Introduction to Compensation Policy

Introduction to Compensation Policy

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It is a general practice all over that employees make comparisons between themselves and their co-workers. They perceive what they get from a job situation (outputs) in relation to what they must put into it (inputs). They also compare their output-input ratio with the output-input ratio of their fellow-workers.
If a person’s ration and that of others are perceived to be equal a state of equity is said to exist. If they are unequal, an inequity exists i.e., the individual considers himself as ‘under-rewarded’ or ‘over-rewarded’ when an employee envisions an equity, he may choose any one or more of five alternatives:
(i) distort either his own or other inputs or outputs;
(ii) behave in the same way as to induce others to his own inputs or outputs;
(iii) behave in some way as to change his own inputs or outputs;
(iv) choose a different comparison referent; and
(v) leave the job.
Equity approach recognises that individuals are concerned not only with the absolute amount of money they are paid for their efforts but also with the relationship of this amount to what others are paid.
They make a judgement as to the relationship between their inputs and outputs with those of the others. Based on one’s inputs such as effort, education and competence – one compares outputs – such as salary levels, raises and other factors.
When people perceive an imbalance in their input-output ratio relative to others tension is created. It may result in lower productivity, more absenteeism, etc. This tension provides the basis for motivation, as one strives for what he perceives as equity and fairness.
To get relief, the employee may decrease his inputs while holding his output constant, or increase his outputs while holding inputs constant – possibly resulting in fighting the system, increased absenteeism, or other undesirable behaviours.