The Need of Compensation Management

Fixation of compensation is the important part in compensation management. It is one of the important factors which help to reduce the staff turnover with in the organization. Increased competitiveness in the labor market and highest turnover of employees are made multinational companies to think of new strategies to retain skilled staff with in the organization. Today competition is common among the multinational companies to attract qualified, skilled and experienced young professionals by offering very attractive compensation packages.

In these days it is the burden of HR department of every company to think new strategies for proper compensation planning for retaining high qualified employees as well as for the selection of qualified candidates. Same time it should be planned in such a way that, it should not affect the profitability of the company.

Different industries are offering different compensation packages. Manufacturing companies fix the compensation based on production. In trading companies compensation is based on sales. IT and software companies may introduce attractive remuneration packages based on the performance and skill.


Basic salary is the basic component of remuneration. It should be decided on the on the position of the employee with in the organization and other components of compensation should be fixed, based on basic salary

Some fixed percentage of basic salary is payable as Dearness Allowance. It is the compensation which is payable for compensating the employees against the hike in price level due to inflation which effects the living condition of the employees. Government and corporate announce changes in D.A from time to time depending on changing economic conditions of the country. But private sector companies and firms are not bothering to give D.A. to their employees.

Bonus payment is very attractive compensation because it increases employee loyalty as well as encourage them to work hard. Bonus is nothing but some portion of annual profit which is shared among the employees. In some organizations one month salary is given as bonus. Manufacturing companies fix the bonus based on the wages. It is true that bonus payment helps to increase the productivity of workers.

Instead of payment of fixed monthly salary some companies offer attractive commission for some kind of work. Especially in the field of sales people are normally attracted by the rate of commission. Commission is calculated based on the achievement of target. Commission payment helps the companies to save expenses on staff welfare benefits.

Companies may also pay commission to their regular employees along with the salary. This is for making them to work hard for the organization. Companies may liberal regards the target. But some finance and banking companies fix the target for their employees. Not only decrease in commission but also an employee should face the risk of reduction in salary if the required target is not achieved.

Along with above compensations today multinational companies are doing circus to attract the qualified and skilled candidates by offering the different packages of allowances such as medical allowances, traveling allowances etc. some companies have moved one step further. They have announced the extension of medical allowances to the family members of the employees.

It is true that today companies have too much worried about the scarcity of suitable human resources. High rate of staff turnover in organizations affects the efficiency of the organization. So it is important that HR department should revise the policies regarding the compensation payment.