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COMPENSATION/REWARD SYSTEM
Compensation/Reward system

• Compensation is a systematic approach to providing

monetary value to employees in exchange for work


performed

• Different types of compensation include:

• Base Pay
• Overtime Pay
• Bonus, Profit Sharing
• Travel/Meal/Housing Allowance
• Benefits including: dental, insurance, medical, vacation, leaves,
retirement, taxes...
MAJOR PHASES OF COMPENSATION
MANAGEMENT
Phase I
Identify & study jobs Job
Job analysis
analysis

Phase II
Internal equity
Job
Job evaluation
evaluation

Job
Job ranking
ranking Job
Job grading
grading Factor
Factor comparison
comparison Point
Point system
system
Phase III
External Equity Wage
Wage&&salary
salary surveys
surveys

Dept.of
Dept.of labour
labour Employer association Professional
Employer association association Self-conducted
Professional association Self-conducted
surveys
surveys
Phase IV Pricing
Pricing jobs
jobs
Matching Internal
& External worth
Job
Job evaluation
evaluation Match
Match Labour
Labourmarket
market worth
worth

Rate
Raterange
range for
for each
each job
job
Wage and salary determination

 Job Descriptions

 Job Analysis

 Job Evaluation

 Pay Structures (with each grade containing a

minimum salary/wage)
 Salary Surveys

 Policies and Regulations


Factors influencing wage and salary

1. External Factors
 Demand and supply
 Cost of living
 Trade unions bargaining power
 Government legislation
 Prevailing market rates

1. Internal Factors
 Ability to pay
 Job requirements
 Managerial strategy
 The employee
Equity compensation
 Equity compensation is non-cash compensation that

represents an ownership interest in the company


 The two most common forms of equity compensation are

 Stock options (A stock option is a right to purchase shares of a


company’s stock at a predetermined price)

 Restricted stock (repurchase right that allows the company to


repurchase a portion of the founder’s stock if his or her
employment is terminated by the company for cause, or if the
founder voluntarily resigns within a certain period of time)
 Dearness allowance (D.A.) is part of a person's salary. D.A. is

calculated as a percent of the basic salary

 Employee benefits (fringe benefits, perks) are various non-wage

compensations provided to employees in addition to their normal


wage and salaries

 Fringe benefits can also include but are not limited to: insurance

(health, life etc.), retirement benefits, sick leave, vacation (paid


and non-paid), profit sharing and other specialized benefits
 The term perks is often used to refer to those

benefits of a more discretionary (optional)


nature. Often, perks are given to employees who
are doing notably well and/or have seniority

 Common perks are company cars, hotel stays,

free refreshments, leisure activities on work time


(Ex. golf ), allowances for lunch etc.
Managerial compensation

 Managerialcompensation is not based on individual


performance measure but on organizational performance

 It cannot be compared with wage and salary scheme meant


for other employees in the organization

 Remuneration received depends on employer’s ability to


pay and employees bargaining strength

 It is reviewed annually
Social security

Social security is that security which the society


furnishes through appropriate organization against
certain risks or contingencies to which its members
are exposed

The contingencies which may impair a persons


ability to support himself and his family may include
sickness, old age, invalidity, unemployment, death
etc.
Social security in India

 Workmen’s compensation Act, 1923

 The Employee State Insurance Act, 1948

 The Maternity Benefit act, 1961

 The employee’s provident fund act, 1952

 The Payment of gratuity act, 1972

 Group Life Insurance