Employee Compensation

Employee Compensation

Employee Compensation

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Compensation is the most important part in any form of employment. When an employees are not properly compensated for the work they have done it will lead to a lot of problems. The effects of poor compensation can be seen throughout the business environment where workers boycott, slow the pace of production, and in worst cases, they leave the jobs completely to seek better employment and wages. For this reason there are several set measures that are meant to ensure that employees are well paid. In addition, regulations should make sure the employers do not exploit the employees. Without this type of regulation or framework in force, a lot of companies would take advantage of people who need employment throughout the globe (Sullivan, 1997).

Several factors influence the remuneration of employees. The factors can be placed into two categories: external and internal. The internal factors that affect employees’ remuneration are as follows:

Ability of the firm to pay

The ability to pay is a very crucial element when it comes to paying of wages by the company. For the firms that are enjoying success in business it is much easier to pay employees slightly more than what other companies pay. Through such methods, it is possible to attract professionals who can deliver quality services. The unions that employees are part of will also use their advantage to push such firms to pay more.


There are other several factors based on employees that affect their pay grade:


In most firms the employees start off with a general salary which increases as the worker improves his performance at work. The increment of the salary works as a motivation factor for an employee to do much better (Upadhyay, 2009).


Experience in most cases makes the employee more valuable to the firm and also attracts higher wages as opposed to inexperienced personnel, and this can be seen with emerging trend of companies hiring workers that have five to ten years work experience. These companies have the assumption that an experienced employee will be a good influence to the workforce and also have leadership skill to mentor them. An experienced person can work under minimal supervision, and they do not require a costly training which must be provided to the inexperienced staff members.


Seniority plays a big role when it comes to the issue of compensation. Nowadays senior employees fetch a higher salary compared to the juniors. Most companies are employing these senior employees on top management positions to aid the company operations process.


Most companies now pay their employees based on the potential or impact they have on the company. Most young employees fresh from school are the one fetching huge salaries. This trend can be put in an example where a graduate Indian student was offered a high paying job in IT department of Twitter. The reason is that the employee will work there for a long time and that he is a graduate and has plenty of time to realise his potential.

Job requirements

Jobs that require a lot of skills from the employees physically and mentally tend to pay more.

External factors

Laws and regulations

These factors are beyond the company’s control. There are laws that set the lowest amount payable to an employee. These laws also have an impact on the working hours of the employees and the time they get out of work with or without pay. There are also laws that focus on compulsory bonuses and working overtime; all this has a positive impact on the employee’s salary.


The labour markets target things like the set salary for workers in the same trade and ensure it is observed. The standard of living within the locality of office premises also has an influence on the wages of the employees.

The economy

The economy does have a huge impact on the wages of the employees. Employees in a country with a stable economy will most likely enjoy higher wages as compared to workers in a poor one.

Technological advancement

When companies advance technologically, they have to look for employees with the required skills to handle the new technology. Workers with such experience or knowledge are paid higher wages.

The communication of the pay structure to the employees is done on an individual level although there are those people who are of the opinion that the same should be done in front of all employees. Discussing a pay rise of one employee among his peers will bring up problems to the firm. The employees that would not understand why one gets a promotion and others do not will cause problems, and work will slow down if not come to a halt.

The employees are to be engaged individually when it comes to explaining them their payment structure, as there are no uniform salaries for all employees. Engaging the employees on an individual level is the best practice when it comes to discussing payment structures.

Many successful organisations work very hard to retain their employees. The process of retention is crucial when the employee is of high value to the company. To retain and employ the company should come up with a salary that is suitable for work the employees provide to the firm. The amount awarded to an employee should be discussed with him to make sure that he understands why a certain amount is paid (Bhattacharya & Sengupta, 2009).

The awarding of pay rise to the employees is a very effective form of motivation. When a company makes such a move, the employee has to be notified as to why he is receiving an increase in salary. Pay rise will act as a motivation to the employee pushing him to work even harder, it will prompt the employees to dedicate themselves to work, and it will also help in retaining hard working employees with the promise of a pay rise with every noticeable improvement on the work done by every individual (Bhatia, 2003).

Applying these strategies will work to the benefit of the company. The strategies also work as a diluting factor for both external and internal factors affecting pay. When a company focuses mainly on hiring skilled workers, it means that someday they will be forced to let go the less skilled employees. However, using the strategies above the less skilled employees will work twice as hard to improve on their output and at the same time receive compensation for their efforts.

The most important thing that employers need to have in mind when coming up with a payment plan is fairness. Fairness can be achieved through maintaining external and internal equity in the company. The company should ensure that employees in the same sector get uniform salaries; the company has to maintain external equity and achieve internal equity. External equity refers to uniform salaries and wages compared to other businesses and firms. If either of the two is violated, the business will mostly likely come to a halt. The lack of fairness will cause problems in terms of striking of the workforce, low productivity, and even absconding from work.


Bhatia, S. K. (2003). New compensation management in changing environment: Managerial remuneration and wage & salary administration: a professional manual. New Delhi: Deep & Deep Publications.

Bhattacharya, M. S., & Sengupta, N. (2009). Compensation management. New Delhi: Excel Books.

Sullivan, T. T. (1997). Compensation: The factors affecting one company’s change from individual to team incentive.

Upadhyay, S. S. (2009). Compensation management: Rewarding performance. New Delhi: Global India Publications.