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Compensation management concept Fringe benefits Incentives

It refers to wide range of financial and non-financial rewards to employees for their services rendered to the organization.

wages salaries
Employee benefits

Non- Financial
Family Picnic

Paid vacations

Free travel facilities

Dinner/lunch with boss

Maternity leave

Company car

Retirement benefits


Attracting and retaining personnel

Motivating personnel Optimizing cost of personnel

Consistency in compensation

Compensation Management Process

Organizations strategy

Compensation policy

Job analysis and evaluation

Analysis of contingent factor

Design and implementation of compensation plan

Evaluation and review

Wage and salary


Components of Compensation


Fringe Benefits



Workers or blue collared employees

It is usually paid on hourly or daily basis.

White collared employees including managerial personnel monthly basis.


Fringe benefits

Additional payment Linked with productivity Individual or group basis Variable pay

Additional benefits given irrespective of performance Having long term effect

Provident fund Gratuity Pension Medical allowance

Wage and salary

Provided to managerial personnel To facilitate job performance or to retain them Perquisites It includes
Car Club membership Free residential accommodation

Components of Compensation


Fringe Benefits

Monetary Dimensions of Compensation

Health, accident, liability protection

Deferred income

Pay for time not worked

Loss of job

Disability income continuation

Spouse(family) continuation

Pay for work and performance


Income equivalent payments

Enhance dignity and satisfaction from work performed Leads to self worth and pride in making a contribution Allocate sufficient resourced to perform work assignments Provide necessary information and skills Maintain job related interest and satisfaction Offer supportive leadership and management Skills and interests in coaching and counseling Praise for the job well done Constructive feedback Flexible policies, rules and regulations

Safe working environment

Enhance physiological health, intellectual growth and emotional maturity

Minimization of noxious fumes Avoidance of extreme heat, cold, humidity conditions Elimination of disease related material

Problems related to monotonous jobs, boredom Flexibility in job requirements

Design jobs that require adequate attention and effort

Rotating work assignments Opportunity to schedule workdays and workweeks

Grant sufficient control over the job to meet personal demands Opportunity to participate in decision making process Scheduling work activities 2 part time employees to share one full time job Casual dress day

Internal and external factor responsible for compensation

Nature of HR market
Cost of living Trade union Legal framework

demand & supply, productivity, prevailing markets rates

Allowance given to maintain social Status according to place

Union bargains with management Weapons-strikes, gheroes etc. Guidelines given by laws about Eg. wages act 1936

Demand and supply

Demand for skill up prices will also Productivity constant


Efficient employees paid higher

Prevailing market rate of wages

Compare wages with other companies' to retain and gain talent

Nature of HR market

demand & supply, productivity, prevailing markets rates

Allowance given to maintain social Status according to place Union bargains with management Weapons-strikes, Gheroes etc. Guidelines given by laws about Eg. wages act 1936

Cost of living

Trade union Legal framework

Organizational strategy and attitude

It determine the organizational attitude and hence its remuneration compensation depends upon earning Difficult job higher compensation Job evaluation is done

Ability to pay

Nature of jobs

Nature of personnel

Employee related factors Performance, seniority, special skills

They are supplementary compensation over and above base compensation and consists of incentives and variable payments according to individual or group output.
They are tangible benefits either in the form of cash or other kinds Eg: housing, traveling allowance, facility of refreshment and lunch etc

Statutory Benefits
Mandatory and provided by all the organizations E.g.: paid holiday leaves

Voluntary Benefits
Determined by the individual organizations on their own E.g.: transportation facilities, child care,

Payment for time not worked Retirement Benefits

Eg: payment for weekly-off day, Gazetted holiday, Personal leave

Provident Fund Scheme Pension Scheme Gratuity

Compensation benefits

Injuries during the course of employment Death during the course of employment

Insurance Benefits

Health and Safety provisions

Eg: medical benefit, disability benefit, maternity benefit etc

According to Factories Act, 1948: Health Safety Welfare Working hours

Recreational and other Benefits

Eg: Telco in Jamshedpur provide excellent townships


Indian industries have recognized the importance and are also providing such benefits but progress in this area has not been very encouraging.
Reason- industrial development started late here in comparison to developed nations i.e only after 1947 and most of the industries are still not in position to offer a great benefits due to low profits

INCENTIVE PLANS-Incentive wages relate earnings to productivity and may use bonuses, premiums or a variety of rates to compensate for superior performance.

Incentives Positive & Negative

Individual & Collective

Types of incentive plan

For White collared employee

For blue collared employee




Group incentive

Individual incentive

Wage and Incentive plan for blue collared employees

Piece wage

Time wage

Wage incentive plan

Group incentive

Individual incentive



Profit sharing


Based on time

Based on productivity

Halsey plan

Rowan plan

Gantt plan


is the right given to employee to purchase a fixed number of shares of company stock at a specified price for a limited period of time.

gives the employees an ownership of the company due to which he can participate in the companys affaires

It offers an option to purchase a certain of stock in the future at a stated price or in the present at a price lower than the market price. Makes the employee a part owner of company Mutuality of interest is created between the individual and the company Stocks are held in an employee stock ownership trust until the employee chooses to withdraw from the plan or wants to leave the company

Esos i.e. employee stock option scheme, is a voluntary scheme on the part of the company to encourage employees participation in the company Suitable percentage of reservation can be made by the issue of the employees of the company Under existing guidelines- 5% of the new issue may be reserved for the esos subject in a maximum limit of 200 shares per employee who agree to participate the esos Membership of the esos should be restricted only to the permanent employees of the company


Profit sharing means a system to distribute a portion of the profits of the organization to employees.
It is an agreement by which employees receive a fixed portion of profit.


1. 2.


Agreement between employers and employees for sharing of profit Bonus paid to employees in addition to their wages and profit as an incentive for higher performance Workers share only profits not the losses Criteria for distribution of profits is decided well in advance-based on the position of an employee in an organization



Industry basis- profits of a number of industrial units in the same industry may be group together to determine the share for the laborers. Unit basis- simplest way of giving a labourer a share in the profits of individual undertaking in which he is employed



Department basis- workers in a particular department share in the profits made by that department.
Locality basis- industrial units in particular locality may pool their profits to determine labours remuneration by profit sharing. Individual basis- a worker receives a proportion of the profit which may have been earned by a business through the effort of that individual worker.



Gainsharing is a system that includes: (1) A financial measurement and feedback system to monitor company performance against an agreed benchmark and distribute gains in the form of bonuses when appropriate, and (2) A focused involvement system to eliminate barriers to improved company performance.


Purpose- In gain sharing the purpose is to drive performance of an

organization by promoting awareness, alignment, teamwork, communication and involvement whereas in profit sharing the purpose is to share the financial success of the total organization and encourage employee identity with company success. facility, site, or stand-alone organization whereas in profit sharing The plan typically applies organization-wide


Application- In gain sharing The plan commonly applies to a single


measures (productivity, quality, spending, service) whereas in profit sharing Payout is based on a broad financial measure of the organizations profitability.

Measurement in gain sharing Payout is based on operational


Funding- in gain sharing Gains and resulting payouts are self-funded based on savings generated by improved performance whereas in profit sharing Payouts are funded through company profits Employee eligibility- in gain sharing Typically all employees at a site are eligible for plan payments whereas in profit sharing Some employee groups may be excluded, such as hourly or union employees



choose your own reward

Employees are allowed to select their own incentives schemes from a variety of possibilities this arrangement is known as smorgas Board This program requires more information to be provided to employees by management.

Help employees to make correct decision.

HALSEY-WEIR PREMIUM PLAN Bonus =(1/2) time saved x hourly rate

ROWAN PREMIUM PLAN Bonus =Saved time x Actual time taken x Rate per hour Standard time BEDEAUX POINT METHOD Value of time saved =(S-T) x R Bs where, S =Standard time R =Rate of wages T =Actual time Bs= Bedeaux point

A smart compensation plan with right mix of monetary and non-monetary compensation can motivate the employees to stretch their limits and perform beyond expectation leading to higher productivity and profits Good communication and uniformity of procedure is the key to success of such plans

Compensation management by Soffia Dube

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