Compensation Management

Compensation
• Meaning :
• Compensation is what employees receive in exchange for their contribution
to the organization.
• Compensation includes pay, incentives and benefits offered by employers for
hiring the services of employees.

• Nature :
• Base Pay
• Variable Pay
• Benefits
Compensation Management

• Compensation management is the practice of the

organization that involves giving monetary as well as non-
monetary rewards to the employees, in order to
compensate for the time they allocate to their job.

• Compensation management involves “maximizing the

return on human capital.”
• Compensation Management refers to the establishment and
implementation of sound policies, programmes and practices of employee
compensation.
• It is essentially the application of a systematic and scientific approach for
compensating the employees for their work in a fair, equitable and logical
manner.
• Compensation Management is concerned with the compensation to
employees for their work and contribution for attaining organisational
goals.
Objectives of Compensation Management :
1. Attracting competent and qualified persons by offering fair wage and
incentive.
2. To retain present employees by paying competitive remuneration.
3. Establishing fair and equitable remuneration to avoid pay disparities.
4. To improve production, productivity and profitability of the organization.
5. Minimising un-necessary expenditure and Controlling cost through a
device of internal check and establishment of standard.
6. Improving and maintaining good human relations through a process of
payment of bonus, profit sharing and other fringes benefits.
7. To enhance the name and fame of the company through a proper system
of wage payment.
8. To ensure prompt and regular payment of wage and salary to all the
employees.
Importance of Compensation Management
• Tries to give proper refund to the employees for their contributions to the
organization.
• Discovers a positive control on the efficiency of employees and motivates
them to perform better and achieve the specific standards.
• Creates a base for happiness and satisfaction of the workforce that limits
the labour turnover and confers a stable organization.
• Enhances the job evaluation process, which in return helps in setting up
more realistic and achievable standards.
• Designed to abide with the various labour acts and thus does not result in
conflicts between the employee union and the management. This creates a
peaceful relationship between the employer and the employees.
• Excites an environment of morale, efficiency and cooperation among the
workers and ensures satisfaction to the workers.
Compensation Management –
11 Major Factors Influencing Compensation
• The Organisation’s Ability to Pay
• Supply of and Demand for Labour
• Prevailing Market Rate
• The Cost of Living
• The Living Wage
• Productivity
• Trade Union’s Bargaining Power
• Job Requirements
• Managerial Attitudes
• Psychological and Social Factors
• Skill Levels Available in the Market
Current Trends in Compensation
Management
• Introduction of performance related payments system and value
added compensation systems
• Job-hopping
• Variable pay
• Incentive schemes
• Various Benefits like stock option schemes, interest free loans for
housing or conveyance, free medical insurance and foreign tours
• Wage is termed as a compensation that is given on the
basis of the amount of work done and the hours spent in
doing that. Wages are variable and do vary with day to day
functioning of an individual. Wages are given to labors
who are engaged in manufacturing processes and get the
compensation on a daily basis.
Definition
• In the words of Benham. "Wages are a sum of money paid under
contract by an employer to a worker for services rendered."

According to ILO " Wages refer to that payment which is made by the
employers to the laborer for his services hired on the conditions of
payment per hour, per day, per week or per fortnight."
Types of Wages
• Minimum Wages acc. To Government Committee on
Wages 1948
• Fair Wages
• Living Wages
• Real Wages
Definition
According to D.S. Beach “
Wage and Salary Administration refers to the establishment and
implementation of sound policies and practices of employee
compensation. It includes such areas as job evaluation, surveys of wage
and salaries, analysis of relevant organizational problems, development
and maintenance of wage structure, establishing rules for
administrating wages, wage payment incentives, profit sharing, wage
changes and adjustments, supplementary payments, control of
compensation costs and other related items.”
Objectives of Wage and Salary Administration
To establish a fair and equitable compensation
offering similar pay for similar work.
To attract competent and qualified personnel.
To retain the present employees by keeping
wage levels in tune with competitive units.
To keep labor and administrative costs in line
with the ability of the organization to pay.
• To improve motivation and morale of employees and to improve
union management relations.
• To project a good image of the company and to comply with legal
needs relating to wages and salaries.
• To establish job sequences and lines of promotion wherever
applicable.
• To minimize the chances of favoritism while assigning the wage rates
 SALARY WAGES
fixed amount of compensation variable amount of compensation

paid for the performance of an employee paid on the basis of hours spent in finishing a certain
amount of work
given to the skilled persons paid to the semi-skilled or unskilled worker

cost incurred is fixed and paid monthly cost is variable, and vary with the day to day
performance
paid at fixed intervals on a daily basis for the number of hours spent.

possess the skills and efficiencies in completing the engaged in manufacturing processes and do the work
office work on an hourly basis.

once decided, in the beginning, remains fixed wage rate that keeps on changing and paid on the
throughout. basis of prevailing wage rate.
salaried person usually has KRA on the basis of which does not have any KRA and is judged on the basis of
their performance is judged. hourly work done.
Holder is not paid additional compensation for any Holder gets an additional pay for the extra hours
extra hours . devoted
Factors Influencing Wage and Salary
Administration
• The factors influencing Wage and Salary
Administration can be categorized into
(i) External Factors and
(ii) Internal Factors
External Factors
• Demand and supply
• Cost of living
• Trade unions bargaining power
• Government legislation
• Psychological and social factors
• Economy
• Technological development
• Prevailing market rates
Internal Factors
• Ability to pay
• Job requirements
• Management strategy
• Employee
Importance of Wage and Salary
Administration
• Attracts competent personal
• Retains present employee
• Improves productivity
• Controls cost
• Improves Union Management relationship
• Improves public image of the company
• Maintains internal and external equity
• Ensures and reward desired behavior
• Ensures legal compliance
• Employee Remuneration refers to the reward or compensation given
to the employees for their work performances.
• Remuneration provides basic attraction to a employee to perform job
efficiently and effectively. Remuneration leads to employee
motivation
Components of Remuneration
• Financial Compensation
It refers to monitory benefits offered and provided to employees in
return of the services they provide to organization.
It includes:-
1. Direct Methods
2. Indirect Methods
Direct Methods
• Basic Salary
• Bonus
• Allowances
• Incentives
Indirect Methods
• Leave Policy
• Overtime Policy
• Hospitalization
• Insurance
• Leave Travel
• Retirement Benefits
• Holiday homes
• Non-Financial Compensation
It consists of the satisfaction that a person receives
from the job itself or from the psychological or physical
work environment in which the person works.
Achievement
Recognition
Responsibility
Influence
Personal Growth
• Also called as Employee Benefits
• Not the substitutes for wages or the salaries
• Many years ago, benefits and services were labeled
“fringe” benefits because they were relatively
insignificant or fringe components of compensation.
However, the situation now is different, as these have,
more or less, become important part of a
comprehensive compensation package offered by
employers to employees.
Objectives of Fringe Benefits
• Attracting the best Talent
• Tax free for the employees
• Improving employee morale
• Achieving employee unity
• Improving industrial relation
• Concern for employee well-being
• To provide security to employees
Types of Fringe Benefits
• Payment for time not Worked:-
1. Hours of work
2. Paid Holidays
3. Shift premium
4. Holiday Pay
• Employee Security:-
1. Retrenchment Compensation
2. Layoff Compensation
• Welfare and Recreational Facilities:-
1. Canteens
2. Consumer societies
3. Housing
4. Legal Aid
5. Holiday Homes
6. Educational Facilities
7. Transportation
8. Parties and Picnics
• Old age and Retirement Benefits:-
1. Employee Provident Funds
2. Gratuity
3. Medical Benefits
4. Pension
• Safety and Health Provisions
Importance of Fringe Benefits
• Helps in employee Retention
• Provides Financial Security
• Helps to gain Employees Trust
• Increases Productivity
Employees Separation
• Separation is a situation when the service agreement of
an employee with his/her organisation comes to an end
and employee leaves the organization. In other words, separation is a
decision that the individual and organisation part from each other.

• Employees may be separated, or say, may move out of organisation

for a variety of reasons like retirement, resignation, suspension,
discharge, dismissal and layoff. Be whatever the types/forms of
separation, separation becomes important and sometimes traumatic
event for both the employee and organisation’.
Retirement
• Retirement can be defined as the termination of service of an
employee on reaching the age of superannuation.
• For example, at present the superannuation age for the teachers
working in the Central Universities is 62 years and in case of some
state government employees, it is 58 years. Some people characterize
retirement as ‘role less role’.
 Retirement may be of two types:

(i) Compulsory Retirement : on attaining the age of superannuation.

(ii) Voluntary Retirement :
• organisations give option to its employees to retire even before
superannuation, it is called ‘voluntary retirement’.
• efforts to downsize the employees, organisations by providing certain
incentives
• Employees in return of voluntary retirement are given lump sum
payment
Termination

• Termination of employment is an employee's departure

from a job and the end of an employee's duration with an
employer. Termination may be voluntary on the employee's
part, or it may be at the hands of the employer, often in the
form of dismissal or a layoff.
• Termination can be a voluntary termination of employment by the
employee. Voluntary termination includes resignation or retirement.

• Employment termination can also be involuntary - when an

employee is terminated by the employer. Employees can
be terminated for cause. In that case, an employee is fired or
dismissed from their job.

• Employees can also be laid-off when there is no work available for

them.
Grievance
Grievance

procedure

in industry