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Role of Compensation in Organisation, Non-financial Compensation System and
Concept of Total Reward System
By Dr. G C Mohanta, BE, MSc (Engg.), MBA, PhD (Mgt.), Professor, Al-Qurmoshi
Institute of Business Management, Hyderabad, India
Role of Compensation in Organisation
The role of compensation in organisation are as follows:
➢ Attracting staff - The reward package on offer must be sufficiently attractive from that
of its labour market competitors.
➢ Retaining staff- Retaining effective performers should be the central aim of a reward
strategy.
➢ Driving change- Pay can be used specifically as one of the tools supporting change
management process.
➢ Corporate reputation- Establish a positive corporate reputation.
➢ Affordability- How limited resources should be deployed in order to maximize the
positive impact of reward management.
➢ Purchasing Power- The absolute level of weekly or monthly earnings determines the
standard of living of the recipient, and will therefore be the most important consideration for
most employees.
➢ Composition- How is the package made up? The growing complexity and sophistication
of payment arrangements raise all sorts of questions about pay composition.
Non-financial Compensation System
Non-financial or non-pecuniary compensation/incentives include all other influences planned
or unplanned, which stimulate exertion. Mere monetary incentive cannot help the
management in solving all the problems of industrial unrest. Further additional cash wage
may also tempt the workers to misuse the money in vices like gambling, drinking, etc.
Under such circumstances, the non-financial incentives have a significant role to play. Such
incentives create a healthy atmosphere and change the mental outlook of the workers. They
make the working class more stabilized and economically sound. Thus, in short, the workers
by virtue of the non-financial incentives are enabled to enjoy a richer and fuller life.
Experiences of foreign countries particularly countries like Britain, America and Japan have
shown that there is a high degree of positive correlation between non-financial benefit
schemes and labour productivity.
Non-Financial Compensation System can take a variety of forms. Some of the popular ones
are given below:
Job Security:
The management must try its best to create a sense of job security. There should be no risk of
retrenchment, demotion and termination. Experiences have also shown that the productivity
is less in those concerns where workers have no feeling of safe and secure. But it is high in
those concerns where they have a feeling of job security.
Recognition:
Recognition of work is the essence of securing good work. Efficient people would naturally
like to get recognition for their skill and excellence in their work. Such recognition can do
many things that what a cash reward can do. Of course it is not practicable for the superiors
to praise everybody for everything done by them. But the technique of praise must be
practiced as far as possible.
Participation:
Workers feel more satisfied when they are given an opportunity to raise their voice in
handling the affairs of the enterprise. Since they actually take part in the decision-making,
their co-operation is assured.
Sincere Interest in Subordinates as Individual Persons:
The management must take sincere interest in subordinates and treat them as individual
persons.
Pride in job:
The workers must be made to feel pride in their job. Various techniques can be employed to
develop pride to work. Good products, dynamic leadership, fair treatment, ethical conduct
etc. can effectively stimulate the workers pride in their job and in the firm.
Delegation of Responsibility:
Delegation of rights and responsibilities to execute a given task often proves to be a strong
motivating factor. By delegation the superior trusts his workers and stimulates them to show
better results.
Concept of Total Reward System
The total reward system consists of all financial remuneration & rewards (direct or indirect)
and all non-financial rewards as indicated above.
Reward consists of financial and non-financial elements as follows:
Remuneration & Rewards
Financial Non-Financial
DIRECT
(cash)
• Salaries
• Incentives
• Bonuses
INDIRECT
(benefits)
• Insurance
• Holidays
• Medical and
health
• Child care
• Employee
assistance
JOB
• Interesting
work
• Challenge
• Responsibility
• Recognition
• Advancement
ENVIRONMENT
• Good policies
and practices
• Competent
supervision
• Congenial
co-workers
• Safe and
healthy work
environment
• Fair treatment
Components of Employee Remuneration

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Role of Compensation in Organisation, Non-financial Compensation System and Concept of Total Reward System

  • 1. Role of Compensation in Organisation, Non-financial Compensation System and Concept of Total Reward System By Dr. G C Mohanta, BE, MSc (Engg.), MBA, PhD (Mgt.), Professor, Al-Qurmoshi Institute of Business Management, Hyderabad, India Role of Compensation in Organisation The role of compensation in organisation are as follows: ➢ Attracting staff - The reward package on offer must be sufficiently attractive from that of its labour market competitors. ➢ Retaining staff- Retaining effective performers should be the central aim of a reward strategy. ➢ Driving change- Pay can be used specifically as one of the tools supporting change management process. ➢ Corporate reputation- Establish a positive corporate reputation. ➢ Affordability- How limited resources should be deployed in order to maximize the positive impact of reward management. ➢ Purchasing Power- The absolute level of weekly or monthly earnings determines the standard of living of the recipient, and will therefore be the most important consideration for most employees. ➢ Composition- How is the package made up? The growing complexity and sophistication of payment arrangements raise all sorts of questions about pay composition. Non-financial Compensation System Non-financial or non-pecuniary compensation/incentives include all other influences planned or unplanned, which stimulate exertion. Mere monetary incentive cannot help the management in solving all the problems of industrial unrest. Further additional cash wage may also tempt the workers to misuse the money in vices like gambling, drinking, etc. Under such circumstances, the non-financial incentives have a significant role to play. Such incentives create a healthy atmosphere and change the mental outlook of the workers. They make the working class more stabilized and economically sound. Thus, in short, the workers by virtue of the non-financial incentives are enabled to enjoy a richer and fuller life. Experiences of foreign countries particularly countries like Britain, America and Japan have shown that there is a high degree of positive correlation between non-financial benefit schemes and labour productivity. Non-Financial Compensation System can take a variety of forms. Some of the popular ones are given below: Job Security: The management must try its best to create a sense of job security. There should be no risk of retrenchment, demotion and termination. Experiences have also shown that the productivity is less in those concerns where workers have no feeling of safe and secure. But it is high in those concerns where they have a feeling of job security.
  • 2. Recognition: Recognition of work is the essence of securing good work. Efficient people would naturally like to get recognition for their skill and excellence in their work. Such recognition can do many things that what a cash reward can do. Of course it is not practicable for the superiors to praise everybody for everything done by them. But the technique of praise must be practiced as far as possible. Participation: Workers feel more satisfied when they are given an opportunity to raise their voice in handling the affairs of the enterprise. Since they actually take part in the decision-making, their co-operation is assured. Sincere Interest in Subordinates as Individual Persons: The management must take sincere interest in subordinates and treat them as individual persons. Pride in job: The workers must be made to feel pride in their job. Various techniques can be employed to develop pride to work. Good products, dynamic leadership, fair treatment, ethical conduct etc. can effectively stimulate the workers pride in their job and in the firm. Delegation of Responsibility: Delegation of rights and responsibilities to execute a given task often proves to be a strong motivating factor. By delegation the superior trusts his workers and stimulates them to show better results. Concept of Total Reward System The total reward system consists of all financial remuneration & rewards (direct or indirect) and all non-financial rewards as indicated above. Reward consists of financial and non-financial elements as follows:
  • 3. Remuneration & Rewards Financial Non-Financial DIRECT (cash) • Salaries • Incentives • Bonuses INDIRECT (benefits) • Insurance • Holidays • Medical and health • Child care • Employee assistance JOB • Interesting work • Challenge • Responsibility • Recognition • Advancement ENVIRONMENT • Good policies and practices • Competent supervision • Congenial co-workers • Safe and healthy work environment • Fair treatment Components of Employee Remuneration