Compensation and Benefit

Presented By:03/23/09



• Compensation is what employees receive in exchange for their contribution to the organization. Total compensation

Compensation management

Direct + Indirect Compensation

Base Pay



• C/R possibly the most critical & strategic area of HRM • Employers perspective , Employees perspective, Concept of compensation, • An organization exists to accomplish specific goals & objectives hence, hires employees. The individuals hired by the organization have their own needs. One is for money, which enables them to purchase a wide variety of goods & services available in the marketplace. Hence there is a basis for an exchange: the employee offers specific behaviors desired by the organization to meet its goals and 03/23/09 objectives in return for money, goods, & / 3 or

• Compensation emphasizes on fair- day’s pay for fair day’s work. • Purely extrinsic – A quid pro quo contract All forms of financial returns and tangible services and benefits employees receive as part of employment relationship– Cash- compensation –Base Pay, D. A. Short Term Incentives, Long Term Incentives (Equity Incentives) – Benefits – Income Protection, Allowance, work/Life- Protecting ones – Bonuses (attendance, performance based etc) – Shifts, Supplements. – Danger money/ Dirt money – Immediate focus – Trade – off between pay & efforts – Monetary contract
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• Composite of all organizational mechanisms, and strategies used to finally acknowledge Employees’ behavior & performance. It includes all forms of compensation, specially nonmonetary, awards & recognition, training opportunities, promotions, assignments, working conditions etc. – Located more in behavioral science – It part of broader strategies of enhancing loyalty, motivation & satisfaction – Encompasses career opportunities, jobsecurities, learning opportunities, achievement, recognition
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– Economic incentives are becoming rights rather than rewards”. So we must acknowledge that insufficient monetary rewards for performance can not be rewards for performance can not be compensated by good human relations. – If talent is an organization’s most important asset, maximizing that talent is its most critical challenge. The challenge lies in issues relating to developing the skills to motivate people to perform at their best, making work meaningful and rewarding, fostering commitment & innovation, retaining top performers & improving their job performance today & giving them the edge they need to become the leader of tomorrow. – More prospective in focus
• To unleash latent potentials • To create sustained commitment • Psychological contract

– “Personal recognition can be more motivational than money” asserts Bob Nelson, author of 1001 Ways to Reward Employees (Workman Publishing, 1994). “You can obtain from your employees any type of 03/23/09 performance or behaviour you desire simply by making use of positive reinforcement.


• • • • • • • • • • • • Attracting & retaining good performer Improving Individual & Corporate Performance Improving Motivation Clarifying job- role & duties Improving communication Reinforcing management control Identifying developmental opportunities Importance that job deserves (Status, Skill, Responsibility) Encouraging loyalty to the Organization Controlling cost Complying Govt.’s Policies/ Laws Maintaining Co.’s Image 03/23/09


• Business Strategy –
– To attract, retain, motivate the Right man – What org. can afford – What talent will be required to meet org. strategic goals

• The economy- macro level factors like global trends, national wage policiesminimum, fair & living wages, legal provisions
– Employer employee are having different perspective of compensation. – Compensation & reward different concepts – Macro National level compensation policy 03/23/09 – Industry ( micro level compensation policy)


1. Motivational strategies Internal Consistency – Adams equity theory of motivation • Job evaluation – to find the worth of the job 2. External Parity • Labor Market/Ongoing rates • Capacity to pay – 3. Organization strategy


• Wage structure • Wage/job family
– – – – – – – – Managerial Technical/supervisory Administrative/clerical (staff) Manual- Highly skilled, skilled, semi skilled, unskilled Basic pay Base pay (fixed pay+ variable pay) Dearness allowance Other allowances & Incentives like bonus etc.

• Components of wage structures

Incentive Scheme – Schemes where the workers’ earnings vary in the same proportion as output – Schemes where earnings vary less proportionately than output – Schemes where earnings vary proportionately more than output – Schemes where earnings differ at different levels of 03/23/09 10 output.

• This points to designing appropriate reward programmes linked to performance. Total reward system• Total Reward System has both monitory and nonmonitory components, comprising incentives such as base- pay, variable pay, benefits, an exciting and challenging work environment the opportunity to work with excellent colleagues and leaders and industrial growth opportunity- the concept has been derived from Herzberg’s theory of motivation- Hygiene factors + motivators
– Direct financial- Base-pay, variable –pay, incentives, stock options, Bonus, Merit increases, Spot-rewards, deferred- payment etc. – Indirect-financialBenefits, Perquisites, non-cashrecognition, sabbaticals, Q.W.L-/Clubs, Co’s paid holidays, children schooling, home-office, careercounseling etc.
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Profit is the most important criteria • Scheme may use cash, or share • Gain sharing • Share office scheme • Employees share ownership plan • Higher software system offers a platinum stock option – no real share transfer, employers receives a cash payment equivalent to the rise in value of national stock • Incentive ………Non cash awards • Skill based pay allows employees to program through a range of grade • Broadband pay
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Incentive Pay Bonus, Commission, Piece Rate, profit sharing, Stock option
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– – – – –

Minimum wages act Payment of wages act Equal remuneration act Payment of bonus act Income tax act

Legal aspect of Compensation

• Principle of compensation Equitable compensation systems
– – – – Internal equity – through job evaluation methods External parity – market survey methods Job pricing Pay ranges


Wage structure
Wage Differential • Fair Wages Committee • The degree of skill • The strain of work • The experience involved • The training required • The responsibilities undertaken • The mental & physical requirements • The disagreeableness of the task • The hazard attendant on the work, and • The fatigue involved. Wage component 03/23/09 • Basic/ DA + variable pay + fringe benefits


Standard Pay Package
• Government Department
– Basic – D A: 100% to 50% neutralization of dearness – HRA : different for different category of cities Delhi 30% of basic – CCA : According to city (A class, B Class, C class – Conveyance : Different for different slabs of pay

• Public sector undertakings
Basic : Rs 4/- per point of price indices DA : According to city (A class, B Class, C class Conveyance : Different for different slabs of pay HRA: 30%, 20 % & 15% of A, B, C category of citied Tiffin Allowance : Rs 30 /- per day Education Allowance : Rs. 125/- per child, subject to maximum of two 03/23/09 16 – Electricity Water Allowance; Rs. 150/– – – – – –

• Wages for Fair Day’s work, for More Work-wage incentive. • Linking pay to performance. • Variable pay .



• What is performance related pay?
– “Financially measurable reward to an individual which is linked directly to individual team, or co’s performance.” – PRP links pay progression to performance and/or comp rating – Merit Pay, individual incentive bonuses, individual discretionary bonuses, team / to prefer bonuses, skilled based payment etc. – Merit pay – basic salary increase by ….. Performance alone (i) incremental system (ii) percentage increase – Individual bonuses – Senior executives, sales managers production managers - reward for performance subject to assessment after the event. – Team /group bonus- designed for group performance 03/23/09 18



Factors for successful Variable Pay Plans



Equity Theory
Fairness about pay differentials among individuals who hold the same job can be established by using:
• Seniority-based pay systems that reward longevity. • Merit-based pay systems that reward employee performance. • Incentive plans that allow employees to receive part of their compensation based on their job performance. • Skills-based pay systems. • Team-based pay plans that encourage cooperation and flexibility in employees.

§ Employees’ perceptions of internal equity —their beliefs concerning the fairness of what the organization is paying them compared with what it pays other employees. § Organizations with an internal orientation spend time and effort comparing and analyzing pay differences among their own employees. § Pay practices, such as how much each person makes, are usually less secretive in these organizations than in organizations with an external orientation.

• Internally oriented organizations also use longterm incentives to reward employees who stay with them for long periods. • Comparison of my input / reward ratio with that of similar others. – Employees may seek to address imbalance by changing their inputs. – Fairness of pay differentials between different jobs in the organization can be established by job ranking, job classification, point systems and factor comparisons.

External equity
Employees’ perception of external equity—which concerns the fairness of what the company is paying them compared with what they could earn elsewhere—are critical in such employment relationships. • Organizations with an external labor orientation must assess how their compensation compares with the compensation offered by other organizations. n Fairness of organizational compensation levels relative to similar jobs in other organizations.

Good Employee Relations In Infosys

Employee Relations
• The term employee relations refers to the act of maintaining and generating a work culture free from conflict, groupism and discontentment. It aims at building up of good human relations among the employees with a view to leading them to the ultimate objective of the organization.

How to maintain a good Employee Relation?
• This is simple technique to interact with people. Does not require any books. 1. Know each employee in your office. from office boy to top boss. Interact at least 5-8 person in a day besides your dept. 2. Understand their difficulty & try to solve at best level but within co. policy. 3. Formulate good policy in your co. Make understand the people about them by showing PPT, meetings. Monitor the things are in place. 4. Celebrate birthdays of Officers, staff & senior managers with entire team. Arrange picnic / family get together once in a year. 5. Conduct training programmes for them. 6. Open eye on people who are talking against the company

Strategies for Good Employee Relations
• There can be varied examples to make a good employee relations 1. Letters of appreciation can be given on Monthly basis depending on Criterion decided by HR. 2. Gift vouchers can be given to outstanding employees. 3. In certain organizations Couple tickets for Play's are also given to good performers. 4. Occasionally there can be inter departments Get to gathers on weekends. 5. Memento’s can be given to those who have been associated with the organizations for more than certain period. 6.Marriage Allowances can be given as company’s Gift. All these not only make an employee feel that the

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