Presentation on

Compensation Management
Compensation Management

 Compensation is what employees receive

in exchange for their contribution to the
organisation.

Total compensation = Direct + Indirect Compensation

Base Pay Incentives Benefits

Factors Influencing
Compensation/Remuneration
Employer

National Labour
Economy Market

Rewards
Compensation
Cost of Remuneration
Employee
Living

Govt. Union
Influencing Factors of
Remuneration
Remuneration

External Internal

Labour Market
Business Strategy
Cost of Living
Job evaluation &
Labour Unions
Govt. Legislations PA
The Employee
Society
Economy
Components Of Employee Remuneration
Remuneration

Financial Non-financial

Basic wages Incentives,

Individual plans Job context
Group plans Challenging job
Responsibilities
Growth prospects
Fringe benefits Supervision
P.F. Perquisites Working conditions
Medical care Car Job sharing etc
Accident relief Club membership
Health and Paid holidays
Group insurance Furnished house
Stock option scheme
Objectives Of Compensation
Planning
 Internal equity
 External equity
 Individual equity
 Attract talent
 Retain talent
 Ensure equity
 New and desired behavior
 Control costs
 Ease of operation
 Pricing Jobs – Pay Levels

Key Job B
10
Key Job A
9
8
7
Wages or Salaries 6
5 Wage Trend Line
4
3
2
1

100 200 300 400 500 600 700 800 900 1000
Points Values
Pricing Jobs
 Determining Pay Grades

A pay grades comprises jobs of approximately equal

difficult or importance. It is a process of organizing jobs
into groups, also called job classes so that there are
limited number of wage rate
Pricing Jobs – Pay Grades

A
M
M
O
U
N
T
‘
S

0 101 151 201 251 301 351 401 451 501

100 150 200 250 300 350 400 450 500 550
I II III IV V VI VII VIII IX X
Challenges Of Remuneration

Skills-based Salary
pay reviews

Remuneration Pay
secrecy
Employee
participation

Comparable
worth
Challenges affecting Remuneration
 Job based pay: Employees are paid on the bases of jobs
they do
 Skill based pay: Employees are paid on the basis of
number of jobs they are capable of doing, or on the depth
of their knowledge
The purpose is to motivate employees to acquire
additional skills so that they become more useful to the
organization
 Brand banding pay: Employees are paid on the basis of
wide salary bands keeping in view the job responsibilities,
individual skills, Competence and career mobility patterns
Challenges affecting remuneration
Pay Reviews: Pay once determined should not remain
constant. It must be reviewed and change often. The
often become relevant.
Fix date reviews: where all employees salaries are
reviewed on one common date
Anniversary date reviews: where salaries may be
reviewed at twelve month intervals from the date of the
employees hiring
In organized sector the reviews are taking place once in
three years through wage settlements . In Govt. Sector
the revision is after every 5 to 7 years

Using variable timing ensures flexibility.

Challenges affecting remuneration
Pay secrecy: Equity in remuneration is a significant factor
in employee performance. Perceived inequity in wages
and salaries will de-motivate and demoralize employees
which will lower employee performance.
To avoid this problem effort be made to maintain pay
secrecy.
Comparable worth: one of the popular principles is equal
pay for equal work. It remove gender & job evaluation
bias
International Pay: In increasing globalization of business,
international pay assumes greater relevance. The
amount of remuneration, its composition and other
factors pose serious challenges to the HR Manager
 Relationship between Pay Equity and
Motivation

My input/ My input Comparison Comparison

Output Output Person’s Person's
Comparison Ratio Ratio My input Ratio
Ratio
Person's output
Ratio Ratio

In Equity Equity In Equity

Feeling of being under paid Feeling of being paid fairly Feeling of being over paid

Doing more & receiving less Doing the same & receiving the same Doing less & receiving more

The Greater the perceived disparity between input/output ratio and the
comparison inputs/output ratio, the greater the motivation to reduce the
inequity
Concepts of Wages
 Minimum Wage:
Minimum Wage is the one which provides not merely for
barely sustenance of life, but also for the preservation for
the efficiency of the worker
 For this purpose, the minimum wage must also provide
for measure of education , medical requirements and
amentias. The minimum wage may be tied by an
agreement between the management and the workers
but is usually determined through legislation
 For fixing MW, besides the needs of workers, other
factors like ability of the concern to pay, nature of the
jobs will have to be considered
Concepts of Wages
 Fair Wage:

Fair wage is what is equal to the rate prevailing in the

same trade and in the neighborhood for similar work
Fair wage is what is equal to the predominant rate for
similar work throughout the country & for traders in
general
Fair wage can be fixed only by comparison with an
accepted standard wage
Concepts of Wages
 Living Wage:
Living wage is a step higher than fair wage. Living wage
may be described as one which should enable the wage
earner to provide for himself /herself not only the bare
essentials of life like food, clothing and shelter, but a
measure of frugal comfort including education for
children; protection against ill health; requirement of
essential social needs; and/or measure of insurance
against the more important misfortunes including old
age.
Living wage must be be fixed considering the general
economic condition of the country. It varies from country
to country ,
Factors affecting Wage Mix

Internal Factors
External Factors
Compensation Policy
of the organization Condition of labour
Market
Worth of job WAGE
MIX Area Wage Rate
Employee relative
worth Cost of living

Employer's ability to Legal requirements

pay
Wage Components
 Basic Pay
 Across the Board pay
 Cost of Living
 Merit Pay
 Lump sum Bonus
 Individual Incentive Plans
 Success Sharing Plans
 Gain Sharing Plans
 Profit Sharing Plans
 Risk Sharing Plans
Types of Incentive Plans
Enterprise

Group Profit Sharing

Stock option
Team Compensation Employee Stock
Scanlon plan – to ownership Plan
gain cost reduction (ESOP’s)
Individual Rucker plan – to
Gain production value
Piece Work Created
Standard hour plan Impro share –to gain
Bonus Overall productivity
Merit Pay Earning at risk plans
Spot Award
Sales Incentives
Maturity Curves
 Group Incentive Plans
Benefits:
1. Better cooperation/Team work among workers
2. Less supervision
3. Reduced incidence of absenteeism
4. Reduced clerical work an shorter training time
5. Distributing success among those responsible for
producing success
Disadvantage:
1. An efficient worker may be penalized for the inefficiency
of the other members in the group
2. The incentive may not be strong enough to serve its
purpose
3. Rivalry among the members of the group defeats the
very purpose of team work and co-operation
Employees Benefits
 EB is preferred by employee in comparison to direct
wage

Advantage:
1. Attract & motivate Employees
2. Satisfy Employee Objectives
3. Meet employee health & Security Requirements
4. Reduce Turnover
5. Maintain a favorable competitive position
6. Mitigate fatigue
Employees Benefits
 Benefits is a fringe, five criteria's need to be met
1. It should be computable in terms of money
2. The amount of benefit is not generally
predetermined
3. No contract, indicating when the sum is payable
should exist
4. It should be basis genuine interest in the protection
and promotion of well being
5. Should be cost effective, broad based and satisfying
real need
Types of Employee Benefits
 Social Security Insurance
 Workmen Compensation Insurance
 Leave without Pay
 Health Care Benefits
 Vacation with Pay (Paid Holidays)
 Severance Pay
 Employee Assistance Programs
 Work life Benefits: Balancing Work and home needs
 Counseling Services
 Long Service Awards
Components of Remuneration
The Executive remuneration has comprise of four
elements:
 Salary - determined basis job evaluation
 Bonus- is a short term (annual) payment basis
performance
 Long term incentives - Stock options
 Perquisites – major source of income for executive over
& above the salary & paid regularly
Executive Perks
 Company Car
 Travel by Company Plane
 Physical Examination
 Mobile Phones
 Laptop’s
 Insurance Policies
 Financial Consulting
 Estate Planning
 Income Tax Preparation
 Country Club Membership
 Luncheon Club Membership
Executive Perks
 Chauffeur/Gardner Service
 Children Education
 Spouse Travel
 Legal Counseling
 Personal Interest Free Loans
 Home Repairs
 Entertainment Reimbursements
 Soft Furnishings
 Hard Furnishing
 Residential Telephone Reimbursements
 News Papers/Magazines/Books Reimbursements
Enterprise Incentive Plans
 Profit Sharing Plans
 Stock Options
 Employee Stock ownership plan’s
 Thank you very Much

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