Theories and Objectives of Compensation Administration

Question 1

An organization pays employees a competitive salary to retain then and also
attract skilful employees from outside. If companies’ compensation plan is not offering them competitive salary, no employees get attracted to join such an organization and stick on.

Answer 1

To attract and retain competent employees

Question 2

External equality implies that pay for same
job outside the organization should be the same as it is in this organization. Internal equality implies that within the organization similar jobs should have same packages. There should be no favouritism done for any job in any department.

Answer 2

(b) To establish fair and equitable compensation

Question 3

Compensation plan should be such that all
employees feel fairly compensation by the organization. It will boost up their morale and make them more productive. A sound wage administration should also be able to control cost systematically. As the company grows, gradually the compensation should increase and not haphazardly.

Answer 3

(c) To control costs and improve productivity

Question 4

A sound wage system should comply with all legal challenges imposed by government. If the compensation administration is not able to comply with any by law of the country, it can be challenged by employees/unions.

Answer 4

(d) To comply with legal regulations

Question 5

Compensation plan should reinforce desired behavior and act as incentive for those behaviors in future. Effective compensation plan is the one which gives due rewards to people who are performers, loyal and show exemplary behavior.

Answer 5

(e) To reward the desired behavior

Question 6

Wages and salary plan should project a positive image to employer to general public and to employees. This helps in acquiring the best personnel and retaining the competent persons.

Answer 6

(f) To improve company’s goodwill in the eyes of general public and employees

Question 7

What are the objectives of Compensation?

Answer 7

1. To attract and retain competent employees
2. To comply with legal regulations
3. To control cost and improve productivity
4. To improve company’s goodwill in the eyes of general public and employees
5. To reward the desired behavior
6. To Establish fair and equitable compensation