Remuneration is considered a key element of the employment relationship and, in addition to being the largest operating cost for many organizations, it has been recommended as a tool to improve the organization. performance and sustained competitiveness. Therefore, this article seeks to explain the concept of compensation and discuss in more detail the factors that affect employee compensation in industrial organizations. Compensation can be explained as the human resource management function that deals with any type of reward that individuals receive in exchange for performing organizational tasks, with the desired outcome of an employee attracted to the job, satisfied and motivated to do a good job. for the employer (Ivancevitch, 2004). In short, compensation is a dual input-output exchange between an employee and an employer. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essay Additionally, the American Compensation Association (1995) defines compensation as cash and non-cash compensation provided by an employer for services rendered. These could be financial rewards, meaning any monetary reward beyond the base salary. These rewards are separate and not in addition to base salary. Examples include financial incentives, bonuses and recognition. Additionally, compensation can be described as direct and indirect compensation received by employees of an organization that serves to achieve employee satisfaction and retention as well as improve performance (Belcher, 1997). On the one hand, direct remuneration includes salaries, wages, bonuses or commissions. Indirect compensation, on the other hand, includes incentives, medical benefits, housing allowances, annual leave allowances and training opportunities. According to Henderson (2003), the level of remuneration depends largely on organizational performance as well as operational policies and strategies. Dessler (2005) suggests that factors that affect an organization's compensation are determined by its ability to pay, employee productivity, labor laws and regulations, job requirements, reward systems and strategies, labor unions and organizational structure. These factors are discussed as follows: The ability of businesses to pay. According to Dessler (2005), remuneration can be divided into several parts. One way to do this division is to divide it into three parts, namely fixed compensation, flexible compensation, and fringe benefits (Beard, 1986). Another way could be to divide compensation into two parts, performance-based compensation and non-performance-based compensation. When analyzing the first classification, fixed compensation is the compensation paid to employees as their salaries, such as promotions, merit increases, and cost of living, increase. These fall under fixed remuneration because they all form part of the employee's basic salary after its effect. Second, flexible compensation is made up of two elements in itself, variable compensation and deferred income. Variable pay refers to commissions, bonuses, earnings sharing and goal-based pay; where the amount of remuneration is variable or its distribution is not certain, which is generally paid to sellers. Deferred income are long-term compensation programs of the organization, e.g. profit sharing, savings planscorporate, employee shareholding, etc. Finally, we have benefits, which include things like vacation, sick leave, company car, company housing, severance, medical insurance, retirement benefits, etc. (Dessler, 2005). Employee Productivity Organizations that tie compensation to individual performance are more likely to attract individualistic types of employees, while organizations that rely more on team rewards are more likely to attract more employees. team oriented. Different compensation systems have been found to attract different people based on their personality traits and values ​​(Judge and Bretz, 1992). The implication is that the design of compensation programs must be carefully coordinated with business and human resources strategy. The mechanism for recognizing employee contributions differs for new and existing employees. The contributions of new employees are recognized by varying the level of their starting salary. New employees are generally paid the minimum rate unless their qualifications exceed the minimum qualifications for the job. Those who exceed the minimum qualifications are paid more because they can make a greater contribution, at least initially. Contributions of existing employees are generally recognized in the form of salary increases, usually granted on the basis of seniority and performance (Henderson, 2003). Additionally, labor market conditions or forces of supply and demand operate at national, regional and local levels. and determine the structure and level of organizational salaries. If the demand for certain skills is high and the supply is low, this results in an increase in the price to pay for these skills. When prolonged and severe, these labor market pressures likely force most organizations to reclassify hard-to-fill jobs to a higher level than suggested by the job evaluation. The other alternative is to pay higher wages if the labor supply is scarce; and lower wages when they are excessive. Likewise, if there is a high demand for professional skills, wages rise; but if the demand for skilled labor is minimal, wages will be relatively low. The criterion of matching supply and demand is very closely linked to the concepts of prevailing wage, comparable wage and permanent wage since; in essence, all of these compensation standards are determined by immediate market forces and factors (Judge and Bretz, 1992). However, skill-based pay also poses some risks in the area of ​​higher employee compensation that are not offset by the productivity of the organization. Additionally, the employee may become rusty if he or she does not have the opportunity to use all the skills learned; and when an employee reaches the top of the salary structure, they may become frustrated and leave the company simply because they no longer have the opportunity to receive a salary increase (Noe et. al., 2006). Laws and RegulationsWorkers' compensation (WC) laws generally vary from state to state. An important implication is that the legal minimum wage may actually lead to an increase in employment, because it forces monopsony employers to increase their wage rates and thus fill vacant positions. Other work has highlighted the extent to which many labor markets may be subject to "dynamic monopsony, due to the difficulties faced byworkers to obtain accurate information about alternative jobs and the costs of leaving one job and starting another (Stewart, 2001). Regardless of the effects of legislation on wages in general, compensation continues to be influenced by several factors that produce important trends in worker compensation. One such trend is to align salaries with organizational goals. Others include tailoring compensation to employee needs; better pay and pay equity (Fisk 2001).Job requirementsFactors or criteria that influence wages and pay increases include profit (but generally unrelated to individual or collective performance), job evaluation , seniority, cost of living, labor shortage or surplus, negotiating strength of the parties and skills. Performance measures such as productivity or profit linked to a group's performance were given less importance in determining salary increases. Although skills are reflected in pay gaps, pay systems have rarely been designed to encourage the acquisition and application of skills (Droar, 2006). Modern organizations are making very significant changes in their compensation systems to better adapt to the dynamic and highly competitive business environment. Companies are increasingly using things like skill-based pay, which pays employees based on the number and type of skills they have rather than the type of job they have. . Similarly, there is a strong trend towards at-risk pay, where employee pay is tied to performance. In this system, the employee's bonus is not part of his basic salary. Instead, the premium must be earned back each year. These and other changes are intended to help offset compensation costs with productivity gains and develop a more flexible workforce (Kleiman, 2000). To achieve internal consistency, a company's employees must believe that all jobs are paid fairly. In other words, they need to be sure that the company's compensation rates reflect the overall importance of each person's work to the success of the organization. Since some jobs offer more opportunities than others to contribute, those in those jobs should receive higher pay. For pay rates to be internally consistent, an organization must first determine the overall importance or value of each job. The value of a job is generally assessed through a systematic process called job evaluation. Typically, the evaluation is based on informed judgments regarding such things as the amount of skill and effort required to perform the job, the difficulty of the job, and the level of responsibility assumed by the job holder (Mathis and John , 2006). A company achieves external competitiveness when employees perceive that their salary is fair compared to what their counterparts in other organizations earn. To become externally competitive, organizations must first know what other employers are paying and then make a decision about how competitive they want to achieve. They then establish pay rates consistent with this decision. The company begins by carrying out or acquiring a salary survey. This survey provides information on the pay rates offered by a company's competitors for certain benchmark jobs i. Thus, the jobs performedsimilarly across all companies can serve as a basis for meaningful comparisons. Some companies gather this information from existing surveys already conducted by others, such as those produced by the Bureau of Labor Statistics (Milkovich and Jerry, 2005). A growing number of organizations are attempting to tie pay to performance, through programs such as variable pay or incentive pay, where a percentage increase in pay is contingent on the employee achieving goals. predetermined measurables; skills-based pay, where employees are paid for the number of skills they possess; and more recently, skills-based pay, in which an employee is paid for the range, depth and types of skills and knowledge they are able to use in their job rather than for the position he occupies. The happier people are in their work, the more satisfied they are. Most of the time, job design aims to improve job satisfaction and performance, which could be achieved via job rotation and job enlargement. Other influences on job satisfaction include management style and culture, employee involvement, empowerment, and independent work position. Job satisfaction is a very important attribute that is frequently measured by organizations and the most common means of measurement is the use of rating scales where employees report their reactions to their jobs (Judge et. al., 2001). Reward StrategyAccording to Armstrong (2000), reward strategy is the policy that provides specific guidance to the organization to develop and design programs that will ensure that it rewards performance results supporting the achievement of its business objectives. Employers develop an initial compensation structure that complements the various stages of workforce planning. Workforce planning involves creating a formula for the types of job cuts, expertise and worker concentration needed to achieve company goals. Once the organization has completed its workforce planning stages, the first step is to create a competitive but achievable compensation structure. Too often, companies give little consideration to reassessing compensation to ensure it meets the future needs of the business, such as employee development, inflation, employment trends, planning succession. One of the most effective ways that compensation can positively impact employee retention is to develop an employee development plan that promises employees career opportunities within the company. Being on an upward career path should come with corresponding salary and merit increases. Additionally, performance-based bonuses motivate employees to align their individual goals with company goals. Implementing incentives such as stock options, profit sharing, and cash rewards are other ways that compensation affects retention. These forms of compensation demonstrate how employee performance is essential to the overall profitability of the organization. One-time awards are generally not as lucrative, but they provide immediate recognition, reward and compensation when company management observes an employee performing superior work. Appreciation is the key to customer loyalty.