Compensation Management

Also termed as Salary and Wage administration (W&S Administration)

Employee compensation is the reward paid to the employee for his/her services
to the organisation.
Besides determining salary levels, the other obligations of W&S administration
are
• To design and maintain salary structure
• To operate salary progression systems
• To administer and control salary reviews
To design and operate other allowances

Functions of Compensation Management

• To recommend to top management the wage policies for the
administration of a wage programme
• To recommend changes in the wage policies as and when required
• To design and maintain salary structure
• To design and operate other allowances
• To operate salary progression systems department-wise and remove
anomalies if there is any
• To review W&S scheme
• To ensure that activities of W&S administration are in line with the
company policies
• To ensure proper system of job description, job evaluation, job pricing and
wage structure
• To maintain internal and external relativities and individual worth in salary
levels
• To recommend to top management for its approval specific pay raises for
executives above a specified limit

Components of Employee Compensation

• Basic
• Allowances
• Incentives
• Welfare and benefits
CM Policy at the Organisational Level
Important factors affecting wage policy at organisational level are as follows:
• Internal and external equity
• Productivity
• Cost of living
• Pay vis-à-vis performance
• National wage policy
• Statutory obligations
• Labour market conditions (Demand and supply)
• Collective bargaining

Case Study: Compensation Management at General Electric (GE)

Background: General Electric (GE) is a multinational corporation that operates
across various industries such as aviation, healthcare, power, and renewable
energy. Given its global operations, GE’s compensation management system
plays a crucial role in ensuring internal and external equity, incentivizing
performance, and adhering to national wage policies across different regions.
GE’s compensation management policies focus on aligning employee rewards
with organizational goals while maintaining fairness across all levels. The
company emphasizes a structured and transparent salary administration process
to ensure employee motivation and retention.
Compensation Management at GE
1. Salary Structure and Progression Systems: GE has implemented a
well-defined salary structure that takes into account both internal and
external relativities. Each job is carefully evaluated and priced through job
evaluation techniques to ensure that employees are paid according to
their individual worth and the value of the job within the company.
GE's salary progression systems are based on performance reviews, which
ensure that employees demonstrating high productivity and excellence are
rewarded. Annual salary reviews are conducted to make adjustments based on
both individual performance and market trends.
2. Allowances and Incentives: GE offers a comprehensive set of
allowances and incentives. These include:
o Basic Salary: The core of the employee's compensation package.
 o Performance-Based Incentives: GE places a strong emphasis on
linking pay with performance. Top-performing employees are
eligible for bonuses and other performance-linked incentives.
o Allowances: GE offers housing, travel, and medical allowances,
among others, which vary depending on the employee’s location
and job level.
o Welfare and Benefits: The company provides retirement benefits,
health insurance, and other welfare programs to enhance employee
satisfaction and well-being.
3. Internal and External Equity: GE ensures internal equity by
maintaining consistent pay structures across its different departments and
roles, based on the results of its job evaluation processes. At the same
time, it also considers external equity, benchmarking its salary
structures against competitors to remain attractive in the labor market.
4. Compliance with Legal and Statutory Obligations: GE is diligent
about complying with local wage policies and statutory obligations, such
as minimum wage requirements and labor laws. This ensures that its
compensation system remains legally compliant across various regions,
while also maintaining flexibility to adjust to national wage policies and
economic conditions.
5. Cost of Living Adjustments: To manage differences in the cost of
living across various locations where GE operates, the company uses
salary scales that account for geographic variations. Employees in higher-
cost locations are compensated accordingly to reflect the local living
conditions.
6. Collective Bargaining and Wage Policies: GE has a strong history of
working with labor unions to determine fair wage policies. Collective
bargaining agreements are negotiated to ensure that employee
compensation remains competitive and equitable, while also aligning with
organizational goals for profitability and sustainability.
Analysis
1. Designing and Maintaining Salary Structures: GE’s compensation
management system ensures a well-structured salary administration
process that accounts for both internal and external factors, such as labor market
conditions and individual job worth. By doing so, GE maintains fairness in its
salary distribution, preventing salary discrepancies and ensuring employees feel
valued for their contributions.
2. Performance-Based Pay and Motivation: The emphasis on performance-
linked incentives and regular salary reviews at GE plays a crucial role in
employee motivation. By clearly linking pay progression to individual
performance, the company incentivizes employees to achieve higher levels of
productivity and innovation. This also fosters a pay-for-performance culture
where employees are rewarded based on merit, reducing the risk of
underperformance.
3. Balancing Cost of Living and Productivity: GE’s practice of adjusting
salaries based on the cost of living in different regions ensures that its
compensation policies are competitive and fair. This approach allows the
company to attract and retain talent globally while keeping operational costs
under control.
4. Compliance and Strategic Alignment: The company's adherence to
statutory obligations and national wage policies allows GE to maintain its
reputation as a fair and legally compliant employer. By staying informed about
local laws and regulations, the company mitigates the risk of legal disputes or
penalties. This, in turn, supports the company’s broader strategic goals of
maintaining a positive public image and enhancing employee trust.
5. Equity in Compensation: GE's focus on maintaining internal and external
equity ensures that employees feel that their compensation is fair both within
the organization and compared to industry standards. This approach helps
reduce turnover and increase loyalty, as employees are less likely to leave if they
believe they are compensated fairly.
Conclusion:
The compensation management system at GE is a model of how organizations
can balance multiple factors such as performance, equity, legal compliance, and
market competitiveness. By aligning compensation policies with corporate goals
and legal requirements, GE not only motivates employees but also ensures that
it remains competitive in the global market. The integration of wage policies,
salary progression systems, and collective bargaining agreements further
strengthens its approach, making GE a leader in strategic compensation
management.