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Ensure You Know Current Laws Impact on Compensation

Update your information on the laws impact on compensation.

This can help you to formulate a compensation system based on current legal provisions.





Organizations need to pay close attention to the laws impact on compensation. Your Compensation Strategy needs to take these into consideration.

If your organization fails to do so, dire consequences can follow.

Compensation Legislation
In the public sector, compensation and the law are very much inter-connected. Every aspect of employee compensation is governed by legislation. In most cases, there is not much room for innovative ideas.

The one good thing about this is that the results are predictable at most times. The line of authority is mostly predetermined. Predictability is good for the organization and employees.

Legislation makes provisions for job grades, salary band / range, salary increases, promotion, allowances, benefits and so on.

When there are needs for changes, the legislation concerned is amended. Before any incentive or a new allowance is given or paid the law must allow it. Career progression does not escape legal provisions.

Nobody dares to take the risk of going against the stipulated rules.

Some government agencies are usually given some authority under a subsidiary legislation. Their respective Board of Directors can make decisions. But such decisions must not go against the provisions of the incorporation instrument and government general policies.

Too much emphasis on laws impact on compensation makes bureaucracy the order of the day.

Role of Legislation in Private Sector Compensation
Organization in the private sector are "free" to determine the levels and components of their compensation package.

They are "free" in the sense that in most cases, legislation leave much of such matters in the hands of corporations. But in another sense private entities are not free to follow their whims and fancies regarding compensation matters.

Sometimes, National governments are forced to make decisions compelling private organizations to change their compensation system and practices. For example, anti-discrimination laws impact on compensation ensure that decisions are not discriminatory as between employees based on gender or race.

This can also happen during times of economic recession when sensitive matters such as compensation come under close public scrutiny. If this happens private organizations have no choice but to follow the government-imposed rule.

This can bring both positive and negative results.

Some argue that self-regulation is a better option and is preferable.

Another situation where compensation and the law play a role is when legislation is enacted to impose minimum wage. Here, organizations are 'forced to agree'. This is a controversial issue.

Employees at the lowest level and their unions look forward to it.

Employers Associations or Federation dread it.

Government officers may not know what further action they can take. They are not willing to go against against government policies. Yet they may understand the position of organizations where financial performance is necessary for continued payment of salaries.

Another situation in which governments may intervene is when employees, unions, community leaders, commentators and others believe that the cost of living is getting exceptionally high and there is an appeal for government intervention.

Your organization may want to offer salary increase to help people cope during hard times. In this way, cost of living (COLA) become one of the factors in deciding the quantum of salary increase.

We know that market forces impose "unwritten rules" on the compensation systems. These affect the way organizations operate.


Inter-relationship Between Job Performance and Compensation
surely you know that job performance has a role to play in determining compensation based on the defined performance measures and standards.

Effective performance management is necessary to ensure this is done properly.

The Common Law
There are situations where legislation does not directly affect compensation issues.

When cases come before the law courts, judges interpret the law, that is, they make new laws, while referring to decided cases in determining whether compensation is payable or not. And if payable, the courts will also rule on the quantum payable by an employer.

This is another case where laws impact on compensation of which organizations need to know.

However, a lot of these cases are on unfair dismissal or constructive dismissal. In many of these cases 'compensation' means the amount of back pay and wages that the employer must pay to the former employee.

The law courts will seldom award economic loss as compensation.

Sometimes the courts will also rule that the employer take back the former employee to resume duties. This, in itself, presents difficulties for both employer and employee.

Legislation will not impose the requirement on employers to pay damages due to economic loss, that is, for loss of job.

Shortcomings can Result in Dire Consequences for Organizations
As an employer, you will find it worthwhile and beneficial to get updates on the laws impact on compensation.

In the United States, for example, public companies are subject to new laws on compensation. The new Financial Reform Law will impact on compensation of executives and corporate governance. Penalties for non-compliance include de-listing of the companies concerned. This is a clear example of the laws impact on compensation.

So, what can you do? Conduct an inventory of the laws affecting compensation and benefits in the country where you are carrying out your activities.

Then make plan to implement compensation strategy complying with these existing legal provisions while taking into consideration sound HR policies.

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