STRATEGIC HUMAN RESOURCE MANAGEMENT
Muskaan Chaudhary
SHRM and HRCI Certified Human Resource Generalist || CHRMP Certified Advanced Human Resource Buisness Partner
The strategic compensation system determines the kind of personnel that an organization wishes to hire and the pay scale that is established for them based on their contribution to the achievement of organizational objectives. An organization can draw in the top workers in the sector by creating a strategic compensation plan that works.
The design of executive compensation is a key component of the compensation system in the current situation. Executives have a significant impact on an organization's growth, so it's important to carefully consider their compensation in order to keep them motivated to work toward the organization's success.
COMPENSATION
Compensation, which includes both monetary and non-monetary benefits, is the primary factor in an organization that drives employees to perform in order to achieve organizational objectives. The combination of extrinsic and intrinsic benefits that employees receive for doing their jobs is known as compensation. When we talk about intrinsic compensation, we're talking about the benefits that fulfill workers' psychological requirements for doing their jobs. An example of an intrinsic reward is autonomy offered in a work environment. Conversely, extrinsic rewards are non-cash and non-monetary benefits given to staff members as acknowledgement for their hard work. This could include base pay, health insurance, and so forth.
Three primary factors are included in compensation, and they are as follows:
The contribution of a worker to an organization's overall output
Usually made on a daily or monthly basis, fixed payments
Variable payments made either annually or every half a year
OBJECTIVES OF COMPENSATION
Attractive pay structures are intended to accomplish the following goals:to fairly compensate employees for the services they provide to achieve a balance between the interests of employers and employees to entice talented workers to join the company to inspire workers to deliver ever-better work in order to meet organizational objectives to reduce complaints, staff churn, and absenteeism
Strategic Importance of Compensation
Pay has a role in helping an organization achieve a number of its strategic goals. Companies must thus start creating their compensation plans using a strategic approach. This can be accomplished by paying staff members fairly in order to increase their motivation and output and by focusing their efforts on achieving organizational goals.
The objectives of a strategic compensation are as follows:
Rewarding and motivating top performers
Supporting the achievement of both internal and external equity
Lowering employee churn and raising corporate loyalty
Raising and preserving the degree of contentment
Recruiting and keeping talented and qualified workers
Inspiring workers to deliver better work
COMPONENTS OF COMPENSATION
An organization must implement a comprehensive compensation strategy in order to draw in and keep top talent. Programs for motivation, rewards, and recognition can assist an organization in achieving its goals. In general, pay consists of earnings, salaries, bonuses, etc.
Base compensation: This refers to benefits that are given to employees in addition to their salaries. The following are paid as part of base compensation:
Basic pay entails giving an employee their salary and wages.
Allowances: As decided by the employer, these are extra payments given at set rates. Examples include travel, dearness, and housing rent allowances.
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Direct incentives: These comprise bonuses, commissions, and long-term benefits that are given to employees as part of their fixed pay at regular intervals throughout their service term.
Extra pay: This refers to all benefits given to an employee that are not directly related to their salary. Indirect incentives like perquisites and employee stock options, as well as fringe benefits like retirement and safety and security benefits, make up the majority of additional compensation.
Strategic Issues in Compensation
When determining compensation, an organization must consider several strategic factors that could impact its expansion. The following are some crucial strategic issues: Let's go into more detail about these concerns:
Labor supply and demand: It is among the key factors that determine pay. The wage rate rises when there is a surplus of labor demand relative to supply. Conversely, wage rates decline when the supply of labor is greater than the demand for it.
Position financially: It is the ability and desire of employers to provide compensation to their staff members. This variable provides an indirect indication of an organization's financial well-being.
Cost of living: This term refers to an index that calculates the expenses associated with maintaining a given standard of living, which can affect pay rates. Higher wages and salaries will result from a high cost of living.
Government laws: Governments have passed laws and legislation to control salaries and wages and to reduce labor exploitation. The goal of these laws is to ensure wage payment equity and fairness across the board.
Wage rates: These are the earnings for each hour worked or unit of output, and they are established by the industry's current pay scale. Wage rates are typically set based on the pay scales of competitors.
Differences between Traditional Compensation and Strategic Compensation
Traditional Compensation
Designed to facilitate traditional job hierarchies and command and administer management
Emphasizes completing the responsibilities and tasks listed in the job description
Lacks adaptability and cannot be changed to meet the evolving needs of employees
Comprises communication that is governed by upper management in a top-down manner.
Strategic Compensation
created in compliance with strategic goals and plans
Emphasizes contribution to achieving the aims and objectives of the organization
Possesses a high degree of adaptability and can be adjusted to meet changing business needs
Involves open communication wherein staff members are informed of the organization's mission, vision, and goals.
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