Compensation Management

A Machine Can Do
The Work Of 50
Ordinary Workers,
But It Can Not Do
The Work Of One
Extra Ordinary
Worker.

COMPENSATION MANAGEMENT

Compensation is the remuneration received by an employee in return for his/her
contribution to the organization.

Compensation management is a process of determining cost-effective pay
structure, designed to attract and retain, provide an incentive to work hard and
structured to ensure that pay levels are perceived as fair.


-Stephen P. Robbins, David A DeCenzo, Robin Stuart-Kotze and Eileen B.
Stewart



Compensation is what employees receive in
exchange for their contribution to the organization.

It also refers to all forms of financial returns and
tangible benefits that receive as part of an
employment relationship
Meaning:
Objective:The most important objective of any pay
system is fairness or equity, generally expressed in
three forms

Internal equity: where more difficult jobs are paid more
External equity: where jobs are fairly compensated in
comparison to similar jobs in labour market
Individual equity: where equal pay is ensured for equal
work
Major Phases of Compensation
Management(Internal equity)

Job Analysis
Job evaluation
Job ranking
Job grading



External Equity
Wage and salary surveys
Pricing jobs
Total compensation package
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.

Compensation can be classified into:
a) Direct Compensation
b) Indirect Compensation
c) Non-monetary Compensation


3 Non-monetary compensation
Non-monetary compensation can include any benefits an employee
receives from an employer or job that does not involve tangible value. This
includes career and social rewards such as job security, opportunity for
growth, preferred office furnishings, assigned parking spaces, preferred
work assignments, preferred lunch hours, own secretary etc.
Characteristics of Effective compensation
planning
Attract talent
Retain talent
Ensure equity
Reward appropriately(loyalty, commitment,
experience, risk raking and other desired behaviours)
Control costs
Comply with legal rules
Ease of operation
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Purpose of Compensation
Motivate &
Retain Staff
Attract talent
Contribution based
Remuneration
Administratively
Efficient
Reward Valued
Behavior
Effective
Compensation
Ensure Equity


MODERN APPROACH
16-5
Components of Pay Structure
The two essential components of pay structure are;
Basic Wages: The basic wage rate is fixed taking the
skill needs of the job, experience needed, difficulty of
work, training required, responsibilities involved and
the hazardous nature of the job.
Dearness allowances:
Dearness allowance : Dearness allowance it paid to
employees in order to compensate them for the
occasional or regular rise in the price of essential
commodities.
16-6
The following, however, do not come under the term
wages
Bonus
Payments made under a profit sharing scheme
Value of house accommodation
Medical allowances
Travelling allowances
Any other sum paid to defray special expenses incurred
by the worker
Contribution to pension, provident fund
Any amenity or service excluded from the computation of
wages
Components of Pay Structure


-Jack Welch
If you pick the right people and give them
the opportunity to spread their wings- and
put compensation as a carrier behind it-you
almost dont have to manage them
.