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Introduction
Compensation in the organization takes a large share of costs in an organization. The compensation should be addressed from a strategic level since it constitutes the most important expense for any organization. In the long term, the organizational productivity and performance is influenced by the compensation system, and whether the system is effectively used. An adequate compensation in an organization can turn the unproductive employees and change the productivity in the organization. When the management uses the compensation as the subject of the performance, it facilitates into bringing out the best performance from the contribution of the employees (Brown et al.). The process of compensation in an organization based on the employee’s performance helps to increase the employee performance and motivate teamwork in the organization. The type of compensation differs with the type of organization, and the expected results against the individual employee’s contribution.
The competitive organizations have compensation plans and systems and plans which are either written or not written that meet the organizational requirements. The compensation system enables organizations to achieve different goals such as attracting high quality employees, to retain the hardworking employees, or to motivate employees. All these are done to enable the employees add effort to achieve the organizational goals. Compensation plans differ with the goals and the size of the organization (Melanie and Media). The compensation system is comprised of various pay plans such as the base pay program, the rates of pay for jobs, the rates and increases, and appraisals on employee performance.
Forms of compensation
Compensation allows the process of rewarding the employees of an organization for the services rendered. Quality