Provision for compensation management is a

conceptual flow with the force of law where you pay

without choice.
In reward management you pay for performance
where employee give up their best and become part
of the organization.

MEANING OF COMPENSATION
Compensation refers to a wide range of financial and non-financial
rewards to employees for their services rendered to the organization.
It is paid in the form of wages ,salaries and employee benefits such as
paid vacation, insurance, maternity leave, free travel facility, retirement
benefits, etc. Monetary payments are a direct form of compensating the
employee and have a great impact in motivating employees. The system
of compensation should be designed that it achieves the following
objectives :
Capable employees are attracted towards the organization.
The employees are motivated for better performance.
The employees do not leave the employer frequently.

ELEMENTS OF COMPENSATION
Monthly wages and salary or total pay including basic wage,
house rent allowance, dearness allowance, and city
compensatory allowance.
Bonus at the end of the year.
Economic benefits such as paid holidays, leave travel
concession.
Contribution towards insurance premium.
Contribution towards retirement benefits.
Transport and medical facilities.

Minimum Wages Act (1947)

The Minimum Wages Act was passed in 1947 to secure the
welfare of organized workers in certain industries by fixing the
minimum rates of wages.

Different types of industries provide different type of wage rate.

Category Wise Payment (acc to skills)

Skilled.
Unskilled
Semi-skilled
Highly skilled
Clerical
Graduate
Supervisory

Basic wage is linked with cost of living index. Cost Of Living

Index is an all India series deciding on the inflation. Inflation is
issued from Shimla.

Different stages to form their own minimum wages keeping in

view
competition,
cost of living index,
impact of regional factors,
and other variable factors.

TYPES OF COMPENSATION

BASE COMPENSATION
It involves
Wages
Salaries
The term wage is used to denote remuneration to workers doing
manual or physical work. Thus, wages are given to compensate
the unskilled workers for their services rendered to the
organization. Wages may be based on hourly, daily, weekly or
even monthly basis.
The term salary is usually defined to mean compensation to
office employees, foreman, managers and professional and
technical staff. It is generally paid on weekly, monthly, or yearly
basis.

FACTORS AFFECTING COMPENSATION

Demand for and supply of labour.
Ability to pay
Productivity of workers
Labour unions
Government
Prevailing wage rate

SUPPLEMENTARY COMPENSATION:
Supplementary compensation involves fringe benefits offered
through several employee services and benefits such as housing,
subsidized food, medical aid, crche, etc.
Supplementary compensation has been given different titles in
industry such as service programmes, employee benefits, and
non-wage payments. Because of the increasing costs of fringe
benefits, it is also labeled as hidden payroll.
The basic purpose of fringe benefits are :
to attract and maintain efficient human resources.
To motivate the human resource.

TYPES OF SUPPLEMENTARY COMPENSATION

Payment for time not

worked

Hazard protection

Employee services

Legal payments

BASE COMPENSATION

SUPPLEMENTARY

It denotes payments to workers in the form of

wages and salaries.

It denotes fringe benefits to workers over and

above their regular wages and salaries.

Wages and salaries are paid in cash.

Fringe benefits are offered in the form of

employees services and benefits such as
housing, medical aid crche, canteen etc .

Wages and salaries are paid to compensate

employees for their services.

Fringes or non-wage payments are made to

increase the efficiency of employees and to
retain them in the organization on a long-term
basis.

Wages and salaries are determined by job

evaluation, demand and supply of labour,
organizations capacity to pay, trade unions,
bargaining power, productivity, government
regulations, etc.

Supplementary compensation is determined by

the history of the organization, philosophy of
management, organizations capacity to spend
on employee benefits, need to retain talented
employees, desire to enhance public image, etc

PERQUISITES
Several new benefits have been initiated by industrial giants
particularly for the executives. Such benefits re referred to as
perquisites or perks.
Home security
Chauffer driven cars
Corporate aircraft

Company apartment

Club membership

entertainment
Co. credit card

Paternity leave

WAGE AND SALARY DIFFERENTIALS

The personnel may belong to different occupations and
functional areas carrying different grades of skills, knowledge,
duties, responsibilities, assignments and workloads. They have to
be remunerated differently according to various considerations.
Hence, differentials in pay for various jobs constitute the core
of wage and salary administration and structure.
Differentials reflect not only job content and difficulty, but
numerous other factors also such as occupational, geographical,
shift, age, handicapped workers, older workers, methods of
payment, unionization, size of the company and the the industry.

Wages and differentials serve many useful purposes:

To induce employees to change jobs.

To get employees to learn and acquire new skills,
To shift employees from declining industries to
new industries,and
To get employees to accept more responsible
positions.

WAGE ADMINISTRATION
Wages and salaries represent a substantial part of total costs
in most of the organization. Although to the economist these
are variable costs, but to the businessmen, they are
becoming ever increasing in view of the ability of unions to
win upward adjustments.
The control of wage and salary levels is of paramount
importance, even though the amount of control which can be
exerted may vary among organization and within an
organization from time to time.
The general objectives of the wage and salary
administration are as follows:
Control of costs
Establishment of fair and equitable remuneration
Maintenance of a satisfactory public relations image.

The functions of wages and salary committee or any other

person or any other person connected with wage and salary
administration are:
To approve the system of job description and job evaluation.
To check all activities of the salary administration group against the
company policies.
To recommend to top management the wage policies and in the salary
or wage level.
To review wage and salary schemes department wise.
To recommend to top management specific raises for executives above a
specified limit.