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Home » HR Processes » Compensation and Benefits » Compensation Strategy and Compensation Policies » Compensation Components Ownership

Compensation Components Ownership

The compensation strategy and compensation policy includes several compensation components and the ownership and the responsibilities have to be defined for them. The compensation components should not have just one owner; the components should be distributed to all the business leaders, as they need a financial tool to motivate their employees. The HRM Function tends to centralize the compensation components ownership to one place, but this approach can work just for a limited period of time and then it fails and hurts the business.

The top management of the organization has to make a clear decision about the components included in the compensation strategy and compensation policy. The compensation policy has to define the roles and responsibilities of different departments and the general rules applied to each compensation component in the organization.

The most typical components of the compensation policy are:

• Base salary
• Bonuses
• Incentives
• Benefits

The base salary is clearly in the ownership of the top management of the organization and the HRM Function. The role of the base salary is to attract and retain the talents from the market to work for the organization. The base salary is very sensitive and the line management would love to make the base salary as high as possible. The top management is a clear owner of the base salary and the HRM Function is the process owner of the base salary policy to make sure, the organization stays competitive on the job market and the costs are under the control.

Bonuses are clearly different story from the point of the ownership. The HRM Function should define the basic rules for the bonuses in the organization and the line management should have the right to define additional rules for the calculation and desired behavior of employees to pay the bonuses. The bonuses are the most important component of the motivation of employees in many units. Bonuses are very important topic to the line management as the line management can provide very direct feedback to employees with the bonus release.

The Incentives are the part of the compensation policy, which should be fully in the responsibility of the line management. The HRM Function should define basic playground for the general rules about the incentive scheme in the organization and the line management should have a full freedom to play the game, as they want to play it. The incentives helps to get the targets immediatelly and the targets can change quickly. The incentives have to be fully in the hands of the line management to support them in the effort to reach the efficient organization.

The benefits have the retention role in the compensation strategy. The benefits should be fully driven by the HRM Function and the line management should provide their own products and services as the benefits to the employees of the organization.

The compensation components ownership is a very difficult topic for the top management to solve, but the clear decision about the ownership is needed as the organization needs a clear guidance for the changes and decisions.