Payment is seen as a key element of the employment relationship and, in addition to representing the main operating cost for many organizations, it has been considered a tool for improving the organization performance and lasting competitiveness. Therefore, this article attempts to explain the concept of compensation and further discuss the factors that influence 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 perform good job for the employer (Ivancevich, 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 Shouldn't Be Banned"? Get 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 which refers to any monetary reward that is above and beyond base pay. These bonuses are separate from and not added to the base salary. Examples of these include financial incentives, bonuses and recognition. Furthermore, compensation can be described as direct and indirect compensation received by an organization's employees that serves to achieve employee satisfaction and loyalty, as well as improve performance (Belcher, 1997). On the one hand, direct compensation includes salaries, wages, bonuses or commissions. Indirect compensation includes incentives, medical benefits, housing allowances, annual leave allowances and training opportunities. According to Henderson (2003), the level of compensation largely depends on organizational performance as well as operational policies and strategies. Dessler, (2005), suggested that the factors that influence an organization's pay are determined by its ability to pay, employee productivity, labor laws and regulations, job requirements, systems and strategies reward, by the unions and by the organizational structure. These factors are discussed as follows: Ability to pay of firms According to Dessler (2005), compensation can be divided into various parts. One way to make this division is to divide it into three parts: fixed pay, flexible pay and benefits (Beard, 1986). Another way would be to divide pay into two parts, performance-based pay and non-performance-based pay. Analyzing the first classification, fixed pay is the compensation given to employees as their salaries, such as promotions, merit increases and cost of living increases. These fall under the fixed salary because they all become part of the employee's basic salary after it takes effect. Secondly, flexible pay itself is made up of two components, variable pay and deferred income. Variable pay refers to commissions, bonuses, gain sharing, and goal-based pay; where the amount of compensation is variable or its distribution is not certain, which is usually given to salespeople. Deferred income is a long-term corporate compensation system, such as profit sharing, corporate savings plans, employee stock ownership, etc. Finally we have benefits, which include things like vacation, sick leave, company car, housecompany, severance pay, medical insurance, pension benefits etc. (Dessler, 2005). Employee Productivity Organizations that link pay to individual performance are more likely to attract individualistic employee types, while organizations that rely more on team rewards are more likely to attract more team-oriented employees. Different compensation systems have been found to attract different people depending on their personality traits and values ​​(Judge & 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 is different for new and existing employees. The contributions made by new employees are recognized by varying the level of the initial salary they receive. New employees are usually paid at the minimum rate unless their qualifications exceed the job's minimum qualifications. Those who pass the minimum qualifications are paid more because they can make a greater contribution, at least initially. Contributions from existing employees are usually recognized in the form of salary increases, generally granted on the basis of seniority and performance (Henderson, 2003). Furthermore, labor market conditions or supply and demand forces operate at the national, regional and local levels, and determine the organizational wage structure and level. If demand for certain skills is high and supply is low, the result is an increase in the price you pay for those skills. When prolonged and more acute, these labor market pressures likely force most organizations to reclassify hard-to-fill jobs to a higher level than the job evaluation suggests. The other alternative is to pay higher wages if labor supply is scarce; and lower wages when they are excessive. Likewise, if there is a large demand for job skills, wages rise; but if the demand for skilled labor is minimal, wages will be relatively low. Since then the supply and demand compensation criterion has been closely related to the concepts of prevailing wage, comparable wage and current wage; in essence, all of these compensation standards are determined by immediate market forces and factors (Judge & Bretz, 1992). However, skill-based pay also poses some risks in the area of ​​employees paying higher compensation that is not offset by the organization's productivity. Furthermore, the employee may become rusty unless there is an opportunity to use all the acquired skills; and when the employee reaches the top of the compensation structure, he or she may become frustrated and leave the company only because there is no further opportunity to receive a pay increase (Noe et. al., 2006). Laws and Regulations Workers' compensation (WC) laws generally vary from state to state. An important implication is that the statutory minimum wage can actually lead to increased employment, because it forces monopsonistic employers to increase their wage rates and thus fill existing vacancies. Further work has highlighted the extent to which many labor markets may be subject to "dynamic monopsony", due to the difficulties workers face in obtaining accurate information about alternative jobs and the costs incurred in leaving one job and starting another (Stewart , 2001). Regardless of the effects of legislation on wages in general, wages continueto be influenced by several factors that are producing some important trends in workers' compensation. One such trend is aligning salaries with organizational goals. Others include tailoring compensation to employee needs; better salary and pay equity (Fisk 2001). Job Requirements Factors or criteria that influence pay and salary increases include profit (but generally not related to individual or group performance), job evaluation, seniority, cost of living, shortage or surplus of manpower, negotiating strength of the parties and skills. Performance measures such as productivity or profit linked to a group's performance were less important in determining wage increases. Although skills have been reflected in pay differentials, pay systems have rarely been geared towards encouraging the acquisition and application of skills (Droar, 2006). Modern organizations are making very significant changes to their compensation systems in order to better adapt to the dynamic and highly competitive business environment. Companies are increasingly using tools like skill-based pay, which compensates employees based on the number and type of skills they have rather than the type of work they perform.Have. Likewise, there is a strong movement towards risk-based compensation, where employee pay is tied to performance. Under this system, the employee's bonus does not become part of his base salary. Instead, the bonus must be earned again each year. These changes, and numerous others, are designed to help offset compensation costs through productivity gains and to develop a more flexible workforce (Kleiman, 2000). To achieve internal consistency, a company's employees must believe that all jobs pay what they are worth. In other words, they need to be confident that company salaries reflect the overall importance of each person's work to the success of the organization. Because some jobs offer more opportunities to contribute than others, those in those jobs should receive more 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 known as job evaluation. In general, evaluation is based on informed judgments regarding such aspects as the amount of skill and effort required to perform the job, the difficulty of the job, and the amount of responsibility assumed by the job holder (Mathis & John, 2006). A company achieves external competitiveness when employees perceive that their pay is fair compared to what their colleagues earn in other organizations. To become externally competitive, organizations must first know what other employers are paying and then make a decision about how competitive they want to be. They then set pay rates consistent with this decision. The company begins by conducting or acquiring a salary survey. This survey provides information on the pay rates offered by a company's competitors for certain reference jobs i. and, jobs that are performed similarly across companies can then serve as a basis for making meaningful comparisons. Some companies collect this information from 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 trying to link pay to performance,through programs such as variable or incentive pay, in which a percentage increase in pay depends on the employee achieving pre-determined measurable objectives; skill-based pay, where employees pay for the number of skills they possess; and, more recently, skill-based pay, in which an employee is paid for the range, depth and type of skills and knowledge they are able to use in the job rather than for the position they hold. The happier people are in their jobs, the more satisfied they are said to be. In most cases, job design aims to improve job satisfaction and performance and this could be achieved through job rotation and job enlargement. Other influences on job satisfaction include management style and culture, employee engagement, empowerment, and autonomous job status. Job satisfaction is a very important attribute that is often measured by organizations and the most common way of measurement is the use of rating scales where employees report their reactions to their work (Judge et. al., 2001). Reward Strategy According to Armstrong (2000 ), reward strategy is the policy that provides specific direction to the organization to develop and design programs that will ensure it rewards performance outcomes to support the achievement of its business objectives. Employers develop an initial compensation structure that integrates the various phases of workforce planning. Workforce planning is about creating a formula for the types of worker kills, skills, and concentration needed to achieve company goals. Once the organization has completed the workforce planning stages, the next step is to create a competitive yet feasible compensation structure. Too often, companies pay little attention to reevaluating compensation to ensure that future business needs, such as employee development, inflation, employment trends, succession planning, are met. One of the most effective ways compensation can positively impact employee retention is by building an employee development plan that promises employees career path opportunities with the company. Being on an upward career path should result in corresponding increases in salary and merit. Additionally, performance-based bonuses motivate employees in terms of aligning their individual goals with company goals. Implementing incentives such as stock options, profit sharing, and spot bonuses are other ways compensation impacts retention. These forms of compensation demonstrate how critical employee performance is to the overall profitability of the organization. Timely rewards are usually not as lucrative, however they provide immediate recognition, reward and compensation when company leadership observes an employee performing superior work. Appreciation is critical to employee retention, and if compensation is part of the recognition, compensation is likely to increase. employee loyalty. Trade Unions It is increasingly recognized that institutional factors such as trade unions play a dominant role in the process of economic development, especially in the industrial sector; this awareness is more pronounced in the case of developing economies. The influence of trade unions is evident in crucial economic indicators such as employment, wage levels, standards of working conditions etc., in short, the nexus between labor organizations and.