15 Factors Determining the Amount of Compensation

Some factors or criteria can determine the amount of compensation. These criteria can affect the rewards or compensation policy and method also. For these reasons human resource managers should be careful while determining the compensation, Let’s know those factors determining the amount of compensation:

Factors determining the amount of compensation

1. Collective bargaining: Process of gaining benefits from the employers. The strength of CBAs can ensure a higher scale on the other hand weakness cannot earn a higher scale.

2. Company ability to pay: If the ability of the company is high compensation scale can also be high otherwise low.

3. The labor market: If the supply of labor in the market is more pay scale may be less otherwise it may be high.

4. The relative worth of the job: lithe worth of the job is relatively high pay scale may also be high otherwise employees are bound to take the low salary.

5. Cost of living: High cost of living can create pressure on management for higher pay for the employees.

6. Legislation: Govt. pay commission can suggest for increased pay scale. Before that employees are bound to old-scale pay.

7. State of competition: It can also affect the amount of competition. High competition can increase the rate of pay, low competition cannot do so.

Factors Determining the Amount of Compensation
Factors Determining the Amount of Compensation

8. Comparative wages: The pay scale of an organization depends on the comparative wages of other organizations in case of a similar type of activity, methods of operation, and other issues.

9. Ability to produce: If the ability of the employees (skills and efficiency) is high they may get a higher salary otherwise they cannot insist on a higher scale.

10. Nature of work: Risky work can earn higher pay and simple work cannot attract higher pay.

11. Individual need: If the employees have more individual needs usually they deserve more pay and may get special consideration.

12. Working time: The employee who invests in higher time for the company activities may convince the employers to grant higher pay.

13. Facilities obtained from the job: If the real income from the job is high the employees may or may not be allowed higher pay.

14. The scope of additional income: The scope of additional income may help the employees to earn more value of work from the organization.

15. Other factors: In addition to these points, some other factors can also affect the amount of compensation. Among these following points can tax mentioned.

  • National income level,
  • Distribution of income
  • Industrial position in the economy
  • Favorable work
  • The purchasing power of money
  • Inter-industry wages
  • Rate of turnover abroad

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