2. Compensation
Compensation is what the employees receive in
exchange for their services to the organization
It can be of three types:
Base Pay: it is the basic compensation what the employee gets,
usually as a wage or salary
Variable Pay: it is the compensation that is directly linked to
performance accomplishments(bonuses, incentives, stock options)
Benefits: these are the indirect rewards given to an employee or a
group of employees as a part of organizational membership
(health insurance, vacation pay, retirement pension etc)
3. Objectives of Compensation Planning
The most important objective of any pay system is
fairness or equity. The term equity has three
dimensions, namely:
Internal Equity: ensures that the difficult jobs are paid more
External Equity: ensures that jobs are fairly compensated in
comparison to similar jobs in the labor market
Individual Equity: ensures equal pay for equal work i.e., each
individual’s pay is fair in comparison to the others doing the
same/similar jobs
4. Continuation…
The ultimate goal of compensation administration is to
reward the desired behaviors and encourage the
employees to do well in their jobs. The other important
objectives are:
Attract talent
Retain talent
Ensure equity
New and desired behavior
Control costs
Comply with the legal rules
Ease of operations
5. Wage and Salary
Wage:
a variable pay an individual receives on the basis of the time spent
in completion of the certain amount of work
It is paid to semi-skilled or unskilled workers
Variable in nature
Salary:
A fixed pay an individual receives for the work done by him on the
annual basis
It is paid for the skilled workers
It is fixed in nature
6. Wage and Salary Administration
The term compensation administration or wage & salary
administration denotes the process of managing the company’s
compensation programme
Employee compensation can be classified into two types:
Base compensation: it refers to the monetary payments the employees
receive in the form of wages and salaries
Supplementary compensation: it signifies the incentive payments
based on the actual performance of the employee or a group of employees
7. Objectives of Wage & Salary
Administration
To establish the fair & equitable remuneration offering similar pay for similar
work
To attract qualified and competent personnel
To retain the present employees by keeping wage levels in tune with competing
units
To control labor and administrative costs in line with the ability of the
organization to pay
To improve the motivation & the morale of employees & improve the unit
management
To project a good image of the company and to comply with the legal needs
relating to wages and salaries
8. Principles of Wage & Salary
Administration
Wage & salary plans should be sufficiently flexible
Must always be consistent with the overall
organizational plans and programmes
Comparing the performance with the salary received
Measuring the job satisfaction of the employees
Evaluating the unsatisfied wants and unrealized goals
and aspirations of the employees
Should be in conformity with the social and
economical objectives of the country
Should be responsive to the changing local and
national conditions
9. The Elements of Wage & Salary System
Cost estimating the worth of its members of their
salary opportunities and communicating them to
employees
Relating salary to needs & goals
Developing quality, quantity and time standards
related to work and goals
Determining the effort necessary to achieve standards
Measuring the actual performance
Finding out the dissatisfaction arising from unfulfilled
needs and unattained goals
10. Factors Influencing the Compensation
Levels
Job needs
Ability to pay
Cost of living
Prevailing wage rates
Unions
Productivity
State regulations
Demand and supply of labour
11. Types of Reward Plans
Intrinsic versus Extrinsic Rewards
Intrinsic rewards (personal satisfactions) come
from the job itself, such as:
pride in one’s work
feelings of accomplishment
being part of a work team
12. Types of Reward Plans
Financial versus Non-financial Rewards
Financial rewards include:
wages
bonuses
profit sharing
pension plans
paid leaves
purchase discounts
Non-financial rewards emphasize making life on the
job more attractive; employees vary greatly on what
types they find desirable.
13.
14. Fringe Benefits
Extra benefits provided to the employees in addition
to the normal wages/salaries
Main features are as follows:
Supplementary form of compensation
Paid to all the employees
Indirect compensation and not related to performance of the
employee
Help to raise the living conditions of the employees
Statutory (provident fund)or voluntary (transportation)
15. Need for fringe benefits
Employee demand
Trade union demands
Employee’s preferences
As a social security
To improve human relations
16. Types of Fringe Benefits
Payment for time not worked
Hours of work
Paid holiday
Shift premium
Holiday pay
Paid vacation
Employee security
Retrenchment compensation
Lay off compensation
Safety and health
Workmen’s compensation
Health benefits
Sickness benefit
Medical benefit
Temporary disablement benefit
Permanent disablement benefit
Maternity benefit
17. Types of Fringe Benefits
Voluntary arrangements
Welfare and recreational facilities
Canteens
Consumer stores
Credit societies
Housing
Legal aid
Employee counseling
Welfare administration
Holiday homes
Educational facilities
Transportation
Parties
Miscellaneous
Old age & retirement benefits
Provident fund
Pension
Deposit linked insurance
Gratuity
Medical benifits
18. Incentives Plans
Incentives is the extra pay given to the more efficient
workers on timely basis
Incentives can be in the form of bonus or premium
It helps to attract & retain the talented workforce
It must be achievable
Incentive plans will be in different levels namely low
level, middle level, higher level etc
20. Performance Linked Pay
Merit Pay: increase in base pay once in a year
Variable Pay: cash incentives and year end bonuses
provided to the high performers
Skill based pay: on the basis of work related skills of
the employees
Competency based pay: pays for the employees
range, depth and types of skills and knowledge he
possess
Organizational competencies
Job-related competencies
Personal competencies
21. Compensation Survey
These are the tools used to determine the median for
the average compensation to be paid for the
employee on one or more jobs
The compensation data collected from the several
employers is used to determine the amount of
compensation to be paid
Surveys focus on job titles, geographic locations,
employer size and the industries
Surveys will be conducted by employer’s
associations, survey vendors or individual employers
22. Compensation Surveys
Types of Compensation Surveys are:
Base salaries
Increase in percentage or amounts
Merit increases
Salary ranges
Starting salaries
Incentives/Bonuses
Allowances and benefits
Working hours
Educational requirements
Geographic location
Source of hire (External/Internal)
Working conditions
23. Compensation Surveys
How to choose a right survey
Appropriate jobs
Summary
Methodology
Tabulations
Participating in survey
Indentifying the response deadline
Match jobs
• Title
• Organizational structure
• Job duties
Determining what data is needed
Backup your response
24. Pay Structure
Pay structure or pay scale is a system that how much
is to be paid to the employee as a salary or wage
based on one or more factors such as the employee’s
level, rank or status within the employer’s
organization, the length of employee’s service to the
organization and the difficulty of the task
Allocate the payroll budget
Benchmark the value of each job
Use the internal equity system to create a salary
ranges by pay grade
Use market pricing to relate jobs to external forces