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Compensation Plan

Compensation encompasses all rewards employees receive from their employment, including direct payments like base pay and incentives, as well as indirect benefits such as health insurance. Compensation plans aim to attract and retain talent, motivate performance, ensure equity, and comply with legal standards. Developing a compensation plan involves job analysis, evaluation, market surveys, designing a pay structure, and regular reviews.

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0% found this document useful (0 votes)
17 views1 page

Compensation Plan

Compensation encompasses all rewards employees receive from their employment, including direct payments like base pay and incentives, as well as indirect benefits such as health insurance. Compensation plans aim to attract and retain talent, motivate performance, ensure equity, and comply with legal standards. Developing a compensation plan involves job analysis, evaluation, market surveys, designing a pay structure, and regular reviews.

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vlmohammedadnan9
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We take content rights seriously. If you suspect this is your content, claim it here.
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Definition of Compensation

According to Decenzo and Robbins, compensation refers to "all rewards that individuals
receive as a result of their employment." It includes both direct and indirect payments.

Types of Compensation

1.​ Direct Compensation (as discussed by Decenzo and Robbins):​

○​ Base Pay: Fixed salary or wages paid regularly.


○​ Incentives: Extra payments based on performance, like bonuses or
commissions.
2.​ Indirect Compensation:​

○​ Benefits: Non-cash rewards such as health insurance, retirement plans, and


paid leave.

Objectives of Compensation Plan

According to Luis R. Gomez-Mejia et al., compensation plans are designed to:

1.​ Attract and Retain Talent: Competitive pay helps in hiring and keeping employees.
2.​ Motivate Performance: Incentives encourage higher productivity.
3.​ Ensure Equity: Compensation must be fair internally and externally.
4.​ Follow Legal Standards: Ensure compliance with wage and labor laws.

Steps in Developing a Compensation Plan

Based on Dessler's HRM, the following steps are important:

1.​ Job Analysis: Understand job duties and responsibilities.


2.​ Job Evaluation: Determine the relative value of each job.
3.​ Market Surveys: Compare with industry standards for similar roles.
4.​ Pay Structure Design: Create pay grades or bands for different levels.
5.​ Review and Adjust: Regularly update the compensation plan.

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