Introduction of the Study :

Generally the term compensation refers to

compensating any damage, loss or mental

harassments, wages or salaries as reward for

physical and/or mental efforts to perform any agreed

task or job. But the concept of equity in

remunerating any work or task has forced us to

perceive wages and salaries as compensation,

because people work efficiently only when they are

paid according to their worth or feel satisfied with

the remunerations.

Besides basic salaries or wages, companies are

forced to view the benefits and services to justify

the positional and esteem needs of employees and to

provide adequate cushion for inflations. Though the

cost of human resources is estimated at between 2%

to 20% of the operating cost (depending upon the

type of industry), to retain the employees or to avoid

job-hopping, some of the industries are even forced

to adopt varying scales and benefits.

The most common questions that arise in the minds

of employees are:

i. Is this compensation justifying my worth?

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ii. How does my package compare with others who

are working in a similar industry?

iii. Can I have a better growth plan in this industry?

iv. How important is my pay scale compared to

other factors being offered by the industry?

v. Why are others offering better compensation for

the same post and job?

These questions arise in the minds of every

employee whether he/she is at the executive or the

manager levels. At the top and middle level

positions, though they recognize the limitations of

the organizations, they still feel that some equitable

and reasonable relationships should exist. Similarly,

the pay increments are also debated as unfair

compensation at various levels.

There could be several other questions regarding the

perception about compensation as today the

industries are designing more and more attractive

packages to attract the talents in this competitive

era.

But their package designs vary according to the

performance desired and the employee’s attitude to

keep on improving their personality and offering

continuous improvement in organizational growth.

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What is most important to know is whether the

employer and the employee think alike or have

divergent views?

Today, the pay being competitive, it is logical for

employers to look for employees with attributes

other than knowledge and skill, attributes which can

enrich their experience at work. They can find out

the potential in the employee and provide

opportunities for learning and career growth. Thus

compensation designs and compensation

programmes are being so designed so as to attract

the winning horses.

Therefore, the study of compensation is of outmost

importance from both an academic as well as

practical point of view as wages and salaries are the

major factors in socio-economic analysis. From an

economic point of view, compensation refers to the

payments to the efforts made by an individual.

In a society it is an occupational category and

reflects the individual’s status, while

psychologically, compensation relates to the

satisfaction of an individual’s needs and aspirations.

It is compensation which directly affects one’s

standard of life, meets the needs of his/ her family,

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enables him/her to save for future liabilities and

justifying his/her worth for a job. Wages/salaries, on

the other hand, add to the cost of production and are

a vulnerable part of a company’s overhead, which

affects the profit to the employers.

Both employers and the employees are concerned

about the adequacy of the compensation. Employers

are interested to hire competent employees by

offering attractive and bearable cost to the company,

while employees try to get maximum return on their

skills, knowledge, expertise or payment to justify

their worth.

Background of the Study :

Human Resource Management (HRM) has never

been as significant as it is today. Companies want to

attract, retain and motivate brains to meet

objectives. Today Humans are regarded as one of

every company’s assets so they need to be

efficiently and effectively managed. One of the tools

companies use to attract, retain and motivate its

people is Compensation Management.

Compensation is an integral part of human resource

management which helps in motivating the

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employees and improving organizational

effectiveness.

Employees today are not willing to work only for

the cash alone, they expect 'extra'. This extra is

known as employee benefits. Also known as fringe

benefits, Employee benefits are non-financial form

of compensation offered in addition to cash salary to

enrich workers’ lives.

Human Resource is the most vital resource for any

organization. It is responsible for each and every

decision taken, each and every work done and each

and every result. They should be managed properly

and motivated by providing best remuneration and

compensation as per the industry standards. The

lucrative compensation will serve the need for

attracting and retaining the best employees.

So, Human Resource managers’ task is to carefully

design the organization’s benefit package. They

have to plan about what benefits should offer to

whom and on which basis? Definitely all the

employees will not get the same benefit. A sales

person and a receptionist will get different benefit

but inadequate benefits do contribute to low

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satisfaction level and increase absenteeism and

turnover in employees

Rational of the Study :

Employee Compensation is an integral part of

human resource management which helps in

motivating the employees and improving

organizational effectiveness. An idle Compensation

Management system will help an organization

significantly boost the performance of its employees

and create a more engaged workforce that’s willing

to go the extra mile for an organization. That is why

we have decided to do our report on “Employees

Compensation ”

Importance of the Study :

1. It helps to determine fair, just and equitable pay

for the workers. It tries to ensure that the paid fairly

for their contributions to the organization.

2. A sound remuneration policy motivates the

workers to work efficiently to achieve the specific

standards.

3. Remuneration is the basis of happiness and

satisfaction of the workforce. This helps in reducing

labour turnover.

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4. A sound, fair equitable remuneration policy helps

to avoid conflict between the employer and the

employees and establishes a peaceful relation

between them.

5. It improves the morale and efficiency of the

workers.

Obviously, to any employee, pay is the most

important reason for working to earn livelihood. For

some individuals, it may be the only reason. For

most of us, it is the means by which we provide for

our own and our family’s needs.

Compensation represents a large proportion of the

expenditure. In manufacturing firms, it is seldom

lower than 20 per cent; in service enterprises, it is

often as high as 80 per cent

(www(dot)eridlc(dot)com). More importantly,

organizations try to accomplish many goals with

compensation. These goals include attracting and

retaining people, and motivating them to perform

more effectively to achieve business goals.

Compensation is also significant in the operation of

the economy.

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Salaries and wages are the largest contributing

factors to the national income of many countries in

the world and India is not an exception.

Objectives of the Study :

The main objectives of employee compensation are

the following:

1. To attract well-qualified and competent

personnel.

2. To motivate them for higher levels of

performance by making arrangement of incentive

payments.

3. To retain the present workforce by keeping their

pay levels at the competitive levels.

4. To raise the morale of workforce.

5. To establish internal as well as external equity.

Internal equity refers to payment of similar wages

for similar work. External equity means payment of

similar wages to similar jobs in comparable firms.

6. To maintain the labour and administrative costs in

line with the ability of the organization to pay.

7. To comply with wage legislation.

8. To project a good image of company.

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9. To satisfy employees and to reduce the incidents

of grievances, absenteeism and quitting.

10. To reward the desired behaviour such as good

performance, loyalty, dedication, etc.

Factors of the Study :

Factors affecting the employee compensation can be

grouped together into two broad categories,

external and internal factors.

1. External Factors :

(i) Demand and supply of labour in the labour

market.

(ii) Labour union influence.

(iii) Government policies like Minimum Wages Act,

1948, the Equal Remuneration Act 1976, etc.

(iv) The prevailing rate of pay or comparable wage

rates also influence the employee

compensation.

(v) The present cost of living.

(vi) The state of the economy (boom, recession,

depression, etc.).

(vii) Advancement of technology also influences the

fixation of wage levels.

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2. Internal Factors:

(i) Ability of the organization to pay.

(ii) (ii) The performance, experience and

seniority of the employee.

(iii) Requirements of the job such as physical and

mental abilities.

(iv) Job evaluation helps to establish satisfactory

wage differentials.

(v) Organization’s strategy regarding employee

compensation.

Methodology of the Study :

The main purpose of establishing employee

compensation system is to value and price each job.

The methods to be followed for the establishment of

compensation are as follows:

1. Job Analysis :

Job analysis is known as a process of collecting

necessary information relating to job and its

specifications. The required information can be

collected through different methods such as surveys,

observation, discussions, and so on. The information

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is collected for the preparation of job description

and job specification statements.

2. Job Evaluation :

Job evaluation is a systematic approach of

evaluating or rating or valuing the job in terms of its

worthiness, It puts jobs in a hierarchy and assign a

relative worth of each job so that a pay structure can

be determined. It means a systematic comparison of

job is done in order to determine the worth of one

job relative to another. Job evaluation provides an

objective ranking of jobs so that an equitable and

appropriate rate of pay can be determined for each

job.This provides a basic ground for the

determination of an efficient pay structure through

the identification of compensation factors.

3. Compensation surveys :

Compensation surveys refer to collecting

information on prevailing market rates through

different channels. The information can be collected

through formal or informal surveys. Most employers

in a small scale operation use informal telephone

calls to collect data on a relatively small number of

easily identified jobs. This informal telephone call is

also a good technique for checking discrepancies in

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the wage rate. Under this method, the data and

information relating to other's pay structure are

obtained so that the collected data can serve a

standard benchmark for formulating compensation

plans and policies. The required data and

information are collected through different sources

such as published surveys, consultants and agencies,

advertisements, informal communication etc.

4. Pricing Jobs :

Under pricing jobs method, different pay levels are

determined based on the grade of each job. Firstly

the jobs are grouped into pay grades, than, the pay

rates are assigned to each individual pay grade,

rather than assigning rate to each individual job. A

pay grade comprises of jobs of approximately equal

difficulty or importance. It means, the jobs having

similar nature can be grouped under a job grade as

determined by job evaluation. If we use a point

method in it, a particular grade falls within a range

of certain points. For instance 0-50 points, 50-100

points, and so on.

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