Definition and Concept of Compensation Structure

Definition and Concept of Compensation Structure

As it has been discussed in the earlier chapters that compensation is the act of compensating or the state of being compensated or something, such as money, given or received as payment or reparation, as for a service or loss.

What is Compensation Structure?Image result for Compensation Structure

A Histogram of what people earn.Although money isn’t everything, it certainly is one of the top issues potential employees look at when interviewing new companies. (Yes, face it, they are interviewing YOU.) Whether you’re offering a straight basic salary structure or an incentive-based pay structure may make or break you in the eyes of top job candidates. Compensation structure consists of the various salary grades and their different levels of single jobs or groups of jobs.
The term wage structure’ is used to describe wage/salary relationships’ within a particular grouping. The grouping can be according to occupation, or organization, such as wage structure of craftsman (carpenters, mechanics, bricklayers, etc.)
The wage structure or ‘grade’ is comprised of jobs of approximately equal difficulty or importance as determined by’ job evaluation. If the ‘point’ method of job evaluation is used, the ‘pay-grade’ consists .of jobs falling within a range of points.
If the ‘factor comparison’ plan is used, the grade consists of a range of evaluated wage rates (or points, if the wage rates are converted to points). If the ‘ranking’ plan is used, the grade consists of a specific number of ranks. If ‘classification’ system is used, the jobs are already categorized into ‘class’ or ‘grades.
So the term Compensation structure means the pattern or the break up of the salary paid to the employees in their respective organization.
Please remember that while determining the compensation structure of employees, it is not only the mathematics but other subjects such as biology and psychology play a major role in compensation determination.
Biology, the increase in size or activity of one part of an organism or organ that makes up for the loss or dysfunction of another. Psychology, behavior that develops either consciously or unconsciously to offset a real or imagined deficiency, as in personality or physical ability.
Hence we can realize that compensation management is an integral part of the labor market characteristics in order to attract capable employees by respective organizations.