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. 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, capitalist expects interest and organizer i. e. entrepreneur expects profits. Similarly the labour expects wages from the process. An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed. * It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable. * Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system. The system should be simple and flexible so that every employee would be able to compute his own compensation receivable. * It should be easy to implement, should not result in exploitation of workers. * It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. * Such system would help management in complying with the various labor acts. * Such system should also solve disputes between the employee union and management. The system should follow the management principle of equal pay. * It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel. * Sound Compensation/Reward System brings peace in the relationship of employer and employees. * It aims at creating a healthy competition among them and encourages employees to work hard and efficiently. * The system provides growth and advancement opportunities to the deserving employees. * The perfect compensation system provides platform for happy and satisfied workforce.
This minimizes the labour turnover. The organization enjoys the stability. * The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job. * The business organization can think of expansion and growth if it has the support of skillful, talented and happy workforce. * The sound compensation system is hallmark of organization’s success and prosperity. The success and stability of organization is measured with pay-package it provides to its employees.