Question

How do the organization and the job affect an individuals direct financial compensation?

Answer 1

Direct financial compensation is the direct payment made to the employees in exchange of labor in the form of wages, salaries, bonuses and commissions. Organization acts as a determinant of individual’s direct financial compensation because the compensation policies are established by the organization. The organization decides on whether they needs to be a pay leader by paying higher than the competing firms, pay follower by paying below market rates or to pay at an average rate in the industry. The organization’s financial condition also plays an important role in determining direct compensation.

Job also affects individual’s direct financial compensation because the payment is determined after analyzing the value of the job in terms of job responsibilities, criticality of the role and other factors. The relative worth of the job is determined by using job analysis, job descriptions and job evaluation. Job analysis helps to determine the skills and knowledge required to perform a job and job description is the product of job analysis which includes the duties and responsibilities that needs to be carried out as part of particular job. Job evaluation helps to determine the relative value of a job in comparison with another. Job description is utilized to identify the value and rank the jobs accordingly. The direct compensation depends on this ranking and jobs that are more valuable to the company are paid more.