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What is Compensation Management? - Definition & Components

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  • 0:00 A Look at Compensation…
  • 0:32 Compensation…
  • 1:26 Components of…
  • 3:35 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting
In this lesson, we'll learn about compensation management. We'll define the term and walk through the various components. When the lesson concludes, there will be a quiz to test your knowledge.

A Look at Compensation Management

Your oldest daughter has just informed you that her class is inviting parents to talk about their jobs at career day. You agree to visit your daughter's class and talk about your business. After you have finished, you open it up for questions. It is at this time that a student asks about paying your employees. Specifically, they want to know how you decide how much to pay your employees and why. You see, what the student is essentially asking about, is compensation management, which we will learn about in this lesson.

Compensation Management Defined

So you may be wondering, what exactly is meant by the term 'compensation management?' Well, as you know, employees get paid for the work they do, and companies have a process or procedure they use when deciding the terms of the compensation. Thus, compensation management is the act of distributing some type of monetary value to an employee for their work by means of the company's policy or procedures. In basic terms, it is paying an employee based upon the decided pay and benefit package for the position. The goal of compensation management is to find quality people who perform quality work and then compensate them in order to retain them and reduce turnover rates. Some different types of compensation include salary, overtime pay, commission, bonuses, and benefits packages that might include health and dental insurance, vacation time, and retirement savings.

Components of Compensation Management

While we know what compensation management is, we have yet to learn the components that often make up this process. In this section, we'll look at some considerations a company makes in order to have a compensation process that helps keep quality employees.

Key Considerations

  1. Find and keep quality employees
  2. Improve employee happiness and work environment
  3. Reduce turnover rates
  4. Motivate and reward for a job well done

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