Top Challenges of Compensation Management- In Industry 4.0


Industry 4.0 represents the fourth revolution that has occurred in manufacturing. Industry 4.0 focuses heavily on interconnectivity, automation, machine learning, and real-time data. Also referred to as IoT or smart manufacturing, Industry 4.0 connects physical production and operations with smart digital technology, machine learning, and big data to create a more holistic and better-connected ecosystem for companies of all the disciplines in the human resources field, compensation is one of the most complexes.

“Handling compensation issues requires knowledge of employment trends, the value of experience and credentials for various positions and industries, negotiation skills, company budget, and the organization’s bottom line. Economic conditions also play an important role in the compensation and benefits issues”

Addressing compensation issues can range from developing competitive wage scales to weighing the advantage of bonus and incentive payments.

Definition of Compensation

The term compensation means financial payments such as wages and salary paid to employees. Compensation also includes bonus and incentive payments, raises and company stock awarded to employees. Compensation specialists often have knowledge of both compensation and employee benefits. This is one reason why human resources departments sometimes combine compensation and benefits into one departmental function.

Human Resources Budget

It has been argued that human resources budget allocations are too low because HR is not a revenue-producing department. In theory, however, the most valuable resource a company has is its human capital. Consequently, human resources compensation specialists and HR department leaders must sometimes work within limited budget constraints. In addition, justifying budget increases requires proof of return on investment in HR department activities. You need to be able to demonstrate your ROI. If you can articulate your department’s performance in terms of company goals, it will be much more difficult for the top brass to tear into your budget.

Salary and Wage Levels

Attracting qualified applicants may depend on your company’s ability to offer extremely competitive wages. Employee benefits are important, too, but the base amount is what initially appeals to most job seekers. A company’s reputation is also a determinant in whether your company can become an employer of choice. It is likely that competitors’ employees and industry experts network with your employees to share information. Candidates want fair wages, not necessarily high wages, especially when a job offer comes with an attractive benefits package. Compensation specialists analyze competitors’ wages, labour market trends and employment levels to construct compensation policies.

Bonus and Incentive Pay

Some employers offer annual bonuses or incentive pay based on the individual employee’s performance or organizational performance, also called variable pay. “The broadest type of variable-pay incentive programs — company-wide pay-for-performance plans — reward employees on the basis of the entire corporation’s performance. The most widely used program of this kind is profit sharing.” The amount of bonuses and incentives is difficult to budget too far ahead if your company is relatively new; however, if you have an incentive program that’s structured and adhered to consistently without favoritism and bias, you can accurately project budget requests for bonuses and incentive pay.

Easy to Administer

In a job-based compensation structure, the job itself becomes the unit of determining base pay. Human resource professionals establish minimum and maximum pay amounts for each job and compensate employees based on their performance. Employee job evaluation determines employee performance. This structure is easy to administer because it focuses on allocating pay systematically and ensuring that the most important jobs are paid more.

Skill-based Pay

Skill-based systems have long been used to define jobs within the trades. Increasing skill levels are the determining factor in describing positions like an apprentice. Other examples of skill-based pay systems can be found among white-collar jobs where the company is providing a career progression based on increasing technical skill as an alternative to being promoted through various management levels.

Competency-Based Pay

The term competency-based pay describes a system where rewards are based on the use of competence without consideration for results. The premise is that individual performance depends on having relevant competencies and higher levels of competence will produce superior performance. A competency-based pay system focuses on individuals. In practice, competency-based systems are seldom used in a pure form. Competency may be one of the factors determining pay, but performance may also be a factor.

India is diverse, so are its compensation practices. Just as India is a highly diverse nation made up of multiple languages, religions, ethnic groups, and customs spread across a tremendous geographic range – so too are its compensation practices.

Double-digit fixed compensation increase continues, as overall growth moderates in India, fixed compensation increase budgets are slowing down as well. Increasingly, compensation professionals will need to reconcile between specific cases where practices might differ widely from macro trends. The performance-based compensation model is the best because it controls not only the type but also the rate at which activities are performed


Previous articleWhat Is Your Point-of-View About What’s Next for HR?
Next articleApple plans to invest Rs 1,000 crore in India
Ameet Naik, Head - HR at PSIPL (A Kalpataru Group Company). He is a seasoned HR professional with around 29 years of work experience in Human Resources spanning industries like Telecom, Retail, and Manufacturing. Ameet has played a major role in establishing and building teams in most of the Organizations he has worked in and is known to be a Start-Up Specialist. He has received the “ HR Leadership Award “ from the World HRD Congress (APAC level) in Singapore, a recipient of the prestigious “HR Warrior Award“ for excellence in HR practices & now the “100 Top HR minds“ award 2018.


Please enter your comment!
Please enter your name here