Running head: MANAGING COMPENSATION 1Managing Employee Compensation PaperTotal CompensationHRM/324MANAGING COMPENSATION 2Managing Compensation IntroductionCompensation and benefits plans are very beneficial to employees. Organizations have the responsibility of ensuring that they have compensation system that are effective and are within the budgetary cost. Having an effective compensation system in place will help to retain and attract employees as well as plays a role of motivating employees to continue to stay with the organization. Some of the compensation system includes benefits dealing with health care, retirement, and performance awards. This paper will discuss how organizations manage compensation cost without compromising the goals of an effective compensation system.Managing Employee Compensation Benefits CostsCompensation Management is an integral part of an organization. Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Managing compensation involves managing business needs, goals, and available resources. Compensation Management contributes to the overall success of an organization. Effective managers value of competitive pay, human resources, and have an investment view of payroll costs. Companies need to maintain pay levels that attract quality employees and also manage payroll costs.Organizations overall compensation goal is to attract, motivate, and retain good employees. Companies want to increase moral and productivity by having an effective compensation plan. A standard base pay program offers fixed salary ranges; therefore companiesset up minimum and maximum pay levels based on experience and skills. An organization needs to know where they fall within their industry regarding competitive salaries. Once a companyMANAGING COMPENSATION 3has established a base pay structure, then a merit pay program is usually set in place that rewardsemployees based on performance. If companies do not set up their pay levels to be competitive they risk losing employees. Cost Managing an Effective Compensation SystemIt is important for a company to manage compensation costs without compromising the goals of an effective compensation system.1 The goals of an effective compensation system includes attracting employees, retaining employees, and1motivating employees while staying compliant with pay laws1and keeping the expense of offering the compensation low.1 Compensation costs have risen sharply in recent years, primarily because of escalating benefit costs. Employers now spend more than $1 trillion on employee benefits. In 2003 the Society for Human Resource Management reported that benefit costs averaged 39 percent of total payroll in 2001, up from 37.5 percent in 2000. This means that, on average, employers provide about $18,000 in benefits to each employee annually. The biggest cost increases have been in health benefits, which have been rising at an average of 12 percent annually for the past several years ("Employee compensation", 2012, p. 3).These costs can be managed by proper financial planning.1 Planning should includeproper management of labor costs and controlling employment; which encompasses staffing levels and hours worked. The ability for a company to find the balance between managing compensation costs and effective compensation systems will help the company reach their strategic goals.MANAGING COMPENSATION 4MANAGING COMPENSATION 5ConclusionIn conclusion, a organizations compensation plan is an important tool in obtaining, and maintaining the human resources to which success is generated. Therefore, it must be a well thought out plan, which meets the needs of the intended caliper of employees that the business desires to draw. However, there must be a balance between the benefits of the plan and the cost of the plan. A plan that is cost effective but lacks desirable benefits is to no advantage of the company. Likewise, a plan that is full of luster, but is not cost effective may not be easily maintained by the company; which can do more harm than good. The company may find themselves having to make changes to the plan down the line, and this could result in the loss of valuable employees. The reason being is that many employee’s hold good benefits in just as much regard if not more, than actual salary, when deciding on a job. If an organization takes the time to develop a plan that posses both good benefits, and is cost effective; then they are well on the way to achieving the success that comes with having a good work force.MANAGING COMPENSATION 6ReferenceEmployee compensation. (2012). Retrieved from