Amity Business School



Amity Business School

Topics covered after the learning:

1. Concept of Compensation,

2. System of Compensating,

3. Concept of Reward and Reward System,

4. Economic Theory of Wages,

5. Limitations of Economic Theories,

6. Wage and Salary Administration at micro level,

7. Wage concepts,

8. Role of various parties – Employees, Employers, Unions & Government,

9. Overview of Legislations affecting Compensation

Amity Business School


Compensation is what employees receive in exchange for their contribution to the organization

An employee’s standard of living, status in the society, Motivation, Loyalty and Productivity depend upon the compensation he/she receives

For the employer to employee remuneration is significant because of it’s contribution to cost of production

Amity Business School


Compensation can be offered by an organization both directly( Base Pay & Variable Pay) and Indirectly (Benefits)

1. Base Pay -Basic compensation an employee gets usually as a wage or salary 2 Variable Pay -Compensation linked directly to the performance 3. Benefits- Indirect rewards given as a part of organizational membership.

Amity Business School


1. Internal Equity- Ensures that more difficult jobs are paid more.

2. External Parity- Aims to compensate fairly in comparison to similar jobs in labor market.

3. Individual Equity-Equal Pay for equal work.

Amity Business School SOME OTHER OBJECTIVES To attract talent To retain talent Ensure equity To motivate new & desired behavior Control cost Comply with legal rules Ease of operation .

Economy . Labor Laws iv. Labor Market ii.Amity Business School FACTORS INFLUENCING EMPLOYEE COMPENSATION I. Cost of Living iii. External Factors i. Society v.

Job Evaluation & Performance Appraisal iii. Business Strategy ii. Employee ./ II.Amity Business School Contd. Internal Factors: i.

Amity Business School SYSTEM OF COMPENSATING .

Accident & Liability Protection • Income Equivalent Payments – Perks • Organizations Develop Compensation Policy .Dimensions Amity Business School • Pay for Work & Performance • Pay for Time not Work • Disability Income Continuation • Deferred Income • Spouse (Family) Income Continuation • Health.

Amity Business School HOW IS COMPENSATION USED? Compensation may be adjusted according the business needs. goals. increase or maintain morale/satisfaction. and available resources Compensation may be used to: recruit and retain qualified employees. reward and encourage peak performance. reduce turnover and encourage company loyalty. . achieve internal and external equity. modify (through negotiations) practices of unions.

Amity Business School WHAT ARE THE COMPONENTS OF A COMPENSATION SYSTEM? The components of a compensation system include: Job Descriptions Job Analysis Job Evaluation Pay Structures Salary Surveys Policies and Regulations .

Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental.. . medical.. vacation.Amity Business School WHAT ARE DIFFERENT TYPES OF COMPENSATION? Different types of compensation include: Base Pay Commissions Overtime Pay Bonuses. Profit Sharing. taxes. retirement. leaves. insurance.

COMPENSATION PLAN Amity Business School Develop a program outline Designate an individual to oversee Develop a compensation philosophy Conduct a job analysis of all positions Evaluate jobs Determine grades Establish grade pricing and salary range Determine an appropriate salary structure Develop a salary administration policy Obtain top executives' approval of the basic salary program Communicate the final program to employees and managers Monitor the program .

Amity Business School CONCEPT OF REWARD .

Amity Business School Reward is a composite of all organizational mechanism and strategies used to finally acknowledge employees behavior and performance. .

Amity Business School OBJECTIVE OF REWARD To motivate employees to perform effectively To motivate employees to join the organization To motivate employees to continue to work Enhance Loyalty Satisfaction .

Amity Business School Financial Rewards + Non Financial Rewards = Total Reward .

etc. Types of financial rewards given are.Amity Business School FINANCIAL REWARDS A number of monetary benefits offered to employees to obtain short term and long term commitment. variable pay. base pay. share ownership. bonus. .

quality of work life. recognition. . etc. opportunities to develop skills.Amity Business School NON FINANCIAL REWARDS Non-financial rewards cater mainly to fulfill the psychological needs of the employees Types of non financial rewards given to employees are.

Amity Business School REWARD SYSTEM .

308 .Amity Business School Rate of Pay Level of skill Adopted from Banfield Paul and Kay Rebecca Introduction to HRM. 4 Page No. Oxford University Press Vol.

Amity Business School WHY REWARD SYSTEMS? Attracting. retaining & motivating employees To get desired behavior To achieve stretch standards To cater individual needs .

Amity Business School REWARD MECHANISMS Praise/recognition from supervisors Challenging work assignments Promotions and lateral moves Paid leave to employees .

Amity Business School GETTING MORE OUT OF REWARDS Aligning rewards with objectives Outcome-based evaluation of employee Agreeing what behaviors and capabilities will be rewarded .

Amity Business School Designing Reward System Whom to Reward? • Individual Employees • Teams • Organization • Outsiders .

Amity Business School Designing Reward System What to Reward? • Performance • Organizational Level • Unit / Departmental Level • Speed and Efficiency • Loyalty • Innovation • Upholding Values .

Amity Business School • Technical Solution • Learning • Good Behavior • Sense of Humor • Teaching • Publications • Event Management • Social Concern .

Amity Business School Characteristics of rewards Rewards must have the following characteristics • Value • Relevant • Purpose • Behavioral effect • Recognition .

Amity Business School Concept of Total Reward System Total Reward Strategies should include • Direct Financial • Indirect Financial • Identification • Work Content • Career Opportunities .

Rewards can fail in the form of incentives – Kohn Amity Business School • • • • • • Pay is not a motivator Rewards punish Rewards rupture relationships Rewards ignore reasons Rewards discourage risk taking Rewards undermine interest .

Amity Business School ECONOMIC THEORY OF WAGES .

Amity Business School ECONOMIC THEORIES Wage fund Theory Residual Claimant Theory 1.Justification Marginal Bargaining Theories Productivity Theory Theory Supply and Demand Theory Competitive Theory 3.Social Wage Theories Marxian Theory Subsistence Theory 2.Behavioral Theories Employee’s Acceptance level Internal Wage Structure Wage and Motivation .

Assumption of Full Employment Wages could be influenced by factors other than wages too. Wage and Benefits reflect Industry characteristics and personal characteristics. Interference by government Technology and Productivity are major determinants Pressure for linking labour standards with International Trade. .LIMITATIONS OF ECONOMIC THEORY Amity Business School Wages and Prices are either fully fixed or fully flexible.


Amity Business School Policies Techniques Objectives ALIGNMENT Work analysis Description INTERNAL STRUCTURE EFFICIENCY COMPETITVENESS Market Surveys PAY STRUCTURE -Performance -Quality -Customers -Costs FAIRNESS CONTRIBUTION Seniority Performance/ INCENTIVE Based Merit Based PROGRAMS MANAGEMENT Costs Communication EVALUATION COMPLIANCE .

Amity Business School INTERNAL ALIGNMENT Dependent of Internal Pay Structure Levels Differentials Criteria -Content and Value -Use Value and Exchange Value -Job and Person Based .

Strategy.Amity Business School EXTERNAL COMPETITIVENESS Factors Shaping External Competitiveness Labour Market •Nature of Demand •Nature of Supply EXTERNAL COMPETITIVENESS Product Market Factors •Degree of Competition •Level of Product Demand Organisation Factors •Industry. Size •Individual Manager .

Amity Business School CONTRIBUTION Seniority Based Performance Based Pay Merit Guidelines .

Amity Business School MANAGEMENT Managing Labour Cost -Controlling Employment -Controlling av. Cash Compensation Communication -Managing the Massage Pay -Change Agent in Restructuring .

Amity Business School WAGE CONCEPT .

Amity Business School WAGE AND SALARY Wage: Index of productivity Definition of Wage Wage vs Salary .


Amity Business School ROLE OF EMPLOYERS Ability to pay Cost effect Wage costs Unit labour costs Cost reduction .

Amity Business School ROLE OF EMPLOYEES Ability to live and work Price effect Wage levels Effort put in Wage maximization .

Amity Business School ROLE OF THE GOVERNMENT Five Year Plans & Wage Policy -Payment of Wages Act 1936 -Minimum Wages Act 1948 -Payment of Bonus Act 1965 -Equal Remuneration Act 1976 Legal Framework Unilateral Pay Fixation Pay Commissions Wage Boards Adjudication .

Region wide Agreements Decentralized Firm/ Plant Level Agreements .ROLE OF UNIONS Amity Business School Collective Bargaining (Levels) Sectoral Bargaining at National Level Industry-cum.


Article 43 of Constitution Of India All acts with Wage or Salary or any compensation between the Employer and Employee . 1923 The Contract Labor (R & A) Act.Amity Business School ACTS AFFECTING COMPENSATION Payment of Gratuity Act. 1972 The Workmen’s Compensation Act.

Amity Business School THANK YOU! .

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