Compensation is the overall monetary and non-monetary value granted to an employee by an employer in exchange for their labour. It includes things like normal salary, bonuses, commissions, tips, and benefits like insurance, retirement plans, and vacations. Furthermore, it is used by businesses as a key contributor to employee engagement and motivation, and it accounts for the majority of significant expenses in many enterprises (Osibanjo, Adenji, Falola, & Heirsmac, 2014). Compensation is also a primary source of income for the vast majority of the working people worldwide, not only in America.Companies adopt compensation strategies based on various factors to reach maximum employee motivation and retention and ultimately promote the achievement of company’s goals and performance potential. These aspects consist of economic factors, employee skills, and competencies, labor market competitiveness, culture, laws, and regulations (Osibanjo et al., 2014). The economic factors include the prevailing condition of the economy which may be booming or recessing. In a booming economy, companies set higher compensation for their employees, as compared to during a recession. Therefore, whereas the cost of living informs employee motivation and reward, a firm has to consider other economic factors such as inflation rates and the macroeconomic situation.
Also, the level of employee competency to deliver at a company and competitiveness of their skills forms a basis for the level of compensation. In this regard, experts in premium skills are more likely to receive a higher compensation package as compared to others. It serves to reduce competition in the labor market and also improves the retention of valuable employees. Lastly, culture informs the value of compensation to the employees and may inform compensation strategies in a company (Osibanjo et al., 2014). It may, however, be considered in line with established laws, regulations, and labor agreements in informing the compensation strategies adopted by an organization. In this way, efficient compensation strategies are developed to the company’s interests as well as those of employees.
Reference
Osibanjo, O.A., Adenji, A.A., Falola, H.O., & Heirsmac, P.T. (2014).Compensation package: a strategic tool for employees’ performance and retention. Leonardo Journal of Sciences, 25, 65-84.
