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Compensation and Benefits

Q1. a. What is meant by compensation management?

b. Organizations design out the employee compensation packages based on same
compensation and noncompensation dimension. Describe in brief the compensation
A1. Compensation management is a process of determining cost effective pay structure
designed to attract and retain the employees provide an incentive to work hard and structured to
ensure that pay levels are perceived as fair. In words of I, Kessler, a renowned compensation
manager, compensation managemetn refers to payment system which determines employee wage
or salary, direct or indirect rewards.
The compensation dimensions are described breifly as follows:

Pay for work and performance: this includes short term monetary payments made on
weekly, monthly and annual periods in form of awards or bonuses to allow employees to

make payment for their desired product and services.

Pay for time not worked: It has been observed from past experience that the number of

day worked per year and the number of hours worked per week have decreased.
Disability income continuation; an employee becomes unable to perform his normal
duties when he incurs some health or accident disabilities, Medical, surgical and hospital
bills creates an additional burden for him in addition to his ongoing self and family

Deferred income: Different types of programmes like savings plans social security
employer provided pensions plans annutities and supplemental income plans provide

after retirement income to the employee. These are considered lucrative by them because
of tax benefits like immediate tax deduction and deferment of tax obligation etc. and help

employees to earn tax free interest.

Spouse or family income continuation: In compensation, there are some plans which are
designed to provide the dependents of the employee with income source in case of his

death or permanent disability to work.

Health, accident and liability protection: At the time of health problems employees main
focus is not only concerned with income continuration but also associated with payments
for medical treatments to overcome disability or illness.

Q2. Explain the concept of Wage? List down the pre- requisites of effective Incentive
A2. Wages in its broadest sense implies any kind of economic compensation received by the
employees from the employer under the contract of emplyment whereby the employee renders
some services to the employer. The term wage is used to define different concept like wage rate,
gross average hourly earnings straight time average hourly earnings weekly earnigs weekly take
home pay annual earnings etc.

Minimum wages : It can be categorised into three types

a. The minimum wates represented under Minimum Wages Act 1948 by the government
for different scheduled employees.
b. A minimum wate earned by an un-skilled employee as a result of wage settlement in
an organised industry.
c. A need based minimum wage as determined by the norms a prescribed under 15 th
Session of Indian Labour Conference.

Need based minimum wages: For compulation of minimum wages, the following five
norms are applied and recommended to be used by all wage setting authorities like wage
boards, wage committees and adjudicators.
a. The standard working class household must be considered to include three
expenditure units for each one earner while computing the minimum wage.
b. Net intake of 2700 calories should be taken into account at the time of minimum
wage calculation.
c. Per capita consumption constituting of 18 yards per annum giving an average worker
family consisting of four members a total of 72 yards as the estimated clothing

Fair wage: It is equal to the wage received by workers performing the work which
requires use of equal skills, difficulty levels, unpleasantness, etc. You can say that fair
wage lies between minimum and living wage. Its lower limit is minimum wage and its

upper limit depends on the indsutry paying capacity.

Living wages: In this wage which is capable of meeting the normal needs of an employee
on an average. Living wage must be capable of paying for satisfactory basic budget, must
be enough to purchase minimum theoretical needs of a typical family and must be

comparable with another already established living wage in similar circumstances, etc
Money and real wage: Money wage is determined and regulated through the interactions
between the demand and supply of labnour on one hand and the demand and supply of
necessities on other. You can define real wages as the inflation adjusted wages.

Q3. What do you understand by Voluntary Retirement Scheme? Also list down reasons,
merits and demerits of VRS?
A3. Voluntary Retirement Scheme is the most common method which is used by organizations to
reduce excess manpower. It helps the employer not only to compete and survive in his current

business scenario but also improve his/her performance. This scheme alos becomes the
prominent means of downsizing of employees. VRS is also known by the names such as
Voluntary Seperation Scheme, Golden Handshake and Early Seperation Scheme.
Reasons for adopting VRS by virtue by organizations An organization may offer the schemes
udner the following conditions:

Due to mergers and takeovers.

Due to decline in the company.
Due to obsolescence of technology/ product.
Due to intense competition.
Due to joint venture with the foreign collaborations.

Merits of Volunatry Retirement Scheme following are the merits of VRS:

1. It offers an attractive financial package to their employees that are more than what is
permitted under the law of retrenchment.
2. This scheme precludes the need for enforcement which may become the reason for
disputes and conflcits in the organization.
3. It is flexible in nature as it is applicable to certain departments and divisions where there
is excessive manpower.
4. It lowers the overall cost and allow overall savings in the employee cost
Demerits of VRS:
1. Sometimes the severance costs are heavy and become the cause of embarassment to the
top management because sometimes seperation is applied by competent, good and
capable employees.
2. It may create a sense of uncertainity and fear among the employees.
3. It may cause disturbance in the normal operations due to the protests of trade unions
against the operation of VRS.

4. One of the possible drawbacks of the VRS is that the efficient employees would leave the
company while the efficient may stay back.
Q4. Discuss the organizational and external factors affecting compensation strategies?

Designing compensation strtegies inovolves determination of the hierarchy of grades,

formulating a compensatio structure and finalising the pay packages with the aim to attract and
retained talented workforce. The external and internal factors that affect a compensation strategy

1. Individual factors: Organizations while designing compensation strategy consider

employees concern about compensation worth. In designing the compensation strategy
individual skill, knowledge, expertise, attitude, sex work environment and experience
play an important role in fixing the level of the job.
2. Organizational factors: Organizational learning depends on productivity of employees
and their efficiency which makes the designing of compensation strategy. This measures
the companys ability to pay. Besides this the sixe and technology required to perform
any taks and the span of control depending upon the size and nature of organization are
also important factors.
3. Competitive factors: The compensation strategy also depends on the mission and vision
of the organization. That means whether the organization is willing to lead, develop
competitveness or meet the changing environment.
4. Product cost factors: It is a process of converting the job price into a monetary award to
the employee performing or going to perform that job. The process thus covers job

analysis, job pricing, considerations of W/S survey and government legislation,

organizational capacity to pay and developing pay packages to different levels of
employees forming an integral part of compensation strategy.
Q5. Explain the elements of Managerial remuneration? Elucidate some of the economic
determinants of pay?
A5. Managerial renumeration are associated with the people who have attained top level
managerial positions such as Directors, Presidents, General manager , Vice President etc. Now
you will be able to understand the main elements of managerial renumeration which are as

Base salaries: It is the first element of the managerial renumeration which is analysed
with the help job evaluation and also serves as incentives also. While evaluating the
salary, job evaluation is just a part of it. An executive is comensated on the basis of his
competencies and also the perofrmance of his/her work. CEOs base salary is determined

with the help of benchmarking which is based on the Industry Salary Surveys.
Special package of perquisites and benefits: Managers also enjoy all kinds of beenfits
and perquisites which the organizations offer to tier employees. Therefore in order to
maximise the availability of time to key managers from the purpose of business
perspective, various other facilities are also offered to them such as connection of

internet, connection of cell phone and so on.

Profit sharing bonus: In todays global competitive scenario, in the programme of
executive payments, Profit sharing bonus plays a very important role. This type of bonus
is usually based on the profit sharing or performance.

Short term bonuses : Such type of bonuses ranges from 50 per cent of the base salary to
10 ore more times fothe base salary are offered when firm a very good year had by

recognising the financial indicators.

Long term performance bonus: Here the payment of cash to the corporate managers is
similar to that of the short term bonuses. The only difference you many find are in the
time period for receipt is 2 years or more into the future and the award size is based on

the multiyear achievement of established performance related objectives.

Stock options: Now a day many firms offer stock equivalences. In the form of share
appreciation rights shares. Here recipients are compensated with a stock increased value
that is further determined by the base valuation which is preapted when share

appreciation rights phantom shares are given.

Severance packages: These types of packages are alos known as Golden Handshake
which is financial renumeration and incentive packages which if given to those
employees in the organization who are retired or laid off.

Q6. Who are expatriates? What are the objectives of Expatriate compensation?
Differentiate between financial (extrinstic) compensation and Non finanacial (intrinstic)
A6. These individual also termed as expats, are the citizens of a country in which headquarters
of an organisation are situated.
For example An Indian working in an Indian subsidary company in Thailand is an expatriate.
Non monetary compensation None monetary compensiation can equal 20-60% of the value of
the cash compensation that an employee receives. For the current job seeker, starting salaries
have barely increased, frozen or actually dropped. So, finding non monetary benefits in an offer

can be essential when an employee evaluateds it. These added perks can sweeten and seal the
deal. Beyond the employee getting material value from their benefits, there are non material
perks as well.
There are host of benefits that companies can offter to attract and retain top talent.

Flex time schedules.

On-site childcare
Free or discoutned parking.
Free or discounted food and drinks.
Gym membership discounts.
In-office massage or yoga.
Casual Fridays.
Mentioning programs for career advancement.
Work opportunities in multiple locations.

Non compensation dimensions Non financial rewards can be defined as situation related
rewards. These are explained below:
1. Enhance dignity and satisfaction from work performed Recognition of an employe as
valuable an useful contribution can be considered as one of the most powerfu and least
costly rewards.
2. Enhance physiological health, intellectual growth, and emotional maturity The
organisation at time of designing its compensation policy must alos consider the modern
health practices.
3. Promote constructive social relationship with coworkers In todays world of extensive
specialisation, the dependency of people has increased on one another.
4. Design jobs that require adequate attention and effort Workers over past forty years,
through their jobs, designs were taught how to perform quickly few highly repetitive
5. Allocate sufficient resources to perform work assignments An organisaton opens doors
for problems when it forces employees to perform those assignments for which they

possess neither skills more knowledge. Most of the employees seek a sense of
achievment from their work. They are motivated by the degree of challenge to help them
feel that they can succeed in handling such new assignments, so the organisation must
provide them with adequate resources.
6. Grant sufficient control over the jobs to meet personal demands Behavioural scientists
over the fifty years have felt the need for granting employees a greater opportunity to
participate in the decision making process of organisation. The basic reason being that
there are some acceptable levels of performance to achieve, guide the top management
on how to manage the organisation and its assignments more effectively.