Compensation Decisions

Compensation decisions- Compensation management is a strategic business decision and one of its most important functions is to link individual performance with pay. The other important function of compensation management is to align the compensation strategy with the overall goals of the business in such a way as to strike the perfect balance between the costs of human capital and its productivity. Compensation strategy thus becomes a powerful tool for reinforcing the existing business model.

A basic compensation management program aims at attracting and retaining talent to ensure cost minimization and profit maximization. An effective compensation program intends to improve productivity, and create a mindset of ownership among the workers, for the given job. Compensation decisions help nurture a performance-oriented culture as they focus on giving effective feedback for greater accountability.

Compensation decisions will be considered fair only if they are communicated effectively, at the right time, and through appropriate channels to all employees. Employees read between the lines. Hence, they infer things such as their position in the organization, the company’s ability to pay, the company’s attitude towards fair pay, and such.

Compensation decisions also have an effect on the culture and climate of the organization. At some level, the organization needs to be transparent to a certain extent about how they are determining compensation, particularly at the managerial level. It is beneficial to communicate whether the increase in compensation is due to market correction measures or to acknowledge exceptional performance or an increase in the cost-of-living.

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