COMPENSATION MANAGEMENT

Introduction Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The good compensation will also serve the need for attracting and retaining the best employees. .

Compensation
Compensation is the remuneration received by an employee in

return for his/her contribution to the organization. It is an organized practice that involves creating a balance between the work-employee relation by providing monetary and nonmonetary benefits to employees

Contd..
When managed correctly ,it helps the organization achieve its

objective and obtain, maintain, and retain a productive workforce. Compensation is a key factor in attracting and keeping the best employees and ensuring that your organization has the competitive edge in an increasingly competitive world. Without adequate compensation, current employees are likely to leave and replacements will be difficult to recruit. The outcomes of pay dissatisfaction harm productivity and affect the quality of worklife.

Compensation Management
Compensation management is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness The Compensation Management component enables you to differentiate between your remuneration strategies and those of your competitors while still

allowing flexibility, control and cost effectiveness. It provides a toolset for strategic remuneration planning that reflects your organization culture and pay strategies.

The Compensation Management Process

Purpose This is a common business process used by compensation departments to plan and administer compensation policies. Prerequisites If you want to run compensation management over the organizational structure then, you must create your organizational structure and all necessary organizational units before you start the compensation management process. Process Flow When you have created your organizational structure, you can begin the compensation process: 1. Define the internal value of jobs and positions. You can enter data from external job evaluation systems and salary surveys.

 2.Define compensation components and group them

3. Define guidelines and eligibility rules and associate

them to the plans 4. Perform budgeting for compensation management 5. Plan and administer compensation policies 6. Approve compensation adjustments 7. Administer approved compensation Result The system updates employees records with data provided by the Compensation Management component, and the employees receive the corresponding compensation adjustments.

Types of compensation
Compensation provided to employees can direct in the form

of monetary benefits and/or indirect in the form of nonmonetary benefits known as perks, time off, etc.
Financial Compensation:

Total Financial compensation = Direct + Indirect Compensation

Direct Financial Compensation

-pay received in forms of wages, salaries, bonuses and commissions , fringe benefits

Fringe Benefits(study more )

Fringe benefits described as
Welfare expenses Wage supplements Perquisites other than wages Sub wages Social charges

Types of compensation (contd..)

Indirect Financial Compensation(benefits)

-All financial rewards not included in direct compensation. For examples workers compensation, Family & medical leave, Disability Protection
Nonfinancial Compensation

-Satisfaction person receives from psychological & or physical environment in which person works. For examples, skills variety, experiences, good working conditions, flextime

Need of Compensation Management

A good compensation package is important to motivate the

employees to increase the organizational productivity. Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals. Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose. The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards

Objective Of Compensation Management

Motivation

Compensation Package Employee Retention Need Satisfaction

Contd..
To help the organization achieve strategic success while

ensuring internal and external equity. Internal equity-ensures that more demanding positions or better qualified people within the organization are paid more. External equity-assures that jobs are fairly compensated in comparison with similar jobs in other firms Attract qualified personnel Retain current employees Reward desired behavior Control costs Facilitate understanding

DETERMINING COMPENSATION
Internal Factors:
a. Employers Compensation strategy b. Worth of a Job c. Employees Relative Worth d. Employers Ability to Pay

Contd....

a. b. c. d.

External Factors: Labor Market Conditions Area Wage Rates Cost of Living Collective Bargaining

Types of Compensation

Compensation provided to employees can direct in the form of

monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity.
Direct Compensation Indirect Compensation

Direct Compensation
Direct compensation refers to monetary benefits

offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Components of Direct Compensation

Basic Salary

Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.
House Rent Allowance

Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees. This is done to provide them social security and motivate them to work.

 Conveyance Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.
Leave Travel Allowance These allowances are provided to retain the best talent in the organization. The

employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization. Medical Reimbursement Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for them and their family members. These medi-claims include health-insurances and treatment bills reimbursements. Bonus Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to one months salary of the employee. Special Allowance Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.

Indirect Compensation
Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes

Components Of Indirect Compensation

Leave Policy

It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc. Overtime Policy Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc. Hospitalization The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security. Insurance Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.

 Leave Travel

The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free. Retirement Benefits Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age. Holiday Homes Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house. Flexible Timings Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.

The Compensation Structure

Wage and Salary Surveys Collecting Survey Data The Wage Curve Pay Grades Competency Based Pay

Wages
MEANING
Wages is the return given to workers for their mental and physical efforts which they put into the production process.

Elements of an Ideal Wage-System

Guarantee of minimum wages.
Based on ability of the worker. Simple. Motivating. Flexible. Regular payment.

Wage Systems

Time Wage System

Piece Wage System

Time Wage System

MEANING
In this system, the workers are paid wages according to the time spent at the work place. E.g. a day, a week. A month etc. In this system, the work or production done by an employee is not taken into consideration. This is the oldest type of wage system.

Merits

Clear and simple. Provides guaranteed minimum wages. Quality is maintained. Haste is avoided and hence improper and excessive use of machinery is avoided. Suitable for industries where measuring output is impossible. Wages payable are pre-determined. Workers are not exploited which help to maintain harmonious relationship. Workers are motivated to work efficiently. Reduces labour turnover rate.

Demerits
Fails to motivate efficient and industrious workers. Work needs supervision. Thus, cost of supervision increases. Possibilities of the worker being negligent towards work or production. Conflict and jealousy between efficient and inefficient workers crops up. Nurtures the evil of shirking work. Cannot be considered a progressive wage system.

When is time wage system effective?

Quality of production is more important than the output. Work is to be done minutely, requiring extreme care

and preciseness. Impossible to assess individual performance. Production is automatic i.e. machine-based. Workers are new, apprentices or trainees. Volume of production cannot be clearly measured.

Piece Wage System

MEANING
In this system, wages are paid to workers according to their output. This wage system is directly related to the skill, production capacity, speed and precision of the worker. This system is also known as PAYMENT BY RESULT SYSTEM.

Merits
Workers skill is taken into account.
No need for supervision and inspection. Efficient workers are given more incentives and

rewards. Easy to estimate the cost per unit. Easy to calculate wages. More production and best results is the motto of this system.

Demerits
Quality is not maintained. Workers intentionally ignore

accidents. Workers are paid different wages with a wide gulf among them leading to less precision, lessening of their morale and industrial disputes. Trade union oppose this system. Sense of job satisfaction is less among workers. Administrative expenses are high. Workers neglect their health in order to put their maximum efforts. Workers feel a sense of insecurity.

safety

rules,

inviting

When is Piece Wage System Suitable?

Measurement of units produced is easy.
Efficiency, skill and concentration of worker is high

and productivity depends upon proficiency alone. Easy to establish standards and flow of work is regular. Only one type of goods are produced.

Incentives
MEANING
Incentives are an additional remuneration payable to efficient workers for their meritorious performance in terms of time, costs and quality to motivate them to be more productive.

Incentives create aptitude for work among the workers, increasing their productivity. In the absence of incentives, lethargy, inflexibility, frustration and indifference of the workers leads to inefficiency in the long run.

Incentives

Monetary Incentives

Non-Monetary
Incentives

Monetary Incentives
MEANING
Money is the main element of incentives. It boosts the enthusiasm and selfconfidence of the workers. It provides the workers with economic security and gives the worker a social security.

Types of Monetary Incentives

Profit-Sharing
Co-Partnership Bonus

Suggestions and Advices

Commission Prizes

Non-Monetary Incentives
MEANING
Incentives not based on money are non-monetary incentives. Non-monetary incentives are useful in increasing production and efficiency.

Types of Non-Monetary Incentives

Security of employment
Recognition of food qualities. Promotion Adviser Assignment of responsibility Welfare activities and ammenities Other incentives such as housing facilities, life

insurance, educational and conveyance allowances etc.

Governmental Wage Policy of India

Payment of Wages Act, 1936 Industrial Dispute Act, 1947 Minimum Wages Act, 1948 Equal remuneration Act, 1976 Payment of Bonus Act, 1965 Wage Board

Wage boards
Wage boards consist of an impartial chairman , two other

independent members and two or three representatives workers and employers each The recommendations of the board are first submitted to the government for the acceptance After acceptance the government requests the parties to implement them

Objective Of A Good Wage Policy

To establish good labor relations. To decide on appropriate wages To decide wages based on individuals capability To develop a pre-determine scheme for payment of wages To establish linkages of wages payment with performance To provide for incentive payment To guarantee minimum wages To provide for neutralization of price rise To develop a wage structure which can attract talent

Compensation Issues

The Issue of Equal Pay for Comparable Worth The Issue of Wage Rate Compression Living Wage Laws The Issue of Low Salary Budgets

THANKYOU