Objectives of Compensation Planning
The most significant objective of any pay system is justice or equity. The term equity has three dimensions.
a) Internal equity: This make sure those more difficult jobs are paid more.
b) External equity: This makes sure that jobs are fairly compensated in comparison to similar kind of jobs in the labour market.
c) Individual equity: It ensures equivalent pay for equal work, for example each individual's pay is fair in comparison to others doing the similar jobs.
Additionally, there are other goals also. The ultimate objective of compensation administration (the procedure of managing a company's compensation programme) is to prize desired behaviours and inspire people to do well in their jobs. Some important goals that are sought to be achieved through effective compensation management are described below:
a) Attract talent: Compensation have to be high enough to attract talented people. As many firms compete to employ the services of competent people, the salaries offered ought to be high enough to inspire them to apply.
b) Retain talent: If compensation levels go down below the expectations of workers or are not competitive, workers may quit in frustration.
c) Ensure equity: Pay should equivalent the worth of a job. Same jobs should get similar pay. Similarly, more qualified people should achieve better wages.
d) New and desired behaviour: Pay should reward commitment, loyalty, experience, risks taking, initiative & other desired behaviours. Where the company fails to reward as sach behaviours, worker may go in search of greener pastures outside.
e) Control costs: The cost of appointing people should not be too high. Effective compensation management make sure that workers are not overpaid and underpaid.
f) Comply with legal policy: Compensation programmes have to invariably satisfy governmental rules about minimum wages, allowances, bonus, benefits, etc.
g) Ease of operation: The compensation management scheme should be simple to understand and operate. Only Then will it promote understanding about pay- related matters among workers, unions & managers.