Question

Explain What is the compensation system?

What is compensation plan in HRM?

Answer 1

Explain What is the compensation system?What is compensation plan in HRM?

A compensation plan is the sum total of all the monetary as well as the non monetary benefits provided for the staff in exchange of their hard work or dedication in the work. It can also be defined as

• it is a system of rewards that motivates the staff's to perform better
• it is a tool used to foster the cultures and values of organization as well as the individuals
• It is the system that allows the organization to achieve its goal

The HRM should make sure that compensation plan is designed after taking the certain factors into account, such as , experience, qualification, attitude, quality of work, prevailing rates in the market. The compensation acts as a important factor in the human resource management, employees may get benefits of financial or non-financial compensation. The financial compensations includes, bonus, salary, incentives etc, whereas the non-financial compensation includes, rewards, awards, praise, citation, recognition , which motivates the employee to give their best and achieve the highest productivity.

The HRM compensation plans can be divided into three categories

• Direct financial compensation: It is the monetary compensation which includes wages, salaries, bonus,commissions, profit sharing, and the performance payments which are provides at regular and consistent intervals
• Indirect financial compensation : such compensation will have financial values but not includes a direct monetary payment. the employees will get the non-cash benefits. Such payment includes, health insurance,life insurance, paid time off, stock option, disability insurance, provident fund , retirement plans, leaves, education and employee services.
• Non financial compensation -It does not include monetary or economic values, but it includes the satisfactions a staff gets from his work environment, It helps to the employee career development, opportunities for recognition, advancement opportunities etc.