Role of Compensation and Reward in Organization: Compensation and Reward system plays vital role in a business organization.

Since, among four Ms, i.e Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Land, Labor, Capital and Organization are four major factors of production. Every factor contributes to the process of production/business. It expects return from the business process such as Rent is the return expected by the Landlord. similarly Capitalist expects Interest and Organizers i.e Entrepreneur expects profits. The labour expects wages from the process. It is evident that other factors are in-human factors and as such labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labour therefore expects to have fair share in the business/production process. To any successful organizations a solid compensation system is critical. In order to attract qualified applicants to an organization and retain them, one must first provide mechanisms. Compensation plays a very important role in attracting the best talent in the organization as well as retaining them for a long time. It thus helps in creating a solid human resource responsibility in the organization which enhances the productivity, efficiency as well overall quality in the organization. A sound human resource infrastructure with the appropriate set of employees possessing the proper set of skills for the right job is critical to the success of any organization, which is perfectly achieved via a suitable compensation plan. Further, in order to avoid high attrition levels, compensation plays a key role in retaining the top talent in the organization. To maintain high standards of productivity and service, the organization must motivate employees. A suitable compensation, incentives and rewards program is the key motivator in any organization today. In order to motivate employees and boost their morale to achieve desired performance levels and goals, compensation plays a key role as in order to achieve more incentives and compensation, employees raise their performance levels. In the absence of compensation plans, employees will not be motivated to perform efficiently and will always look for changing the current organization. Organizations should reward employees for their specific contributions to the achievement of organizational goals and objectives. In todays dynamic business environment where innovation end efficiency is the key, compensation is a crucial tool to reward the best performing employees for their important role in success of the organization..

T o implement change, changes are always resisted by employees, But a suitable compensation plan reduces the task of the organization to bring about desired changes among the employees with respect to new improved changes such as those related to technology, new processes such as Total Quality Management (TQM). However, a conservative companys approach allows the overall strategic goals to push forward any business plan which is well developed and maps out where the organization want to go and how it will work toward its goal for the next one or two years is absolutely necessary. In doing so, to maintain both strategic and financial goals the companys compensation plan must be well structured to support those goals. Analyze the impact of compensation decisions on external and internal stakeholders, including the effectiveness of managers and employees. Compensation decisions have a very major impact on the external stakeholders of the company, such as the investors, and creditors. Since compensation related costs such as salary and bonuses constitutes a significant portion of the total expenditure of the company; compensation decisions can significantly alter the bottom line profits of the company and are thus closely reviewed and watched by investors and other external stakeholders. For example, rising salary costs without an increase in top line revenues or profitability is a cause of concern for external stakeholders. Similarly, the salaries and compensation packages of directors, management and other key employees also affect the outlook of the external stakeholders towards the company and affect their decision making. As mentioned previously, compensation plans lays a crucial role in the development and retention of the most critical assets of the organization, i.e., human resources. Therefore, compensation is a critical factor in terms of driving the organization and its employees towards the achievement of strategic goals and objectives. Thus, all the internal stakeholders, be it top and middle managers or employees at other levels, are directly affected by the compensation decisions. Managers and employees at all levels, irrespective of their level or position in the organization, are by compensation plans at his or level of efficiency, productivity and loyalty towards the organization is directly affected the compensation policies of the organization. Compensation acts as the key driver in motivating the employees and managers and enhancing their performance. Adverse compensation related decision could prove detrimental for the organizations and can result in high attrition levels and lack of productivity.

Advantages of Fair Compensation System: Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following: 1. If an ideal compensation system is designed, it will have positive impact on the efficiency and results produced by workmen. 2. Such system will encourage the normal worker to perform better and achieve the standards fixed. 3. this system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will have transparency, and the standards fixing would be more realistic and achievable. 4. Such a system would be well defined and uniform. It will be apply to all the levels of the organization as a general system. 5. The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable. 6. Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers. 7. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. 8. Such system would help management in complying with the various labor acts. 9. Such system would also bring about amicable settlement of disputes between the workmen union and management. 10. The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to excel.