Total compensation system refers to everything that an organization provides its employees with in exchange for their services (Milkovich, 2014). The package includes basic salary, bonuses, on-site amenities, and benefits. When an employ gets total compensation, it means they are making three-fold their basic salary.
Total compensation plays an important role as far as aligning employee behavior to the organizations missions, and vision is concerned. The significant contributors to the success of an organization, including the four Ms i.e., money, machine, material, and man, have existed since the beginning of the industrial age (Milkovich, 2014). While they have almost equal importance, man scores substantially higher on the importance index. In essence, an organization would not be able to achieve its objective without the involvement of man. Even so, sometimes a man can have attributes that only serve to derail the pace at which an organization realizes success. Such attributes include lateness, drug abuse, alcoholism, incompetence, unsafe actions, absenteeism, and poor training (McCaffery, 2009). As such, a business must ensure it sets efficient employment practices if sustenance of long-term and short-term goals is anything to come by. This can only be achieved when the particular organization ensures that the attributing factor is set right on productivity path. It is apparent that getting the right employee in the right position can get rid of ineffective business management.
It is imperative to note that certain human elements including expectations, human emotions, egos, and ambitions are substantial contributors to the success of an organization. As a result, a total compensation system is created in businesses with the aim of making the most of the human resource which is the most important element in the four Ms. Total compensation, as earlier noted, attributes to forms of pay giving to employees as a reward for their performance in the organization. Announcing the total compensation to workers is paramount. The primary aim of acknowledging and announcing the total compensation is to ensure that the significance of what the organization is bringing forth as compensation is succinct to the employees. This will, in turn, serve to attract and retain talents in the workforce. The conventional form of compensation is monetary rewards either directly or indirectly. Direct compensations include wages, incentives, commissions, and stock options (McCaffery, 2009). Indirect compensate may include various programs that seek to protect the income of the employees like a pension plan, employee insurance, and worker compensation. Even though indirect benefits may be costly to the employee, the employee needs to disclose and recognize their value when discussing the total compensation.
When crafting a total compensation plan for employees, HR professionals need to appreciate the essentials of the plan while having the objectives of the business in mind. In this regard, different elements can be considered when designing the compensation plan and outlining the rules and procedures. The elements include competitive compensation rates within the industry, a system to measure payroll costs, an established criterion resulting in pay hike, and unbiased compensation. Total compensation systems can help in attracting and retaining employees. As well, it serves the duty of motivating the workforce and sustaining high morale. Above all, total compensation aims at facilitating an employees personal growth. While some organizations simply do it to meet the legal requirement, it is the primary role of the total compensation system.
Milkovich, G. (2014). Compensation. New York: McGraw Hill
McCaffery, H. (2009). Employee Benefits Program. Boston: PWS-Kent Pub.Co.
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