Sneha Sawant

STUDY OF COMPENSATION MANAGEMENT

OBJECTIVE
This project attempts to understand the objectives:-

 To understand in details how to establish pay rates to different level of employee.

 To understand the impact of compensation management on performance level.
 A comparative study of the compensation management strategies followed in different
banks.

LIMITATIONS
Everything has some pros and cons and so certain limitations of this study that we could observe
are as follows:

The area of project work is banking sector so, the data or result may be approximate as the
conclusion is based on the survey method i.e. primary & secondary source (filling of
questionnaire from the employees) may be hypothetical (imaginary) data.

 The organizations which have been studied and surveyed are not providing us with full
information which has hampered the result and conclusion.

 Exact data was not been provided.

SCOPE
The scope of this project is to study of the compensation management strategies & to evaluate
the behaviour & performance of employee on their work.

INTRODUCTION OF COMPENSATION MANAGEMENT

 Sneha Sawant

Compensation Management is an integral part of the management of the

organization. Compensation is a systematic approach to providing monetary
value to employees in exchange for work performed. Compensation may achieve
several purposes assisting in recruitment, job performance, and job satisfaction.
To be effective, the managers must appreciate the value of competitive pay, their
human resources, and have an investment view of payroll costs. It is of prime
importance for an organization to maintain pay levels that attract and retain
quality employees while recognizing the need to manage payroll costs.

The literal meaning of compensation is to counter-balance. In the case of human

resource management, compensation is referred to as money and other
Benefits received by an employee for providing services to his employer. Money
and benefits received may be in different forms-base compensation in money and
various benefits, which may be associated with employee's service to the
employer like provident fund, gratuity, insurance scheme and any other payment
which the employee receives or benefits he enjoys in lieu of such payment.

"Compensation includes direct cash payments, indirect payments in the form of

employee benefits and incentives to motivate employees to strive for higher levels
of productivity”

Compensation is a tool used by management for a variety of purposes to further the

existence and growth of the company.
 Sneha Sawant

Objectives of Compensation management are:

1.Attracting and Retaining Personnel: From organization’s point of view, the

compensation management aims at attracting and retaining right personnel in the
Organization Not only they require persons who are well qualified but they are also
retained in the organization. There is no dirth of personnel at operative levels but
the problems come at the managerial and technical levels
Particularly for growing companies. Not only have they required persons who are
well qualified but they are also retained in the organization. In the present day
context, managerial turnover is a big problem particularly in high knowledgebase
Organizations.

2. Motivating Personnel: Compensation management aims at motivating personnel

for higher productivity. Monetary compensation has its own limitations in
motivating people for superior performance.

3. Optimizing Cost of Compensation: Compensation management aims at optimizing

cost of compensation by establishing some kind of linkage with performance and
compensation.

4. Consistency in Compensation: Compensation management tries to achieve

consistency-both internal and external-in compensating employees. Internal
consistency involves payment on the basis of criticality of jobs and employees'
performance on jobs.
 Sneha Sawant

MOTIVATION
MOTIVATION

COMPENSATION
COMPENSATION
PACKAGE
PACKAGE

EMPLOYEE
EMPLOYEE NEED
NEED
RETENTION
RETENTION SATISFACTION
SATISFACTION

SCOPE OF COMPENSATION MANAGEMENT

Compensation management helps to determine the relative worth of a job in an
organization in a systematic, consistent and accurate manner. It also helps in
estimating the basic pay for each job in accordance with the importance of the job
in the organizational hierarchy .once a basic pay is determined , the rewards ,
incentives and benefits attached worth the pay, positions and performance are also
determined . The basic wage, incentives and rewards and benefits, together form
the compensation package of an employee.

Direct Compensation
Direct compensation refers to monetary benefits offered and provided to employees in return of
the services they provide to the organization.

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
 Sneha Sawant

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 month’s 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

Benefits contributions may include: Medical Insurance Prescription Drug Insurance Dental
Insurance Group Life Insurance Long-Term Disability Insurance Accidental Death Benefits

Tax contributions may include: Disability (Medicare) Worker Compensation Insurance,

Unemployment Insurance
 Sneha Sawant

Retirement contributions may include: Severance Award, Voluntary or Involuntary

Retirements Benefits such as VRS etc.

Fringe Benefits or Perks

Employee benefits and (especially in British English) benefits in kind (also called fringe benefits,
perquisites, perks) are various non-wage compensations provided to employees in addition to
their normal wages or salaries. Where an employee exchanges (cash) wages for some other form
of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most
kinds of employee benefits are taxable to at least some degree.

Fringe benefits can also include but are not limited to: (employer-provided or employer-paid)
housing, group insurance (health, dental, life etc.), income protection, retirement benefits,
daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit
sharing, funding of education, and other specialized benefits

The purpose of the benefits is to increase the economic security of employees.

The term perks is often used colloquially to refer to those benefits of a more discretionary 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 (golf, etc.),
stationery, allowances for lunch, and—when multiple choices exist—first choice of such things
as job assignments and vacation scheduling They may also be given first chance at job
promotions when vacancies exist.

Employee benefits in the United States might include relocation assistance; medical,
prescription, vision and dental plans; health and dependent care flexible spending accounts;
retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance
plans; legal assistance plans; adoption assistance; child care benefits; and possibly other
miscellaneous employee discounts (e.g., movies and theme park tickets, wellness programs,
discounted shopping, hotels and resorts, and so on).
 Sneha Sawant

NON FINANCIAL COMPENSATION

Non-financial compensation is different incentives given to employees that are not in the form of direct
pay.

Alternative Work Schedules - There are many alternatives to a traditional 5 day, 8-hour work
schedule.

On-the-Job Training- Showing workers how to perform tasks by observing others.

Work/Life Balance - When an employer understands the needs employees have to juggle in their lives.

Developmental Opportunities - Training and other opportunities for employees to expand their
knowledge and improve their skills.

Casual Dress - Allowing employees to relax their dress code at work.