Presented by

Abhilash Iyyappan
H.R. 2nd Yr. PGDM
ITM B- School
Chennai
 Compensation is the payment to an
employee in return for their
contribution to the organization, that
is, in terms for the job they have
done they are paid or rewarded
(monetary/non-monetary). The most
common forms of compensation are
wages, salaries and tips.
 Compensation is the remuneration received by an employee in return for
his/her contribution to the organization. It is an organized practice that
involves balancing the work-employee relation in the organization.

How does Compensation play a role in H.R Dept:

 Compensation is an integral part of human resource management which
helps in:
 Motivating the employees,

 Retain the employees

 Converting employees to experts in the organization

 Converting a employee into a asset in terms of his contribution to the

company
 Bringing more quality work as the output and building a strong workforce

 Helps to increase the Retention level in the organization.

 Thus this is very important role today in the competitive market, where
there are more need of employees who are experts in industries for huge
compensations.
 Hence the measures adopted by the HR should be effective and
competent when compared to the competitors.
 Types of Compensation

Direct/Monet Indirect/Non- Cost Free

ary Monetary Compensatio
n

1. 1. Appreciation
1. Bonus 2. Child development
1. Perks
2. Commission theory
2. Time off
3. Incentive 3. Flexi-time
3. Health Insurance
4. Profit Sharing Plans 4. Telecommuting
4. Maternity Leave
5. Paid Moving Expenses through PDA’s,
5. Dependent Care
6. Club Membership in mobiles
Assistance
form of Cash 5. Comfort work place
6. Education Assistance
7. Travel Perks in form of 6. Absence of
Cash traditional work
culture
A good compensation package is
important to motivate the employees
to increase the organizational
productivity.
 Unless compensation is provided no
one will come and work for the
organization. Thus, compensation helps
in running an organization effectively
and accomplishing its goals.
 Salary is just a part of the compensation
system, the employees have other
psychological and self-actualization needs
to fulfill. Thus, compensation serves the
purpose.
 The most competitive compensation will
help the organization to attract and sustain
the best talent. The compensation package
should be as per industry standards.
 MOTIVATI
ON

COMPENSA
TION
PACKAGE

EMPLOYE
E NEED
RETENTI SATISFAC
ON TION
 Today more and more businesses are
affected by global marketplace as regard to
cost of labor.
 Organization needs to keep up the labor cost
in line with those of the other countries, who
are been able to produce goods or services
in their competitive price
 This is why global market have gone to show
importance on the determinant of financial
compensation for individuals.
 Managers tend to view financial compensation as
both expense and asset.
 It is an expense because it reflects the cost of
labor
 In service industry labor costs accounts more than
50% of all expenses.
 It is an asset when it is used for recruiting and
hiring, good people encouraging them to put their
best efforts (motivate) and to remain in their job
Direct compensation
refers to monetary
benefits offered and
provided to
employees in return
of the services they
provide to the
organization. They
are given at a regular
interval at a definite
 Basic Salary
 HRA (House Rent Allowance)

 CA (Conveyance Allowance)

 LTA (Leave Travel Allowance)

 Medical Reimbursement

 Bonus (Salary Bonus)

 SA (Special Allowance)
Indirect compensation refers to non-
monetary benefits offered and provided to
employees in lieu of the services provided
by them to the organization.

Non-cash benefit (such as an office car)

provided to an employee. In some
jurisdictions a certain percentage of the
indirect compensation is added to the
beneficiary's income for taxing purposes.
 The compensation equity has formulated a
theory based on the
- Input.
 Input: Outcome ratio for self

 Input: Outcome ratio for referent

 Perception of ratios affects future

performance
 Equity - Fair pay treatment for employees
 External equity - Firm's employees are paid
comparably to workers who perform similar jobs
in other firms
 Internal equity - Exists when employees are
paid according to relative value of their jobs
within same organization
 Employee equity - Individuals performing
similar jobs for same firm are paid according to
factors unique to employee, such as
performance level or seniority
 Team equity - More productive teams are
rewarded more than less productive groups
 Organization typically use a number of
factors to determine individual pay.
This decision was influenced by the
- Labor market
- Employee
- Job
- Organization
 Compensation surveys
 Expediency

 Cost of living
 Labor unions

 Society

 Economy

 Legislation
 Performance-based Pay
 Skilled-based Pay
 Competency-based Pay
 Seniority
 Experience
 Membership in the organization
 Potential
 Political Influence
 Luck
 The Organization
Compensation Policies
Organizational Politics
Ability to Pay

The Employee The Labor Market

Job Performance Merit Job Compensation Surveys
Pay Variable Pay Expediency
Individual
Competency-Based Pay Cost of Living
Seniority Financial
Labor Unions
Experience Compensation Society
Organization Membership The Economy
Potential Legislation
Political Influence Pricing
Luck

The Job
Job Analysis
Job Descriptions
Job Evaluation
21
Collective Bargaining
 Merit pay - Pay increase given to
employees based on their level of
performance as indicated in the appraisal
 Variable pay - Compensation based on
performance (bonus)
 Piecework – Employees paid for each
unit they produce
Compensates on basis of job-related
skills and knowledge
 Employees and departments benefit
when employees obtain additional skills
 Appropriate where the work tends to be
routine and less varied
Compensates on basis of
demonstrated expertise
Its objectives are:
-Apply valid and transparent
performance standards
- Provide fair, accurate and
nondiscriminatory
assessments performance
- Reward high performers and
identify below expectations
performers
- Retain key talented people
-Increase competitive
 Length of time an employee has been
associated with the company, division,
department, or job
 Labor unions tend to favor seniority
 Regardless of
nature of job,
very few factors
have a more
significant
impact on
performance
than experience
 Profit sharing – distribution of
predetermined percentage of firm’s profits
to employees
 Gain sharing – incentive payment based
upon improved company performance
 Scanlon plan – reward to employees for
savings in labor costs resulting from employees’
suggestions
 Executive compensation is
how top executives of business
corporations are paid. This
includes a basic salary, bonuses,
shares, options and other
company benefits. Over the past
three decades, executive
compensation has risen
dramatically beyond the rising
levels of an average worker's
wage Executive compensation is
an important part of corporate
governance, and is often
determined by a company's
board of directors.
 Firms typically
prefer to relate
salary growth for the
highest-level
managers to overall
corporate
performance
HR executives
who know their
company’s
business must
play key role in
assuring
reasonable and
ethical behavior
 Pay structure refers to the process of
setting up the pay for a job in an
organization. The process deals with
internal and external analysis to
estimate the compensation package for
a job profile. Internal equity, External
equity and Individual equity are the
most popular pay structures. Job
description provides the in depth
There are three challenges in developing a
pay structure. You should determine:
 The appropriate data for establishing the relative
value of a particular job to your organization.
 The appropriate pay range for a job with the stated
value to your organization.
 The value of each job position within the allotted
pay range.
 Group jobs with similar value in organization
 Assess the groups and determine the no. of
pay ranges
 Determine pay for each group with minimum
point, mid point and maxi. point
 Salary ranges also made through company
policy
 According to the levels the pay range should
be clearly differentiated
 Number of years of experience
 Number of reporting staff members
 Performance evaluation results
 Hazardous working conditions
 Undesirable shifts
 Education and degrees
 Professional certifications
 Management opinions
Entry Level
Management Level
Entry Level Management Lev
An ideal compensation system will
have positive impact on the
efficiency and results produced by
employees. It will encourage the
employees to perform better and
achieve the standards fixed which
will also grow the organization in
the long run. Hence HR
professionals play a vital role in
providing Compensation and
Benefits to the employees and