COMPENSATION MANAGEMENT

CONTENTS OF THE CHAPTER

Introduction Scope of HRM Remuneration Concepts of Remuneration Objectives of Salary and Wage Administration Factors Influencing Employee Remuneration Devising a Remuneration Plan Role of Reward System

Introduction

Human resources management is also a management function concerned with hiring, motivating and maintaining people in an organization. It focuses on people in the organizations.

Scope of HRM
Nature of HRM Employee Hiring

Employee and Executive Remuneration

Employee Motivation Employee Maintenance Industrial Relations Prospects of HRM

Remuneration
Remuneration is the compensation an employee receives in return for his or her contribution to the organization. Remuneration occupies an important role in the life of the employee as the standard of living depends on remuneration. In HRM too Employee remuneration is a major function as it is concerned with the difficult task of fixing wages and wage differentials acceptable to the employees and their leaders.

Concepts of Remuneration

Wage

Salary

The remuneration paid to by the employer for the services of hourly, daily, weekly and fortnightly employees. The remuneration paid to clerical and managerial personnel employed on monthly or daily basis.
Earnings are the total amount of remuneration received by an employee during a given period, These include salary (pay), DA, HRA, CCA, other allowance, over time payments etc.

Earnings

Continued.

Nominal Wage

It is the wage paid or received in monetary terms (Money wage). Real wage is the amount of wage arrived after discounting nominal wage by the living cost. It is the amount of salary left to the employee after making authorized deductions It is the amount which could meet the normal needs of the average employee regarded as a human being living in a civilized society

Real Wage

Take Home Salary

Minimum Wages

Continued

Statutory Minimum Wage

It

is the amount of remuneration fixed according to the provisions of the Minimum Wages Act, 1948.
is the amount of remuneration for a unit of time excluding incentives, overtime pay etc. is the amount of wage fixed for a unit of time fixed on the basis of job evaluation standards

Wage Rate
It

Standard Wage Rate

It

Continued.

Incentives

Fringe Benefits

Also called payments by results It is paid in addition to wages and salaries Depends upon productivity or turnover or target Includes provident fund, gratuity, medical care, hospitalizations, accident relief, health and group insurance, canteen, uniform, recreation etc Includes company car, club membership, paid holidays, furnished house etc.

Perquisites

Non-monetary Benefits

Objectives of Wage and Salary Administration

To To To To To To To To To

acquire qualified competent personnel retain the present employees secure internal and external equity ensure desired behavior keep labor and administrative cost pay according to the content facilitate pay roll simply collective bargaining promote organization

Factors Influencing Employee Remuneration

Internal Factors

External Factors

Internal Factors
Business Strategy Job evaluation and Performance Appraisal The Employee

External Factors
Labor Market Cost of Living Labor Unions Labor Laws Society The Economy

Devising a Remuneration Plan

Remuneration plan must be understandable, workable and acceptable. The Remuneration scheme must have two components a base rate and the scope

of increasing the base rate.

Determining a remuneration plan is through employing sequential steps.

Remuneration Model
JOB DESCRIPTION

JOB EVALUATION

JOB HIERARCHY

PAY SURVEY

PRICING JOBS

THE THREE PHASES IN REWARD STRATEGY PROJECT

PHASE -I DIAGNOSIS Clarified business strategy and organization structure Analysis of performance, goal, capabilities & competencies Review of HR strategy & approach PHASE II DESIGN Train project group PHASE III IMPLEMENTATION Communication to staff

Gap analysis of performance requirements & current pay & reward systems Analyze implications . E.g. Review of change options cost Final Recommended future recommendations decision Preparation & further testing

Detailed design to Phased introduction e.g. be worked out bonus performance management, pay Conduct further adjustment research internally Formal review after a Test on year, against success specific/sample of criteria. jobs

Role of Reward System

Retaining competent individuals for long time is more difficult than attracting fresh ones Attractive remuneration enables an organization to attract, retain and motivate competent employees Consequences of Pay Dissatisfaction highly affect the organizational performance.

Primary goal of a wage policy in any country should be the promotion of economic development.