5  Conceptual framework of compensation management

The conceptual framework of compensation management provides a structured approach to designing and implementing compensation policies that align with an organization’s goals while ensuring fairness and employee motivation.

5.0.1 1. Objectives of Compensation Management

  • Attract & Retain Talent – Offering competitive pay to hire and keep skilled employees.
  • Motivate Performance – Encouraging productivity and efficiency through rewards.
  • Ensure Fairness & Equity – Maintaining internal and external equity in compensation.
  • Compliance with Laws – Adhering to labor laws and tax regulations.
  • Enhance Job Satisfaction – Providing total rewards for employee well-being.

5.0.2 2. Key Components of Compensation Management

A. Compensation Strategy

  • Aligns compensation with business objectives and industry standards.
  • Determines pay mix (base salary, incentives, benefits).

B. Job Evaluation

  • Assessing job roles to determine fair pay based on:
    • Ranking Method – Jobs ranked from highest to lowest.
    • Point Factor Method – Jobs evaluated using factors like skill, responsibility.
    • Classification Method – Jobs grouped into categories.

C. Market Competitiveness

  • Conducting salary surveys to compare industry compensation levels.
  • Benchmarking against competitors.

D. Performance-Based Pay

  • Implementing merit pay, incentives, and bonuses to reward high performance.

E. Compensation Structure

  • Direct Compensation – Salary, incentives, commissions, profit-sharing.
  • Indirect Compensation – Health benefits, retirement plans, perquisites.
  • Non-Monetary Compensation – Recognition, career growth, work-life balance.

G. Compensation Administration & Communication

  • Payroll management, audits, and transparent communication of pay structures.

5.0.3 3. Total Rewards Approach

A modern framework that integrates financial (salary, incentives), benefits (healthcare, pension), and personal growth opportunities (career development, recognition, and work-life balance) into a holistic compensation system.