The term compensation administration or wage and salary administration denotes the process of managing a company's compensation program


The goal of compensation administration is to design a cost effective pay structure that will attract, motivate, and retain competent employees.

A sound plan of compensation administration seeks to achieve the following objectives: - To establish a fair and equitable remuneration offering similar pay for similar work.

- To attract qualified and competent personnel. - To retain the present employees by keeping wage levels in tune with competing units. - To control labor and administrative cost in line with the ability of the organization to pay. - To improve motivation and morale of employees and to improve union management relations. - To project a good image of the company and to comply with legal needs relating to wages and salaries. • Salary refers to the compensation covering weekly, monthly, or yearly period for services rendered. A salary is based on a stated minimum number of days per week or hours per day or week. The term salary applies to the pay of higher levels of personnel such as white‐collar employees or persons in positions of responsibility and authority in the firm. • Wages refer to compensation for manual labor‐skilled or unskilled for work done by so‐called “blue‐collared” workers. Wages are measured by the hour, day, or week, unlike salaries which are paid at stated intervals, such as every week or every fifteen days. Wages also refers to payment for a specified volume or production, i.e., on piece rate.

The International Labour Organization (ILO) in one of its publication, classified wages as under-

A)Minimum wages B)Fair Wages

C)Living Wages

1. The relationship between jobs and wage ratesSalaries paid for jobs vary because of differences among jobs and in the way people do their work. The relationship between jobs and wages rates involves three considerations: a. The qualifications required for the job. b. Worker supply and demand.

The duties and responsibilities of the job.

2. The recognition of individual differencesIndividuals doing the same job differ in ability, experience, skill, and efficiency. Some individuals are more capable of handling mental tasks than others. Some are more efficient in general than their co-workers. These differences should be recognized through a merit rating systems and provided for in a salary structure embodying a pay scale for each job. In this way an employee who starts at the base rate for the job can aspire for pay increases as he gains greater proficiency and experience.

3. The level of pay existing in the communityWorkers with high qualifications are relatively few. Efficient workers are in demand. One way to attract and retain competent and highly

qualified workers is to maintain salaries at a level reasonably equal to the prevailing rates for similar jobs in the industry or with other firms in the community. This is best accomplished through wage surveys.

4. The company’s ability to payEmployers generally pay their employees according to their financial ability. Firms that are marginal cannot pay as much wages as companies with bigger earning power, without endangering their continued existence.

5. Labour costsCertain types of industry or business have greater earning power than others. In a highly competitive industry, a company with a bigger capital and greater volume of production and sales is in a better position to pay higher wages.

6. Cost of livingThe purchasing power of the money that the employee receives from his employer determines the amount of essential needs for decent living that the employee could provide himself and his family.

7. Collective bargainingIn unionized firms, wages and salaries are largely determined through collective bargaining negotiations. The bargaining positions are based on prevailing wage rate, the cost of living and other relevant factors. The salary rates that are finally agreed upon are often the result of the skill which the parties are able to effectively employ in their bargaining strategies.

8. Labour Laws-

Some of the central laws which have a bearing on employee remuneration are the Payment of Wages Act, 1936, the minimum wages act 1948, payment of Bonus Act 1948.

1. Time Unit Plans 2. Incentive Plans

3. Piece Rate or Payment by Results 4. Group Incentives 5. Wage or Salary Plus Premium or Bonus

1. Time Unit Plans
A day work wage plan is a method in which the worker’s earnings are based upon time on the job. When the time unit is the day, wage rates are stated in terms of per day of so many hours. If by the hour, the wage rates are given in hourly wage rates. In the latter case, the worker’s earnings are computed by multiplying the number of hours worked by the rate per hour. A straight salary plan is used when an employee is paid for the time he spends on the job. The day, week or month is commonly used as the basis for the time unit. Under the time unit plans, wages are not determined directly by output so management has to depend upon the worker to produce in return for his wages. His productivity depends upon the foreman or supervisor who must maintain constant surveillance over the worker’s operations.

2. Incentive Plans
This is a method of compensating workers in direct proportion to the amount of production above pre‐established minimum requirements or standards. Its objective is to reward and encourage higher than the standard rate of production. Incentive plans are means of motivating workers to achieve greater production. They are a form of reward for performance on the job. The worker has the incentive to exert greater effort to produce as much as possible because his production level determines his earnings; whereas, in the time work system, it is essential that the foreman maintain constant supervision over his operations in order to attain the acceptable production levels.

3. Piece Rate or Payment by Results
A worker is paid proportion to the quantity of work he finished or for performing some definite task with time. Each unit is given a fixed amount or price to be paid the worker. This plan is very easy to apply, and therefore very popular in industry. It has the advantage of having a direct relation between what a worker produces and what he earns. There is no difficulty is calculating the worker’s earnings because he is paid for what he produces according to his own speed. It provides a strong incentive for the worker to accomplish more. Piece rate may be on either an individual or group basis. It combines output quantity which in turn is divided by a time rate in money. The piece rate, therefore, relies on the manner in which the output and/or the money have been determined among the workers. If either of these elements change, each piece rate must be recalculated, otherwise the differentials will be upset.

4. Group Incentives
In some situations, a group of workers work together as a team in such a way that it would be difficult to reward individuals for their specific contribution. In this case, the total production of the group is measured and each member of the team is given his share either equally among them regardless of individual production or in accordance with the agreement of the members of the group.

5. Wage or Salary Plus Premium or Bonus
The bonus plan consists of two elements: a. Standard or Minimum Requirement, and b. Bonus or Premium The predetermined amount of output during a given period of time is established as the minimum requirement or the standard. The worker is paid a bonus if his output is in excess of or above the minimum

requirement or standard which, therefore, is a production in less time per unit. The bonus is usually given on either a fixed amount basis or on percentage of the amount of output in excess of minimum requirements, or of time saved below standard.

Profit sharing is an incentive plan under which an employer agrees to share with his personnel a specified portion of the net profits of his business at the end of each fiscal period or over a given period.

Purpose Of Profit Sharing Aims to modify employees’ attitude to achieve greater employee efficiency, productivity, and loyalty to the firm, and keener interest in its welfare.  It is believed that the employees would feel they have a stake in the company if they get a direct share in the profits of the enterprise in which they work.  Sharing of the firm’s profit with the employees is considered a sound employee relations program.

Types Of Profit Sharing PlansThere are three basic types of profit-sharing plans.

Cash Plan- At the time profits are determined, contributions are paid
directly to employees in the form of cash, checks, or stock. The amount is taxed as ordinary income when distributed.

Deferred Plan- Profit-sharing contributions are not paid out currently
but rather are deferred to individual accounts set up for each employee. Benefits and any investment earnings accrued are

distributed at retirement, death, disability, and sometimes at separation from service and other events.

Combination Plan- In this type of plan the participant has the option
of deferring all or part of the profit-sharing allocation. That portion taken as a deferral is placed into the participant’s account, where it and investment earnings accrue tax free until withdrawal.


Employee Benefits & Services include any benefits that the employee receives in addition to remuneration (Direct Wages & Salaries). Benefits & Services, however, are indirect compensation because they are usually extended as a condition of employment and are not directly related to performance.

To recruit and retain the best employees.


2. To create and improve sound industrial relations. 3. To increase and improve employee morale and create a helpful and positive attitude on the part of workers towards their employers. 4. To provide qualitative work environment and work life. 5. To motivate the employees by identifying and satisfying their unsatisfied needs. 6. To provide security to the employees against social risks like old age benefits and maternity benefits. 7. To protect the health of the employees and to provide safety to the employees against accidents.

8. To satisfy the demands of the trade union.

To meet statutory requirements.

10. To promote employees welfare by providing welfare measures. 11. To create a sense of belongingness among employees.

• Results of Govt. legislation & public policy – PF, gratuity, workmen’s compensation, etc.

Management Initiative – health, recreation, counseling.

• Union demands – co-operative stores/bank, housing, etc. • Community relations – local conditions, puja gifts, holidays, etc.

Benefits & Services:
1. Treats• Free lunches • Festival bashes • Coffee breaks • Picnics • Dinner with boss • Dinner for the family • Birthday treats 2. Social Acknowledgement• Informal recognition • Recognition at office get to-gathers • Friendly greetings, smiles, e-mail • Solicitation of advice, suggestions • Membership of recreation club • Use of company facilities for personal projects

3. Knick-Knacks• Desk accessories • Company watches • Tie pins, • Diaries, calendars/planners • Wallets • T-shirts 4. Tokens• Movie tickets • Vacation trips • Coupons redeemable at shops • Early time offs • Anniversary, dating and birthday allowances/presents 5. Awards• Trophies • Plaques • Citations • Certificates • Scrolls • Letter of appreciation 6. On the Job• More responsibility • Job rotation • Special assignments • Training • Representing the company in public 7. Monetary• Legally required – workers compensation, etc. • Contingent and deferred benefits – pension and group insurance • Payments for time not worked – vacations, holidays • Other benefits – travel allowance, car, uniform, meal, discounts on goods/services, child care facilities, etc.

Fringe benefits:
Fringe benefit is defined as the compensation in addition to direct wages or salaries. Fringe benefit includes company car, house allowances, medical insurance, paid holidays, pension schemes, subsidized meals etc. Common Fringe BenefitsAccommodation Generally any employee, whether higher-paid or not, is provided with accommodation either rent-free or for a very low rent. Company cars and vans Companies usually provides car for official or personal use to an employee in a particular level or above. Fuel Fuel is generally provided to higher ranked employees. Holidays Higher-paid employees receive a free holiday. It is a basic reimbursement. Loans Interest-free and cheap loans for higher-paid employees and directors are given. Meals Meals are provided in a staff canteen which are either free or subsidized and are available to all staff. Traveling expenses Employers reimburse the costs of traveling to and from work.

Fringe Benefits In India-

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Payment for time not worked. Employee security, safety and health. Workmen’s compensation. Health benefits. Recreational and welfare facilities. Old age and retirement benefits.

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