IMPACT OF COMPENSATION ON EMPLOYEE PERFORMANCE

Abstract

Compensation is the remuneration received by an employee in return for their contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and sales commission. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Direct Compensation is typically made up of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. Direct compensation that is in line with industry standards provides employees with the assurance that they are getting paid fairly. Indirect Compensation focuses on the personal motivations of each person to work. Although salary is important, people are most productive in jobs where they share the company's values and priorities. These benefits can include things like free staff development courses, subsidized day care, the opportunity for promotion or transfer within the company, public recognition, the ability to effect change in the workplace, and service to others. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees. The impact of compensation and benefits on employee performance and organizational effectiveness depends on the existing compensation and performance management programs in the organization. Typically, most employees respond to increases in pay and benefits with a positive and more productive attitude. Sometimes, employees only notice rewards of a salary increase the day the increase is communicated to them, and the day they receive the first paycheck that includes the salary increase. In this Paper I would like to discuss the components and importance of compensation and I would like to emphasis more on the impact of compensation on employee performance in the organization