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COMPENSATION MANAGEMENT

MODULE 1

By Prof. Philcy Philip MPhil Management (HRM)

LEARNING OBJECTIVES
Introduction to Compensation management

Total compensation package


Intel's comprehensive compensation and benefits

package Evolution of Strategic Compensation Classical Theories On Wages Importance of an Ideal Compensation Plan

A Machine Can Do The Work Of 50 Ordinary Workers, But It Can Not Do The Work Of One Extra Ordinary Worker.

MARUTI SUZUKI WORKERS GO ON STRIKE


COUNTRY'S LARGEST CAR-MAKER MANESAR PLANT

COMPENSATION MANAGEMENT
Compensation is the remuneration received by an employee

in return for his/her contribution to the organization.


Compensation management is a process of determining

cost-effective pay structure, designed to attract and retain, provide an incentive to work hard and structured to ensure that pay levels are perceived as fair.

-Stephen P. Robbins, David A DeCenzo, Robin Stuart-Kotze and Eileen B. Stewart

Compensation management is a system of compensating

individuals for the work they perform in such a way that the organization is able to attract, retain and motivate them to perform well keeping in view organizational and market factors.
-Tapomoy Deb

NEED OF COMPENSATION MANAGEMENT

Remuneration is the only HR activity which has its impact on all other function regarding personnel. Take job evaluation, it is job evaluation which establishes satisfactory wage and salary differentials. Recruitment and selection are dependent upon wages and salaries offered to prospective employees. There is a close relationship between performance appraisal and remuneration. Incentive payments depend on the employee performance which needs to be carefully assessed. Union-management relationship is also dependent on remuneration.

Total compensation package


Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services.

Compensation can be classified into: a) Direct Compensation b) Indirect Compensation c) Non-monetary Compensation

Direct Compensation
Direct compensation refers to monetary benefits

offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

TYPES OF COMPENSATION
1 DIRECT COMPENSATION

http://payroll.naukrihub.com/compensation/direct-compensation.html

INDIRECT COMPENSATION
Indirect compensation refers to non-monetary

benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

TYPES OF COMPENSATION
2 INDIRECT COMPENSATION

http://payroll.naukrihub.com/compensation/indirectcompensation.html

Non-monetary compensation

Non-monetary compensation can include any

benefits an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, opportunity for growth, preferred office furnishings, assigned parking spaces, preferred work assignments, preferred lunch hours, own secretary etc.

Intel's comprehensive compensation and benefits package is designed to attract, retain, and reward the people necessary to create Intel's longer-term growth and profitability. Wherever possible, we provide the ability for employees to participate in a range of compensation programs, which allow employees to share in Intel's financial success through profit-sharing and stock programs; and innovative benefits that help employees and their families achieve improved quality of life and financial security. Intel's comprehensive package: Provides financial rewards based on individual performance; Shares the company's financial success with employees; and,

Evolution of Strategic Compensation


Today the compensation systems are designed aligned to

the business goals and strategies. The employees are expected to work and take their own decisions. Authority is being delegated. Employees feel secured and valued in the organization. Organizations offer monetary and nonmonetary benefits to attract and retain the best talents in the competitive environment.

CLASSICAL THEORIES ON WAGES


According to Dunlop, the history of wage theory can roughly be divided into 3 periods depending upon the varying economic concepts
1. 2.

Wage fund theory dominated till 1870 Theory of marginal productivity had its sway upto 1914 Theory of collective bargaining is a modern theory

3.

1.Subsistence Theory (17721823)


Adam Smith and David Ricardo
Wage=Amount sufficient to meet basic needs

2.Wage Fund Theory (18181883)


John Stuart Mill (1838)
Wage=Amount of fund allocated for wage

payment/Number of employees to be paid

CLASSICAL THEORIES ON WAGES


3. Surplus Value Theory (Karl Marx) Wage=Cost of labour required to produce 4. Standard of Living Theory (Karl Marx) Wage=Sufficient to meet expenses to live according to a traditional standard of that region/state/country. 5. Efficiency Wage Theory Wage/Salary=Based on efficiency related worth

CLASSICAL THEORIES ON WAGES


6. Supply and Demand Theory Wage/Salary=Market price being affected by Demand and Supply elasticity. 7. Expectancy Wage Theory Wage/Salary=behavioural work 8. Bargaining Theory (John Davidson) Wages=work determined by bargaining

IMPORTANCE OF AN IDEAL COMPENSATION PLAN

IMPORTANCE OF AN IDEAL COMPENSATION PLAN


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. It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable. Such a system should be well defined and uniform. It will apply to all the levels of the organization as a general system. The system should be simple and flexible so that every employee would be able to compute his own compensation receivable.

IMPORTANCE OF AN IDEAL COMPENSATION PLAN


It will raise the morale, efficiency and cooperation

among the workers. It being just and fair would provide satisfaction to the workers. Such system would help management in complying with the various labour acts. Such system should also solve disputes between the employee union and management. The system should follow the management principle of equal pay. It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel.

IMPORTANCE OF AN IDEAL COMPENSATION PLAN


Sound Compensation/Reward System brings peace

in the relationship of employer and employees. It aims at creating a healthy competition among them and encourages employees to work hard and efficiently. The system provides growth and advancement opportunities to the deserving employees. The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.

IMPORTANCE OF AN IDEAL COMPENSATION PLAN


The organization is able to retain the best talent by

providing them adequate compensation thereby stopping them from switching over to another job. The business organization can think of expansion and growth if it has the support of skillful, talented and happy workforce. The sound compensation system is hallmark of organizations success and prosperity. The success and stability of organization is measured with paypackage it provides to its employees.

If you pick the right people and give them the opportunity to spread their wings- and put compensation as a carrier behind it-you almost dont have to manage them. -Jack Welch