Compensation Management

Compensation Management
COMPENSATION MANAGEMENT
a. 1

Compensation Management
Question 1
A: Explain clearly the concepts of:
Compensation  Compensation is defined as an award, monetary or non-monetary, that is
offered to an employee by a company in exchange of the services that they provide to the
business.
Compensation Management  Compensation management is a core function of human
resource management department that allows human resource managers to design compensation
and benefit plans for their employees on the basis of various conditions (Sharp, 2016).
Merges  in layman language, merges are defined as a process of joining or combining two or
more things together. In the business world, merger is a strategic move taken up by two
companies to come together and form a new company in order to become more efficient and
effective in the market.
Down Sizing  downsizing is another strategic move that is implemented by business
organizations to reduce the size of their workforce in order to increase profitability and become
more efficient. In most cases, downsizing is implemented when there is a redundant workforce
available in the workplace (Watson, 2019).
Define and explain the following incentive plans:
The Scanlon Plan  A Scanlon plan is an incentive plan in which employees are given
incentives in the form of a share in pre-established cost savings. The share that the employees
hold in the cost savings is dependent on the efforts that they put in towards the achievement of
organizational goals and objectives. The value of cost saving is obtained by subtracting the
actual labor cost per unit of output from the standard labor cost per unit of output. The obtained
value is then equally divided amongst the workers and the organisation.
Rucker Plan  Rucker plan is another incentive plan that is based on the idea of gainsharing.
Under this plan, a company tried to minimize the production cost of its products or services by
getting input from the employees (Madan, 2014). The cost savings resulting because of the input
a. 2

Compensation Management
from the employees is considered to be profitability and is shared with the workforce as an
incentive or a bonus.
Improshare Plan  in this incentive plan, gainsharing is done on the basis of time as a
resource. Under this plan, business organizations calculate the standard hours required to
produce a unit of a product or a service and a bonus is given to the employees if they are able to
produce a unit of a product or a service in lesser time than the standard hours (Bernal, 2013).
Question 2.
What would you say are the differences between short-term and long-term incentives?
An incentive is defined as a monetary gift that an employer gives to an employee. Incentives are
generally offered to employees on the basis of the performance levels that they are able to
demonstrate within an assessment year. Designing long term and short-term incentives are an
important part of human resource management. In general, short term incentives and long-term
incentives differ on the grounds of time period. Short term incentives are offered on performance
assessed for a year while long term incentive plans are associated with performance levels
assessed for over a year.
Short term incentives can be in the form of an annual increase in the salary of an employee while
a long-term incentive can offer a certain degree of equity in the business to an employee. Short
term incentives are offered to employees working at a lower level whereas long term incentives
are offered to employees that are working at a higher level in the organizational hierarchy.
Offering long term incentives to higher level employees becomes important as they have higher
sets of needs and can only be retained in an organisation if they are adequately compensation for
the time that they have invested in the organisation (Mercer, 2015). Further, long term incentives
involve a greater cost factor as compared to short term incentives because short term incentives
are offered to almost all employees of an organisation whereas long term incentives are offered
to only a selected few employees.
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