation management.

Purpose:

• Establish fair & equitable pay system

• Attract & retain competent human resources

• Improve motivation & morale of employees

• Improve image of the organization as a ”fair pay” employer

• Comply with legal framework related to compensation

• Compensation administration

Determinants of Compensation Policy

1. Legal framework

2. Union pressure

3. Organization’s compensation policies

4. Equity considerations

5. Job evaluation

6. Competition

7. Productivity