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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