A

PROJECT REPORT

ON

“COMPENSATION MANAGEMNT”

AT

Project report submitted in partial fulfillment of the

requirement for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

Submitted By:

MS. MOHAMMADI BEGUM

Roll No. 1516-12-672-100

DEPARTMENT OF BUSINESS MANAGEMENT

SHADAN INSTITUTE OF COMPUTER STUDIES FOR
GIRLS

(Affiliated to Osmania University)

Khairtabad, Hyderabad
 DECLARATION

I hereby declare that this project report titled “

COMPENSATION MANAGEMENT” has been carried out by me for “HDFC BANK ”,

this report has to be submitted by me for the award of my MBA Degree in the department of

Business Management,

Osmania University.

I, further, declare that this is my original work and I did not try to duplicate any

other report. This is done by me as a part of my academic course during 2012-2014

Place:

Date:

MS. MOHAMMADI BEGUM

Roll No. 1516-12-672-100

 ACKNOWLEDGEMENT

At the outset, I wish to thank the management of HDFC BANK For their
kind gesture of allowing me to undertake this project, and its various employees who lent
their helping hand towards the completion of this study.

The co-operation I received from the wide cross-section of employees of

HDFC BANK makes it difficult to single out individuals for acknowledgement.
However, I am particularly indebted to Mr. ABHISHEK JAIN Manager for
allowing me to carry out my project work in the organization, for apprising me of the
situation with necessary background and helping me to complete this project work. I am
also thankful to the staff.

I would like to thank, , principle

of “COLLEGE” under the guidance of Ms. ARSHIYA, Asst. Professor
forgiving me such an opportunity to carry out this project, I am thankful to all the faculty
members of our college for co-operation and their encouragement during the course
of project work.

I am thankful to my parents and all my friends who are co-

operated to complete this project encouragement.
 ABSTRACT

Compensation Management deals with initiating, designing,

formulating and implementing total compensation package that must be
designed for the employees. Compensation Management is otherwise called
as wage and salary Administration, Remuneration Management or Reward
Management. Even though the basic concept of Compensation deals with
earning a means of living by doing some work, compensation is viewed
differently by different persons of an organization such as the employer,
employee and society. All of them have different views of compensation.
The nature of Compensation deals with the monetary gains, so that the
employees are satisfied with his/her worth. The main objective of
Compensation Management is to recruit competent and talented persons, to
improve employee’s satisfaction and to retain them by ensuring that internal
and external equity concept is followed in the organization for the
improvement of employee’s satisfaction.
 INDEX

CONTENTS
PAGE NO
LIST OF TABLES
i
LIST OF GRAPHS
ii
LIST OF FIGURES
iii

CHAPTER-1
1-5
INTRODUCTION

CHAPTER-2
6-17
COMPANY PROFILE

CHAPTER-3
18-55
REVIEW OF LITERATURE

CHAPTER-4
56-71

DATA ANALYSIS AND INTERPRETATION

CHAPTER-7
72-75
. FINDINGS
. CONCLUSIONS
. SUGESSTIONS

CHAPTER-8
. BIBLIOGRAPHY
76
. QUESTIONNAIRE
78
 S LIST OF TABLES P
.NO A
GENO
1 Opinion on awareness of pay policy in HDFC BANK 57

2 Knowing about compensation packages in IT industries 58

3 Basis for remuneration factor in HDFC BANK 59

4 Base of compensation provided in the organization 60

5 Pay package according to……. factor 61

6 Determination of incentives pay factor 62

7 Kinds/Plan of incentives in the organization 63

8 Satisfaction factor about fringe benefits 64

9 Types of benefits factors 65

1 Level of fringe benefits providing to the employees 66

0
1 What is the average working duration/ hour of an employee? 67
1
1 Do you agree that the shift system is convenient than adopting 68
2 a fixed timing to work?
1 Do you have a formal job evaluation plan in place? 69
3
1 Do you have an employee policy manual? 70
4
1 Which type of Compensation payment system do you prefer? 71
5
 S LIST OF GRAPHS P
.NO A
GENO
1 Opinion on awareness of pay policy in HDFC BANK 57

2 Knowing about compensation packages in IT industries 58

3 Basis for remuneration factor in HDFC BANK 59

4 Base of compensation provided in the organization 60

5 Pay package according to……. factor 61

6 Determination of incentives pay factor 62

7 Kinds/Plan of incentives in the organization 63

8 Satisfaction factor about fringe benefits 64

9 Types of benefits factors 65

1 Level of fringe benefits providing to the employees 66

0
1 What is the average working duration/ hour of an employee? 67
1
1 Do you agree that the shift system is convenient than adopting 68
2 a fixed timing to work?
1 Do you have a formal job evaluation plan in place? 69
3
1 Do you have an employee policy manual? 70
4
1 Which type of Compensation payment system do you prefer? 71
5
 CHAPTER – I

INTRODUCTION

1
 INTRODUCTION

Human resources are the most valuable and unique assets of an organization.
The successful management of an organization’s human Resources is an exciting,
dynamic and challenging task, especially at a time when the world has become a global
village and economies are in a state of flux. The scarcity of talented resources and
the growing expectations of the modern day worker have further increased the
complexity of the Human resources function.

Even though specific resources function/activities are the responsibility of the

human resources department, the actual management of human resources is the
responsibility of all managers to understand and give due Importance’s to the
different human resources policies and activities in the Organization.

Human Resources Management outline the importance of HRM and its

different functions in an organization.

It examines the various HR processes that are concerned with attracting,

managing, motivating and developing employees for the organization. The book discusses
the issue in human resources management in a changing environment and suggests
possible ways of leveraging and managing human resources. changing trends in human
resources management have been explained using contemporary examples from Indian
companies.“If you want 10 days of happiness, grow grain. If you want 10 years of
happiness, grow a tree. If you want 100 years of happiness, grow power.

2
OBJECTIVE OF THE STUDY

. To examine the various Compensation procedures that is being followed in

the organization.

. To present the observation to the Management of HDFC BANK to improve

the performance of the existing system by implementing new compensation
methods.

. The company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service get a gratuity on departure at 15
days salary (last drawn salary) for each completed year of service.

. Maintaining the flexible, reliable and secure IT infrastructure that is necessary

to support the company’s global operations is an ongoing challenge.

. HDFC Bank distribution has continued developing its framework of succession

planning to identify and support the development of employees, who have the
potential capacity and competence to fulfill the roles required for delivering
the future performance required within the business.

NATURE OF RESEARCH METHODOLOGY

3
 The nature of study conducted is to understand the procedure of the
compensation management, assess the effective compensation packages and to suggest
improvements for enhancing their effectiveness.

Primary Sources of Data

The primary data is collected through the personal interview with the HR
manager and the other employees of the HR circle.. A questionnaire is designed
to collect responses from the employees of the organization.

Secondary Source of Data

The Secondary sources of data are the textbooks, collected by journals articles,
records of the organization and World Wide
We

Study inside the organization

Four main departments were identified i.e. Flight operation, Administration,

Security, Customs and Immigration the H.R.P with each department the head of
the department and his/her immediate junior were chosen as they informants.
The information from there dept and the required knowledge specially from the
administrative was used from discussion on compensation packages.

4
SAMPLING TECHNIQUE
The sampling technique used for the collection of information through
the questionnaires is the simple random sampling. And the sample size is 50 respondents.

QUESTIONNAIRE DESIGN

The designed questionnaire consists of 12 to 13 questions, a combination of

open ended and close ended questions for employees.

ANALYSIS OF DATA

For the purpose of analysis, feedback is collected from the employees in the
organization by the way of questionnaire. Data collected is represented in the form of
percentages in the form of percentages and graphs and an analysis has been done on the
basis of these percentages and graphs.

LIMITATIONS OF THE STUDY

. Due to complex human behavior there is tendency that respondent fail to

provide accurate information.
. The study was conducted for a period of 45 days only.
. Scope of the study was limited
. Sample size taken was small and so it may not be actual representative of the
organization.
. Confidentiality of some information related to human resource plan cost lack
of actual and complete information.
. There was time constraint due to busy academic schedule of the college.
. Frame error has been observed because of in accurate and incomplete
sampling frame.

5
 CHAPTER - II
COMPANY PROFILE

6
COMPANY PROFILE

7
 ORIGIN OF THE ORGANIZATION

HDFC is India's premier housing finance company and enjoys an

impeccable track record in India as well as in international markets. Since its inception

in 1977, the Corporation has maintained a consistent and healthy growth in its

operations to remain

the market leader in mortgages.

Its outstanding loan portfolio covers well over a million dwelling units.

HDFC has developed significant expertise in retail mortgage loans to different market

segments and also has a large corporate client base for its housing related credit

facilities. With its experience in the financial markets, a strong market reputation,

large shareholder base and unique consumer franchise, HDFC was ideally positioned to

promote a bank in the

Indian environment.

GROWTH AND DEVELOPMENT OF THE ORGANIZATION

HDFC Bank is headquartered in Mumbai. The Bank at present has an

enviable network of over 1400 branches spread over 600 cities across India. All

branches are linked on an online real-time basis. Customers in over 120 locations are

also serviced through Telephone Banking. The Bank's expansion plans take into

account the need to have a presence in all major industrial and commercial centres

where its corporate customers are located as well as the need to build a strong retail

customer base for both

deposits and loan products.

The Bank also has a network of about over 2000 networked ATMs across

8
these cities. Moreover, HDFC Bank's ATM network can be accessed by all

domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and

American Express

Credit/Charge cardholders.

8
 PRESENT STATUS OF THE ORGANIZATION

The Housing Development Finance Corporation Limited (HDFC) was amongst the

first to receive an ‘in-principle’ approval from the Reserve Bank of India (RBI) to set

up a bank in the private sector, as part of the RBI’s liberalization of the Indian

Banking Industry in 1994. The bank was incorporated in August 1994 in the name of

‘HDFC Bank Limited’. With its registered office in Mumbai, India. HDFC

Bank commenced

operations as a Scheduled Commercial Bank in January 1995.

PROMOTER:
HDFC is India’s premier housing finance company and enjoys an impeccable

track record in India as well as in international markets. Since its inception is 1977,
the

Corporation has maintained a consistent and healthy growth in its operations to remain
a
market leader in mortgage

BUSINESS FOCUS:

HDFC Bank’s mission is to be a World-Class Indian Bank. The Bank’s aim is to

build

sound customer franchises across distinct businesses so as to be the preferred provided of

banking services in thesegments that the bank operates in and to achieve healthy
in profitability, consistent with the bank’s risk appetite.

CAPITAL STRUCTURE:

The authorized capital of HDFC Bank is Rs.450 crore (Rs.45 billion). The paid-up

capital is Rs282 crore (Rs.28.2 billion). The HDFC Group holds 24.2% of the bank’s

equity while about 13.1% of the equity is held by the depository in respect of the bank’s

9
issue of

American Depository Shares (ADS/ADR Issue)..

9
DISTRIBUTION NETWORK:

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of

over 1400 branches spread over 600 cities across the country. All branches are linked on

an online real-time basis. Customers in 90 locations are also serviced through Phone

Banking. The Bank’s expansion plans take into account the need to have a presence in all

major industrial and commercial centers where its corporate customers are located as well

as the need to build a strong retail customer base for both deposits and loan products.

MANAGEMENT
Mr. Jagdish Kapoor took over as the bank’s Chairman in July 2001, Prior to this,

Mr.Kapoor was a Deputy governor of the Reserve Bank of India.

The Managing Director, Mr.Aditya Puri, has been a professional banker for

over 25 years. And before joining HDFC Bank in 1994 was heading Citibank’s

operations in

Malaysia.

The Bank’s Board of Directors is composed of eminent individuals with a

wealth of experience in public policy, administration, industry and commercial banking.

Senior executive representing HDFC are also on the Board Senior banking

professionals with substantial experience in India and abroad head various businesses

and functions and

report to the Managing Director.

10
 FUNCTIONAL DEPARTMENTS OF THE ORGANIZATION

The bank has three key business areas:

1. WHOLESALE BANKING SERVICES:

Here our target market is primarily large, blue-chip companies and to a lesser

extent, emerging mid-sized corporate. For these corporate, we provide a wide range of

services, including working capital finance, trade services, transactional services, cash

management, etc. We are a leading provider of structured solutions, which combine cash

management services with vendor and distributor finance, for facilitating superior supply

chain management for our corporate customers. We are also recognized as a leading

provider of cash management and transactional banking solutions to mutual funds,

BANK exchange members andbanks.

2. RETAIL BANKING SERVICES :

The objective of the Retail Bank is to provide our target market customers a

full range of financial products and banking services, giving the customer a one-stop

window for all his/her banking requirements. The products are backed by world-class

service and delivered to the customers through the growing branch network, as well

as through alternative delivery channels like ATMs, Phone Banking, Net Banking

and Mobile Banking. The HDFC Bank Preferred program for high net worth

individuals, the HDFC Bank Plus and the Investment Advisory Services programs have

been designed keeping in mind needs of customers who seek distinct financial solutions,

information and advice on

various investment avenues.

11
 3. TREASURY OPERATIONS :

Within this business, the bank has three main product areas -

A ) Foreign Exchange and Derivatives

B ) Local Currency Money Market &

C ) Debt Securities and Equities.

With the liberalization of the financial markets in India, corporate need more

sophisticated risk management information, advice and product

structure

The above business groups are supported by the following groups:

. Audit & Compliance

. Credit & Market Risk

. Finance, Administration & Legal

. Human Resources

. Information Technology

. Operations

4. SYSTEMS & TECHNOLOGY:

The Bank uses state-of-the-art technology for both internal and external

customers.

A) BANKING APPLICATIONS:

In terms of software, the Corporate Banking business is supported by UBS,

while the Retail Banking business by Fin ware. These world-class systems have been

specially customized for HDFC Bank by i-flex Solutions Ltd. which is a Citigroup

company. The

12
Bank also uses various other systems to support other infrastructure –

12
 B).LOTUS NOTES:

Lotus Notes is the system that HDFC bank uses for internal communication.

c) Facilities Management

Wipro is the company appointed to give HDFC Bank the on-site support required

at different locations / cities.

ORGANIZATION STRUCTURE AND ORGANIZATION CHART

HDFC Bank Board of Directors comprises of eminent individuals with a wealth

of experience in public policy, administration, industry and commercial banking.

Senior

executives representing HDFC are also on the Board.

13
 ORGANIZATION CHART

Chairman

Managing Director &

Joint Joint
Managing Managing

Executive Executive Executive Executive

Director Director Director Director

(Corporate (Wholesale
(Project (Retail

Sr. General Managers

General Managers

Sales Sales SALES Sales

manager manger Manage Manager
2 r 3 4

Team Team Team

Team l eader

lead lead lead

BDE 1 BDE 1
BDE 1
BDE BDE BDE 1 BDE 2
BDE 2

14
 PROUCT AND SERVICE PROFILE OF THE ORGANIZATION

Products of HDFC Bank includes the following:

DEPOSITS:

1) SAVINGS ACCOUNT:

2) Current accounts

3) Personal Loan

4) Senior Citizen Services

5) Fixed accounts. etc

SERVICES

A) RETAIL BANKING SERVICES:

The objective of the Retail Bank is to provide its target market customers a full range

of financial products and banking services, giving the customer a one-stop window for

all his/her banking requirements. The products are backed by world-class service

and

delivered to the customers through the growing branch network, as well as through

alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile

Banking.

B) WHOLESALE BANKING SERVICES

Here our target market is primarily large, blue-chip companies and to a lesser

extent, emerging mid-sized corporate. For these corporate, we provide a wide range of

services, including working capital finance, trade services, transactional services, cash

management, etc.
15
 CHAPTER – III
REVIEW OF LITERATURE

16
 REVIEW OF LITERATURE

INTRODUCTION TO TOPIC
Compensation is what employees receive in exchange for their contribution to the
organization. Generally,. Employees offer their services for three types of rewards. Pay
refers to the base wages and salaries employees normally receive. Compensation forms
such as bonuses, commissions and profit sharing plans are incentives designed to
encourage employees to produce results beyond normal expectation. Benefits such as
insurance, medical, recreational, retirement, etc., represent a more indirect type of
compensation. So, the term compensation is a comprehensive one including pay,
incentives, and benefits offered by employers for hiring the services of employees. In
addition to these, managers have to observe legal formalities that offer physical as well as
financial security to employees. All these issues play an important role in any HR
department’s efforts to obtain, maintain and retain an effective workforce.

Companies’ success in the marketplace is as much a function of the

business practitioners manage employees as it is a function of companies’ structures and
financial resources. Compensating employees represents a critical human resource
management practice: Without sound compensation systems, companies cannot attract
and retain the best qualified employees.

Compensation systems can promote companies’ competitive advantage when

they are properly aligned with strategic goals. Likewise, Compensation practices
can undermine competitive advantage when they are designed and implemented
haphazardly.

The purpose of this is to provide knowledge of the art of compensation practice

and its role in promoting companies’ competitive advantage. Students will be
best prepared to assume the roles of competent compensation professionals if they
possess a grounded understanding of compensation practices and the environments
in which business professionals plan, implement, and evaluate compensation systems.
Thus we examine the context of compensation practice, the criteria used to compensate
employees, compensation system design issues, employee benefits, and the
contemporary challenges that compensation professionals will face well into this century.

17
 . Setting the Stage for Strategic Compensation.
. Base for Pay.
. Designing Compensation Systems.
. Employee Benefits.
. Contemporary Strategic Compensation Challenges

DEFINITIONS OF COMPENSATION MANAGEMENT

. Compensation Management can be define as ”Aprocess which

Motivates employees to increase performance and an employee’s
Worth to the organization.
. It is an important element of an organization which encourages the
Values, culture and the behaviour of the employees.
. It is an important tool of a management which helps the organization
to achieve the objectives of business by effective utilization of
human

resources.

EVOLUTION OF COMPENSATION

Today’s compensation systems have come from a long way. With the
changing organizational structures workers’ need and compensation systems have
also been changing. From the bureaucratic organizations to the participative
organizations, employees have started asking for their rights and appropriate
compensations. The higher
18
education standards and higher skills required for the jobs have made the
organizations provide competitive compensations to their employees.

Compensation strategy is derived from the business strategy. The business

goals and objectives are aligned with the HR strategies. Then the compensation
committee or the concerned authority formulates the compensation strategy. It depends
on both internal

EVOLUTION OF STRATEGIC COMPENSATION

TRADITIONAL COMPENSATION SYSTEMS

In the traditional organizational structures, employees were expected to work

hand and obey the bosses’ orders. In return they were provided with job security,
19
salary

19
increments and promotions annually. The salary was determined on the basis of the
job work and the years of experience the employee is holding. Some of the
organization provided for retirement benefits such as, pension plans, for the
employees. It was assumed that humans work for money, there was no space for
other psychological and social needs of workers.

CHANGE IN COMPENSATION SYSTEMS

With the behavioral science theories and evolution of labour and trade
unions, employees started asking for their rights. Maslow brought in the need
hierarchy for the rights of the employees. He stated that employees do not work only
for money but there are other needs too which they want to satisfy from there
job, i.e. social needs, psychological needs, safety needs, self-actualization, etc. Now
the employees were being treated as human resource.

Their performance was being measured and appraised based on the organisational
and individual performance. Competition among employees existed. Were expected
to work hard to have the job security. The compensation system was designed on the
basis
of job work and related proficiency of the employee .

TODAY’S MODERN COMPENSATION SYSTEMS

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 organisation.
Organisations offer monetary and non-monetary benefits to attract and retain the best
talents in the competitive environment. Some of the benefits are special
allowances like mobile, company’s vehicle; House rent allowances; statutory leaves, etc

INTRINSIC COMPENSATION

Intrinsic compensation represents employees’ critical psychological states

that result from performing their jobs. Job characteristics theory describes these
20
critical

20
psychological states. According to this job theory, employees experience enhanced
psychological states (that is, intrinsic compensation) when their jobs rate high on
five core job dimensions: skill variety, task identity, task significance, autonomy, and
feedback (1). Job that lack these core characteristics do not provide much intrinsic
compensation.

. Skill variety is the degree to which the job requires the person to perform
different tasks and involves different skills, abilities, and talents.
. Task from identity is the degree to which a job enables a person to complete an
entire job from start to finish.
. Task significance is the degree to which the job has an impact on the lives or
work of other people.
. Autonomy is the amount of freedom, independence, and discretion the
employee enjoys in determining how to perform the job.
. Feedback is the degree to which the job or employer provides the employee
with clear and direct information about job outcomes and performance.

EXTRINSIC COMPENSATION:

Extrinsic compensation includes both monetary and non-monetary

rewards Compensation professionals establish monetary compensation
programs to reward employees according to their job performance levels or
for learning job-related knowledge or skills. As we will discuss
shortly, monetary compensation represents core compensation. Non-
monetary rewards include protection programs (for example, day care
assistance). Most compensation professionals refer to no monetary rewards
as employee benefits or fringe compensation.

CORE COMPENSATION:

There are six types of monetary or core, compensation. The elements of base
pay adjustments are listed in Table.

21
BASE PAY:

Employees receive base pay, or money, for performing jobs. Base pay is
recurring; that is, employees continue to receive base pay as long as they remain in
their jobs. Companies disburse base pay to employees in either one of two forms –as
hourly pay or wage or as salary. Employees earn hourly pay for each hour worked.
They earn salaries for performing their jobs, regardless of the actual number of hours
worked. Companies measure salary on an annual basis.

Companies typically set base amounts for jobs according to the level of
skill, effort, and responsibility required performing the jobs and the severity of the
working conditions. Compensation professionals refer to skill, effort, responsibility, and
working conditions factors as compensable factors because they influence pay level.
Courts of law use these four compensable factors to determine whether jobs are equal
per the equal pay Act of 1963. Compensation professionals use.

JOB ANALYSIS OF COMPENSATION

Compensation, benefits, and job analysis specialists help conduct an

organization’s compensation and benefits programs. They also evaluate job positions
to determine details such as classification and salary.

22
Work Environment
Compensation, benefits, and job analysis specialists work in nearly every
industry. They typically work in offices.

How to Become a Compensation, Benefits, and Job Analysis Specialist

Compensation, benefits, and job analysis specialists need a bachelor’s degree,
and some specialists need related work experience.

Pay
The median annual wage for compensation, benefits, and job analysis
specialists was $59,090 in May 2012.

Job Outlook

Employment of compensation, benefits, and job analysis specialists is projected

to grow 6 percent from 2012 to 2022, slower than the average for all occupations.
Job prospects should be best for those with experience performing compensation
analysis, benefits administration, or other human resources work.

Similar Occupations
Compare the job duties, education, job growth, and pay of compensation,
benefits, and job analysis specialists with similar occupations.

JOB EVALUATION

Mississippi State University recognizes that staff positions may change in

work content or responsibilities. Therefore, a position may be evaluated for
reclassification when there has been a significant change in required job skills or
responsibilities.

Procedure for Job Evaluation - New or Existing Postions

23
. A request to establish a new staff position or to evaluate an existing staff
position shall be initiated by the division, department, or unit head and
submitted to Human Resources Management through the use of the online
Request for Position Evaluation electronic form.
. A link and temporary password to the online job evaluation system will be sent
to the employee and the employee’s supervisor for existing positions or to
the supervisor requesting a new position for completion of the Job
Evaluation Questionnaire.

. After the Job Evaluation Questionnaire is complete, Human Resources

Management staff will conduct a job study and/or evaluate the job. This process
may include interviews with the employee and/or the supervisor.

. The Director of Human Resources Management will review, approve, and

communicate the results of the job evaluation in terms of title and\or salary
grade to the applicable Dean/Director/Department Head.

. Human Resource Management’s assignment of title and/or salary grade will be

approved for implementation in the same manner as recommendations

24
ELEMENTS OF CORE COMPENSATION.

BASE PAY: 30,000 -45,000 INR

. Hourly pay : 5 US $ = 2,000 INR
. Annual Salary : Rs. 4,20,000 - Rs. 7,00, 000

How base pay is adjusted over time

. Cost-of-living adjustments
. Seniority pay
. Merit pay
. Incentive pay
. Pay-for-knowledge and skill-based pay.

These compensable factors to help meet three pressing challenges, which we

introduce late in this chapter: internal consistency market competitiveness recognition of
individual contributions.

COST-OF-LIVING Adjustments (COLAs):

COLAs represent periodic base pay increases that are based on changes in prices
as indexed by the consumer price index (CPI). COLAs enable workers to maintain
their purchasing power and standard of living by adjusting base pay for inflatio.
COLAs are most common among workers represented by unions.

Seniority Pay:

Seniority Pay systems reward employees with periodic additions to base pay
according to employees’ length of service in performing their jobs. These pay plans
assume that employees become more valuable to companies with time and that valued
employees.

25
Merit Pay:
Merit Pay programs assume that employees’ compensation over time should
be determined, at least in part, by differences in job performance. Employees
earn permanent increases to base pay according to their performance. Merit pay
rewards excellent effort or results, motivates future performance, and helps
employers retain valued employees.

INCENTIVE PAY

Incentive Pay or variable pay rewards employees for partially or

completely attaining a predetermined work objective. Incentive pay is defined as
compensation (other than base wages or salaries) that fluctuates according to
employees’ attainment or some standard base on a reestablished formula, individual or
group goals, or company earnings.

PAYS-FOR-KNOWLEDGE PLANS AND SKILL-BASED PAY:

Pay-for-knowledge plans reward managerial, service, or professional workers for

successfully learning specific curricula. Skill-based pay, used mostly for employees who
perform physical work, increases these workers’ pay as they master new skills. Both
skill- and knowledge-based pay programs reward employees for the range, depth, and
types of skills or knowledge they are capable of applying productively to their jobs. This
feature distinguishes pay-for-knowledge plans for merit pay, which rewards employees’
job performance.

FRINGE COMPENSATION OR EMPLOYEE BENEFITS:

Earlier, we noted that fringe compensation represents non monetary rewards.

Fringe compensation or employee benefits include any variety of programs that
provide pay time-off, employee services, and protection programs.

26
LEGALLY REQUIRED BENEFITS:

Legally required benefits are protection programs that attempt to promote worker
safety and health, maintain the influx of family income, and assist families in crisis.
The key legally required benefits are mandated by the Social Security Act of 1935,
various state workers’ compensation laws and the Family and Medical Leave Act of
1993. All provide protection programs to employees and their dependents.

DISCRETIONARY BENEFITS:

Discretionary benefits fall into three broad categories: protection programs,

paid time-off, and services, Protection programs provided family benefits, promote
health, and guard against income loss caused by catastrophic factors such as
unemployment, disability, or serious illness. Not surprisingly, paid time-off provides
employees with pay for time when they are not working, such as vacation. Services
provide enhancements such as tuition reimbursement and day care assistance to
employees and their families

HOW THE COMPENSATION FUNCTION FITS INTO HR

DEPARTMENTS:

Human resource practice do not operate in isolation. Every HR practice is

related to others in different ways. For example, Microsoft Corporation publicly
acknowledges the relationships between compensation and other HR practices.

ORGANISATIONAL CULTURE:

Organizational culture is an organization’s system of shared values and beliefs

that produce norms of behavior (9). These values are apparent in companies’
organizational and work structures. Also, organizational culture influences HR
systems designs, including compensation.

27
TRADITIONAL HIERARCHY

The Traditional design of U.S. companies emphasizes efficiency, decision

making by managers, and dissemination of information from the top of the company
to lower levels, illustrates is the intermediary for the company’s chief executive
officer and the vice presidents of the functional areas. Within the functional areas, the
decision making flow downward from the vice president to managers of specialties
within the functions.

NATURE OF COMPENSATION

Compensation offered by an organization can come both directly through base

pay and variable pay and indirectly through benefits.

. Base pay: It is the basic compensation an employee gets, usually as a wage or

salary
. Variable pay : it is the compensation that is linked directly to performance
accomplishments (bonuses, incentives, BANK options).
. Benefits: These are indirect rewards given to an employee or group of
employees as a part of organizational membership (health insurance, vacation
pay, retirement pension etc.)

The most important objective of any pay system is fairness or

equity. The term equity has three dimensions.

a) Internal equity: This ensures that more difficult jobs are paid more.
b) External equity : ‘this ensures that jobs are fairly compensated in comparison
to similar jobs in the labour market.
c) Individual equity : It ensures equal pay for equal work,i.e., each
individual’s pay is fair in comparison to others doing the same/similar jobs.

In addition, there are other objectives also. The ultimate goal of

compensation administration (the process of managing a company’s
compensation programme) is to reward desired behaviours and encourage
people to do well in their jobs. Some of the important objectives that are
sought to be achieved through effective compensation management are listed
28
below:

28
a) Attract talent: Compensation needs to be high enough to attract
talented people. Since many firms compete to hire the services of
competent people,
the salaries offered must be high enough to motivate them to apply.
b) Retain talent: If compensation levels fall below the expectations of
employees or are not competitive, employees may quit in frustration.
c) Ensure equity : Pay should equal the worth of a job. Similar jobs should
get similar pay. Likewise, more qualified people should get better wages.
d) New and desired behaviour: Pay should reward loyalty, commitment,
experience, risk taking, initiative and other desired behaviours. Where the
company fails to reward such behaviours, employees may go in search of
greener pastures outside.
e) Control costs: The cost of hiring people should not be too high. Effective
compensation management ensures that workers are neither overpaid nor
underpaid.
f) Comply with legal rules: Compensation programmes must invariably satisfy
governmental rules regarding minimum wages, bonus, allowances, benefits,

etc.
g) Ease of operation : The compensation management system should be easy
to understand and /” operate. Then only will it promote understanding
regarding pay-related matters between employees, unions and managers.

29
EQUITY AND PAY RATES

The need for equity is the most important factor in determining pay rates.
This is achieved through the following steps:3
. Find the worth of each job through job evaluation.
. Conduct a salary survey to find what other employers are paying for
comparable jobs.
. Group similar jobs into pay grades.
. Price each pay grade by using wage curves.
. Fine tune pay rates.

JOB EVALUATION

Job analysis offers valuable information for developing a compensation system

in terms of what duties and responsibilities need to be undertaken. The worth of a job to
the organization is as ascertained through job evaluation. Since the whole process is
largely subjective, a committee is appointed to collect information and come up with a
hierarchy of jobs according to their value. The evaluation is done through the use of
market pricing or through the use of ranking, point or factor comparison methods.

WAGE AND SALARY SURVEYS

While job evaluation ensures internal equity wage and salary surveys ensure
external equity. A wage and salary survey provided information as to what
other organizations that compete for employees are paying. The survey could cover all
the jobs within an organization (obviously costly and hence avoided) or limited to
benchmark jobs, jobs that are used to anchor the company’s pay scale and around
which other jobs are slotted based on their relative worth to the firm. The
benchmark jobs have the following basic characteristics.

. Many workers in other companies have these jobs.

. They will not be changing in the immediate future in terms of tasks,

respons ibi es, etc .

. The y repr nt the full range in terms of salary such some are among
the lowest paid in the group of jobs, others are in the middle range
and some are at the high end of the pay scale.

30
 Formal and informal surveys (through telephone, for example) could
be undertaken to collect data on benefits like insurance, medical leave, vacation pay,
etc., and so offer a basis on which to take decisions regarding employee benefits.
Published source also provide valuable information regarding industry wise trends
in salary structures in and around the country. The published sources in India include:

. Reports published by the Ministry of Labour

. Pay commission reports.
. Reports of Wage Bonds appointed by Government.
. Reports of employees and employers’ organizations.
. Trade journals of specific industry groups, etc

One of the major problems with these sources is the comparability of jobs
in the survey to jobs in the organization. To overcome the limitations of
published surveys, conduct your own surveys of important jobs. The following
survey methods are generally used to collect relevant wage-related information:

31
COMPONENTS OF PAY STRUCTURE IN INDIA
The pay structure of a company depends on several factors such as labour
market conditions, company’s paying capacity and legal provisions:

WAGES

In India, different Acts include different items under wages, though all the Acts
include basic wage and dearness allowance under the term wages. Under the Workmen’s
Compensation Act, 1923, “wages for leave period, holiday pay, overtime pay, bonus,
attendance bonus, and good conduct bonus” from part of wages. Under the payment of
Wages Act, 1936, Section 2 (vi), “any award of settlement and production bonus, if
paid, constitutes wages.” Under the Payment of Wages Act, 1948, “retrenchment
compensation, payment in lieu of notice and gratuity payable on discharge constitute
wages.”

However, the following types of remuneration, if paid, do not amount to

wages under any of the Acts:

i. Bonus or other payments under a profit-sharing scheme which do not form a

part of contract of employment.
ii. Value of any house accommodation, supply of light, water, medical
attendance, traveling allowance, or payment in lieu thereof or any other

concession.
iii. Any sum paid to defray special expenses entailed by the nature of the
employment of a workman.
iv. Any contribution to pension, provident fund, or a scheme of social security
and social insurance benefits.
v. Any other amenity or service excluded from the computation of wages by
general or special order of an appropriate governmental authority.

The term ‘Allowances’ includes amounts paid in : addition to wages over a

period of time including holiday pay, overtime pay, bonus, social security benefit, etc.
The wage structure in India may be examined broadly under the following heads:

BASIC WAGE
32
 The basic wage in India corresponds with what has been recommended by the Fair
Wages Committee (1948) and the 15th Indian Labour Conference (1957). The
various awards by wage tribunals, wage boards, pay commission reports and job
evaluations also serve as guiding principles in determining ‘basic wage’. While
deciding the basic wage, the following criteria may be considered: (i) Skill needs of
the job; (ii) Experience needed; (iii) Difficulty of work: mental as well as physical;
(iv) Training needed; (v) Responsibilities involved; (vi) Hazardous nature of job.

DEARNESS ALLOWANCE (DA)

It is the allowance paid to employees in order to enable them to face

the increasing dearness of essential commodities. It serves as a cushion, a sort of
insurance against increase in price levels of commodities. Instead of increasing wages
every time there is a rise in price levels, DA is paid to neutralize the effects of inflation;
when prices go down, DA can always be reduced. This has, however, remained a
hypothetical situation as prices never come down to necessitate a cut in dearness
allowance payable to employees.

DA is linked in India to three factors: the index factor, the time factor and
the point factor. All India consumer price index (AICPI) : The Labour
Bureau, Shimla, computes the AICPI (Base 1960 = 100 points) from time to time.

Time Factor: in this ca DA is linked to the rise in the All India Consumer Price
index (AICP!) in a related period, instead of linking it to fortnightly or
monthly fluctuations in index.

Point Factor: Here DA rises in line with a rise in the number of index points

above a specific level.

Other allowances:

The list of allowances granted by employers in India has been expanding, thanks
to the increasing competition in the job market and the growing awareness on the part of
employees.
BONUS

33
Employee compensation and benefits are divided into four basic categories
:
1. Guaranteed pay – a fixed monetary (cash) reward paid by an employer to
an employee. The most common form of guaranteed pay is base salary.

2. Variable pay – a non-fixed monetary (cash) reward paid by an employer to

an employee that is contingent on discretion, performance, or results achieved. The
most common forms of variable pay are bonuses and incentives

3. Benefits – programs an employer uses to supplement employees’ compensation,

such as paid time off, medical insurance, company car, and more

4. Equity-based compensation – BANK or pseudo BANK programs an employer uses

to provide actual or perceived ownership in the company which ties an employee's
compensation to the long-term success of the company. The most common examples are

BANK options.

Nominal and Real Wages:

Wages can be expressed in two ways. When they are expressed in terms of
money paid to the worker they are called nominal wages. But when they are
expressed in terms of their purchasing power with reference to some base
year they are called real wages. These wages are arrived at by making
adjustment in the nominal wages for the rise or fall in the cost of living.
Thus, if the nominal wage of a worker in 1984 was Rs.400p.m. and in 1994
it is Rs.900 p.m. but if the living in 1994 has become thrice as costly as in
1984 the real wage of the worker in 1994 is Rs.300 only. How do we
measure changes in the cost of living, or changes in the prices that
consumers pay? The measuring rod is the consumer price index number.
This index number is intended to show over a period of time the average
percentage change in the prices paid by the consumers belonging to the
population group proposed to be covered by the index for a fixed list of
goods and services consumed by them. The average percentage change,

34
measured by the index, is calculated month after month with reference to
a fixed period.

INCENTIVE
An incentive is something that motivates an individual to perform an
action. The study of incentive structures is central to the study of all
economic activities (both in terms of individual decision-making and in
terms of co- operation and competition within a larger institutional
structure). Economic analysis, then, of the differences between societies
(and between different organizations within a society) largely amounts
to characterizing the differences in incentive structures faced by
individuals involved in these collective efforts. Ultimately, incentives aim
to provide value for money and contribute to organizational success

35
FACTORS INFLUENCING COMPENSATION LEVELS:-

The amount of compensation received by an employee should reflect the effort

put in by the employee, the degree of difficulty experienced while expending his
energies, the competitive rates offered by others in the industry and the demand-supply
position within the country, etc. These are discussed below.

a) Job Needs: Jobs vary greatly in their difficulty, complexity and challenge.
Some need high levels of skills and knowledge while others can be handled by
almost anyone. Simple, routine tasks that can be done by many people with
minimal skills receive relatively low pay. On the other hand, complex,
challenging tasks that can be done by few people with high skill levels generally
receive high pay.

b) Ability to pay: Project determines the paying capacity of a firm. High profit
levels enable companies to pay higher wages. This partly explains why
computer software industry pays better salaries than commodity based
industries (steel, cement, aluminum, etc), Likewise, multinational companies
also pay relatively high salaries due to their earning power.

c) Cost of living: Inflation reduces the purchasing power of employees. To

overcome this, unions and workers prefer to link wages to the cost of living index
rises due to rising prices, wage follow suit.

d) Prevailing wage rates: Prevailing wage rates in competing firms within

an industry are taken into account while fixing wages. A company that does not
pay comparable wages may find it difficult to attract and retain talent.

e) Unions: Highly unionized sectors generally have higher wages because well
organized unions can exert presence on management and obtain all sorts of
benefits and concessions to workers.

f) Productivity: This is the current trend in most private sector companies

when workers’ wages are linked to their productivity levels. If your job
performance is good, you get good wages. A sick bank, for example, can’t hope to
pay competitive wages, in tune with profit making blanks.

36
 g) State Regulation: The legal stipulations in respect of minimum wages,
bonus, dearness allowance, allowances, etc., determine the wage structure in an
industry.

h) Demand and supply of labour: The demand for and the supply of certain
skills determine prevailing wage rates. High demand for software professionals,
R&D professionals in drug Industry, telecom and electronics engineers, financial
analysis, management consultants ensures higher wages. Oversupply kills demand for
a certain category of employees leading to a steep fallin their wages as well.

Most employers, nowadays, are Interested in paying a fair wage to all workers
which is neither very high (affecting the company’s profitability) nor very low
(where attracting and retaining people becomes difficult).

FRINGE BENEFITS

The term ‘fringe benefits’ refers to the extra benefits provide to employees
in addition to the normal compensation paid in the form of wage or salary. Many years
ago, benefits and services were labeled ‘fringe’ benefits because they were
relatively insignificant or fringe components of compensation. However, he
situation now is different, as these have, more or less, become important components
of a comprehensive compensation package offered by employers to employees.

TB main feature of fringe benefits, as they stand today may be stated thus:9

. They are supplementary forms of compensation.

. They are paid to all employees (unlike incentives which are paid to specific
employees whose work is above standard) based on their membership in the
organization.
. They are indirect compensation because they are usually extended as a
condition of employment and are not directly to performance.
. They help raise the living condition of employees.
. They m be statutory or voluntary. Provident find is a statutory benefit whereas
transport is a voluntary benefit.

TYPES OF FRINGE BENEFITS

37
 The fringe benefits offered by various organizations in india may be
broadly classified into five categories. These few discussed below:

Payment for time not worked: This category include: (a) hours of work, (b)
paid holidays, (c) shift premium, (d) holiday pay and (e) paid vacation.

i. Hours of Work: Section 51 of the Factories Act, 1948, specifies that

no adult worker shall be required to work in a factory for more than 48
hours in any week. Section 54 of the Act restricts the working hours to 9
on any day. In some organization, the numbers of working hours are less
than the
legal requirements.
ii. Paid Holiday: According to the Factories Act, 1948, an adult worker shall
have weekly paid holidays, preferably Sunday. When a worker is deprived
of weekly holidays, he is eligible for compensatory holidays of the same
number in the same month. Some organizations allow the workers to have
two days’ holidays in a week.
iii. Shift Premium: Companies operating second and third shifts, pay a
premium to the workers who are required to work during the odd hour’s
shift.
iv. Holiday Pay: Generally organizations offer double the normal rate of the
salary to those workers, who work during holidays.
v. Paid Vacation: Workers in manufacturing, mining and plantations who
worked for 240 days during a calendar year are eligible for paid vacation
at the rate of one day for every 20 days worked in case of adult workers
and at the rate of one day for every 20 days worked in case of adult
workers and at the rate of one day for every 15 days worked in case of
child workers.

EMPLOYEE SECURITY:

Physical and job security to the employee should also be provided with a view
to ensure security to the employee and his family members. When the employee’s
services get confirmed, his job becomes secure. Further, a minimum and continuous

38
wage or

38
salary gives a sense of security to the life. The Payment of Wages Act, 1936,
the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, provide income
security to the employees.
i. Retrenchment compensation: The Industrial Disputes Act, 1947, provides
for the payment of compensation in case of lay off and retrenchment. The
non- seasonal industrial establishments employing 50 or more workers have to
give one month’s notice or one month’s wages to all the workers
who are retrenched after one year’s continuous service. The compensation is
paid at the rate of 15 days wage for every completed year of service with a
maximum of
45 days wage in a year. Workers are eligible for compensation as stated above
even in case of closing down of undertakings.
ii. Layoff Compensation: in case of layoff, employees are entitled to layoff
compensation at the rate equal to 50% of the total of the basic wage and
dearness allowance for the period of their layoff except for weekly holidays.
Layoff compensation can normally be paid up to 45 days in an year.

1.22.3.5 Old age and retirement benefits: Industrial life generally breaks
joint family system. The saving capacity of the employees is very low due to lower
wages, high living cost and increasing aspirations of the employees and his family
members. As such, employers provide some benefits to the employees, after retirement
and during old age, with a view to create a feeling of security about the old age. These
benefits are called old age and retirement benefits. These benefits include provident
fund, (b) pension, (c) deposit linked insurance, (d) gratuity and (e) medical benefit.

i. Provident fund: his benefit is meant for economic welfare of the employees.
The Employee’s provident found, Family Pension Fund and Deposit Linked
insurance Act, 1952, provides for the institution of Provident Fund for
employees in factories and establishments. Provident Fund Scheme of the
Act provides for monetary assistance to the employees and/or their
dependants during post retirement life. Thus this facility provides security
against social risks and this benefit enables the industrial worker to have better
retired life. Employees in all factories under Factories Act, 1948, are covered
by the Act. Both the employee and employer contribute to the fund. The

39
employees on attaining 15 years of

39
 membership are eligible for 100% of the contributions with interest.
Generally the organizations pay the Provident Fund amount with interest to the
employee on retirement or to the dependants of the employee, in case of death.

ii. Pension: The Government of India introduced a scheme of Employees Pension

Scheme for the purpose of providing Family Pension and Life insurance benefits
to the employees of various establishments to which the Act is applicable. The
Act was amended in 1971 when Family Pension Fund was introduced in the Act.
Both the employer and the Employee contributes to this fund. Contributions to
this fund are from the employee contributions to the Provident Fund to the tune of
1.1/3% of employee wage.

40
 Pension Rates

Pay for Month Rate

Rs.800 or more More than
Rs 200 but less Than Rs 800
Rs
200 or less
12% of the basic subject to a maximum of Rs 150
as monthly pension. 15% of the basic subject to a
maximum of Rs 96 and a minimum of Rs 60 as
monthly pension. 3 0 % of the basic subject to a
minimum of Rs 6 0 as monthly pension.

This scheme also provides for the payment of a lumpsum amount of Rs 4,000 to
an employee on his retirement as retirement benefit and a lumpsum amount of Rs 2,000
in the event of death of employee as life insurance benefits.

Deposit linked insurance:

Employees deposit linked insurance scheme was introduced in 1976 under the
P.F. Act, 1952. Under this scheme, if a member of the Employees Provident fund dies
while in service, his dependents will be paid an additional amount equal to the
average balance during the last three years in his account. (The amount should not be
less than Rs 1000 at any point of time). Under the employee’s deposit linked
insurance scheme, 1976 the maximum amount of benefits payable under the deposit
linked insurance is Rs 10,000.

Gratuity : This is another type of retirement benefit to be provided to an employee

either on retirement or at the time of physical disability and to the dependents of the
deceased. Gratuity is a reward to an employee for his long service with his present
employer.

The Payment of Gratuity Act, 1972, is applicable to the establishments in

the entire country. The act provides for a scheme of compulsory payment of gratuity by
the managements of factories, plantations, mines, oil fields, railways, shops and
other establishments employing 10 or more persons to their employees, drawing the
41
monthly wages up to Rs 1,600 per month.

41
 Gratuity is payable to all the employees who render a minimum continuous
service of five years with the present employer. It is payable to an employee on his
superannuation or on his retirement or on his death or disablement due to accident or
disease. The gratuity payable to an employee shall be at the rate of 15 days wage for
every completed year of service on part thereof in excess of six months. Here the wage
means the average of the basic pay last drawn by the employee. The maximum amount
of gratuity payable to an employee shall ot exceed 20 months’ wage.

Medical benefit: Some of the large organizations provide medical benefits to their
retired employees and their family members. This benefit creates a feeling of
permanent attachment with the organization to the employees even when they are
no longer in service.

Fringe benefits are one of the means to ensure, maintain and increase the
material welfare of employees. The physical and mental strain of workers in an
industry is considerably alleviated by tax benefits through creating an environment
that insulates them from fatigue and monotony. Employees who get fringe benefits
are stimulated to give of their best so as to increase productivity and to develop a sense
of belongingness to the organization. Research studies, however, could not establish
proof of any relationship between the amount spent on fringe benefits and level of
productivity.

All organizations may not provide all the benefits discussed earlier due
to financial stringencies. Moreover, the list of benefits given earlier is not exhaustive
one and some organizations provide different benefits which are not included in the list
owing to their need and the financial ability of the organizations.

Human Resource Management does not end with salary administration. It

should also deal with hum aspects of personnel management. Human aspects of
personnel management include understanding and maintaining human
relation. Hence, understanding and maintaining human relation can be treated as
a function Human

Resource Management
[

42
The Workmen’s Compensation Act, 1923

42
 The Act followed the British model with necessary changes to suit
Indian conditions. The main objective of the Act is to impose an obligation upon the
employer to pay compensation to the workman who suffers partial or total incapacity for
more than 3 days resulting in a loss in earning capacity the main features of the Act are
as under:

Coverage: The Act covers all workers employed in factories, mines,

plantations, transportation, construction works, railways, ships and certain other
hazardous occupations as mentioned in Schedule II of the Act. It does not apply to
casual workers covered under the Employees State insurance Act and members of the
Armed Forces.

43
The Employees’ Provident Funds and Miscellaneous Provisions Act,
1952

The Act offers retirement benefits to workers in the form of provident

fund, pension and deposit linked insurance. The main features of the Act are as under:

Coverage: The Act applies to factories in any industry mentioned in schedule I

where 20 or more persons are employed. The Act does not apply to (i) cooperative
societies where less than 50 persons are employed and working without the aid of
power (ii) new establishments for 3 years from the date of commencement.

Administration: A Tripartite Central Board of Trustees consisting of representatives of

employees, employers and Government oversee the implementation of the provisions of
the Act. The benefits of the Act include the following:

. Provident fund scheme: Under the scheme, dedications are made from
the employees’ salary every month. The employer con relates an equivalent sum.
The total contributions are deposited with the Provident Fund Commission or
invested in a specified way. Premature withdrawals, loans and advances can
obtained by the employee for higher education, marriage of children’,
purchase of car, construction of house, etc. when the employee leaves the
company, retires or dies
the credit, balance in his account with interest is paid to his nominees.
. Family pensions scheme, 1971: When the employee dies while in service,
pension is paid to his widowr children. Under the new scheme, pension is paid to
his widower children. Under the new scheme, pension is payable to an employee
after his. Retirement in place of provident fund. An employee can opt for either

provident fund scheme or pension scheme.

. Deposit linked insurance scheme, 1976: In this scheme, the legal heir or
nominee of the deceased employee gets an amount equal to the average balance in
his provident fund during the procedure ‘One year subject to a maximum Rs
3,500. The employer and the Central government make contribution to this
employee is not required to make any contribution. And the employee.

44
NEEDS OF IMPORTANT COMPONENTS TO BUILD A

44
COMPENSATION STRUCTURE

Components of Compensation System

Compensation system is designed keeping in minds the strategic goals

and business objectives. Compensation system is designed on the basis of certain factors
after analyzing the job work and responsibilities, Components of a compensation system
are as follow

45
Types of Compensation

Compensation provided to employees can direct in the form of monetary

benefits and/or indirect in the form of non-monetary benefits known as perks, time
off, etc. Compensation does not include only salary but it is the sum total of all
rewards and allowances provide to the employees in return for their services. If the
compensation offered is effectively managed, it contributes to high organizational
productivity.

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.

DIRECT
COMPENSATIO

46
 `

46
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.

Strategic Compensation

Strategic compensation is determining and providing the compensation

packages to the employees that are aligned with the business goals and objectives.
In today’s competitive scenario organizations have to take special measures regarding
compensation of the employees so that the organizations retain the valuable
employees. The
compensation systems have changed from traditional ones to strategic compensation

systems.

Disability Compensation
A tax-free monetary benefit paid to Veterans with disabilities that are the result of
a disease or injury incurred or aggravated during active military service. The benefit
amount is graduated according to the degree of the Veteran's disability on a scale from
10 percent to 100 percent (in increments of 10 percent). Compensation may also be paid
for disabilities that are considered related or secondary to disabilities occurring in service
and for disabilities presumed to be related to circumstances of military service, even
though they may arise after service. Generally, the degrees of disability specified
are also designed to compensate for considerable loss of working time from
exacerbations or illnesses.
Learn more about Disability Compensation

Dependency and Indemnity Compensation (DIC)

DIC is a tax-free monetary benefit generally payable to a surviving spouse,
child, or parent of Service members who died while on active duty, active duty for

47
training, or inactive duty training, or to survivors of Veterans who died from their
service-connected

47
disabilities. Parents DIC is an income-based benefit for parents who were
financially dependent on of a Service member or Veteran who died from a service-related
cause.

Learn more about DIC and Parents DIC

Special Monthly Compensation (SMC)

SMC is an additional tax-free benefit that can be paid to Veterans, their
spouses, surviving spouses and parents. For Veterans, Special Monthly Compensation is
a higher rate of compensation paid due to special circumstances such as the need
of aid and attendance by another person or by specific disability, such as loss of use of
one hand or leg. For spouses and surviving spouses, this benefit is commonly referred
to as aid and attendance and is paid based on the need of aid and attendance by another
person.

Claims Based on Special Circumstances

Veterans may be eligible for other types of disability compensation once
a disability has been determined to be service connected. Special VA
disability compensation programs include: individual unemployability, automobile
allowance, clothing allowance, prestabilization, hospitalization, convalescence,
dental, and birth defects.

48
 Employee Benefits
Benefits and compensation provided to the employees usually depend on
the conditions of employment and other factors like security, safety, health, welfare
and recreation of employees
These benefit programs must be managed carefully to enhance recruitment and to
boost the morale of the employees

Coverage of Benefits Payment for time not worked

(a) Vacation
(b) Holidays
(c) Sick leave
(d) Miscellaneous types of non-working
plans (e) Shifts premium

Safety benefits

. Health Benefits

. Medical benefit or insurance

. Managed care Health maintenance organization
. Maternity benefit
. Dependent benefit

Insurance benefits
(a) Life insurance
(b) Vision insurance
(c) Dental insurance

49
 According to Richard Oyen, the current economic climate can tempt HR
professionals to curtail some standard compensation management processes in search of a
silver lining. For example, many may opt not to expend the energy involved in making
compensation adjustments. What’s the point, they reason, when they have no budget for
raises or bonuses? The reality, however, is that lean periods like this cry out for
optimized efficiency. For businesses to get the most from the budget they do have, they
must focus on those areas that directly influence the company’s bottom line—and
compensation has one of the most profound impacts of them all. So as you work to
improve on your employees’ compensation practices, here are five critical steps that will
maximize your efforts. Your organization can have the most in-depth compensation
management model, equipped with fancy processes and up-to-the second salary market
data, but it all means nothing if it does not tie your merit adjustments to your performance
metrics. A true pay-for-performance culture requires you to thoroughly assess the
organization’s performance, calibrate your results to eliminate any managerial bias, and
ultimately compensate individuals for accomplishing their goal targets. Be absolutely
certain that your compensation processes are configured along these lines, or you will be
wasting valuable budget. Human capital is your organization’s greatest cost-yet far too
many of us continue to manage employee data and calculate salary adjustments using
basic spreadsheets. Over a decade of research has consistently proven that spreadsheets
are notoriously full of errors. Why? Because people make mistakes. In fact, people are
typically only 95% to 98% accurate when they create formulas in spreadsheets1. Imagine
the number of formulas in any given spreadsheet your department produces-and then
weigh that against the results of one study in particular that found over 90% of
spreadsheets contained errors2.

When rewarding your employees for their hard work, consider offering BANK
options or one-time financial bonuses instead of simply increasing base salaries.
And remember: money is not the only motivator for engaging and retaining your
workforce. Look for other development opportunities, such as training or an
increase in responsibilities. These alternatives reflect your faith in key employees
while defining clear conduits for career growth. Market wages can fluctuate widely
depending on your industry. In addition to assessing merit increases and bonuses, take
the time to see where your organization’s salaries line up with market standards.
Depending on your corporate
50
salary strategy, you may need to make some adjustments that help ensure fair
and equitable compensation, especially for those roles facing high turnover risk.

HR Should not be conducting compensation budget allocations alone and

behind closed doors at headquarters. You’ll still oversee the process to ensure
consistency and control costs but if your organization hopes to improve the
ongoing cycle of talent development, you must be certain that managers participate in
this critical process. Give them all the tools they will need to easily make smart,
effective decisions, including performance and goal data, salary bands, previously
allocated budget information, increase guidelines, and so on. You’ll also find that
managers and employees alike are more responsive during compensation processes.
Take advantage of this opportunity and have them complete other necessary
performance management tasks, such as talent assessments for succession planning
activities. While we might be tempted to cut back on some HR efforts, we should
remember that out current economic crisis is actually a call for greater diligence
particularly with regard to large budget items like compensation. Now is the time to
optimize your processes to ensure the most efficient use of corporate resources, and to
help engage, retain, and develop your company’s most valuable asset its workforce. .r1e2f
According to the Mr. Grant Mc Glaughlin “The Canadian
Securities Administrators have adopted new executive compensation disclosure rules that
will come into force on December 31, 2008. These amendments, the first changes to
the executive compensation rules since 1994, are intended to provide shareholders
with a clearer perspective on executive compensation.

The central elements of the new rules are to require disclosure of all direct and
indirect compensation that an issuer’s board paid and intended to pay to executives,
and the reasons for the amount of compensation paid to executives so as to provide
investors with an understanding of how compensation decisions were made. The rule
changes, which are significant, are similar to the SEC’s rules on executive
compensation adopted last year. The new rules apply for financial years ending on or
after December 31, 2008, so issuers will need to comply with the new rules for the
2009 proxy season”. The New Rules in order to prepare to report under the new
rules, there are certain steps that companies should take to ensure they will be fully
compliant by the deadline. The new
51
rules are complex, detailed and will require the collection and development of a
significant amount of additional compensation information. The new requirement for
compensation discussion and analysis will require extensive involvement of the board of
directors, compensation committee, and management team and outside advisors. Issuers
should begin preparing

Their executive compensation disclosure as soon as possible. Examine new

executive compensation report of issuers. Although the new rules implemented by the
SEC are not identical to those coming into force in Canada, the policy reasons behind the
new rules, and many features, are very similar. Therefore, analyzing the changes made by
reporting companies in the United States may help issuers in Canada to get a better sense
of how to address the new requirements. Analyze the policy reasons and general
philosophy behind the company’s current compensation practices. Under the new rules,
issuers will be required to disclose detailed reasons for their chosen methods of
compensation. Therefore, it will be useful for issuers to establish and articulate a
comprehensive policy for executive compensation to consider weather each element of
executive compensation is consistent with that policy.”

The content of this article does not constitute legal advice and should not be
relied on in that way. Specific advice should be sought about your specific circumstances
According to Kathleen A. McNally “Today there is a lot of talk
about compensation, its cost to the organization and the company’s return on its
compensation investment. As a result, a variety of new pay systems have been
developed, each with its own objective, benefits and risks. Some companies have
already installed new pay plans, and many more are considering it. Many companies
that have implemented various new Pay Plans find that plan objective become
disconnected from the larger picture; they have been designed with a local rather than a
global view. These companies are looking for a way to integrate their pay system into a
cohesive whole so the plans drive the company objectives. Other companies are
beginning to look at new plans, wondering how

These plans will fit into the current pay system. Often, there is little
connection between the new pay systems and the overall business plan of the
organization. New pay systems are designed to achieve specific, departmental
objectives or, worse, they are because “everybody is doing it.” The traditional
52
function of pay to attract, retain and

52
motivate employees has not changed with the introduction of new pay systems; but the
emphasis has shifted from the attraction and retention functions to the motivation
function. The planning process Strategic compensation planning allows an organization
to focus on its strategic objectives and develop a comprehensive plan, considering base
pay, short- and long-term incentives, benefits and growth opportunities. This kind of
planning helps ensure that the compensation system will support the organization’s long-
and short- term objectives without overlap, which would have more than one pay plan
driving the same objectives.”

A strategy planning chart, allows to evaluate how well its current

pay system helps to attract, retain and motivate its employees. Down the side of the
chart are elements of the compensation system: direct pay, indirect pay (benefits)
and several nonpayer elements of the employee “contract” that different this
company from competitors. To identify these elements in your organization ask: “why
would someone come to work here instead of for the competition, if pay and benefits
were the same? ’The answer may be such factors as career opportunities, a
participative culture, promises to reduce staff only through attrition, or flexible work
hours.

53
 CHAPTER – IV

DATA ANALYSIS

AND

INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

1. Opinion on awareness of pay policy in HDFC BANK

54
Opinion respondent No of respondents % of respondents
Yes 43 86%
No 7 14%
Total 50 100%

Figure-1

Interpretation:

According to the above table 86% of the employees of the

organization are aware of the pay policies and rest of the 14% of the
employees are not aware of that they may be part time employees or
contract based employees.

2. Knowing about compensation packages in IT industries

55
 Opinion response No of respondents %of respondents
Yes 33 33%
No 17 17%
Total 50 100%

Figure:2

Interpretation:

From the above table it is evident that 33% of the employees in the
IT industry are aware of their compensation packages in their industry and
rest of the 17% are not aware about the compensation packages which
are in practice in the industry.

3. Basis for remuneration factor in HDFC BANK

S. No Basis No. of respondents % of respondents

1 Previous work history 8 8%

56
 2 Experience 34 68%
3 Length of service 5 5%
4 Other 3 3%
Total 50 100%

Figure 3

Interpretation:

In the above table it is evident that 8% of the employees

remuneration is provided on the basis of previous work history, 68% of
the employees remuneration is provided on the basis of experience, 11%
of the employees remuneration is provided on the basis of their length of
service and 5% of the employees remuneration is provided on other grounds.

4.Base of compensation provided in the organization

S. No Base No. of respondents % of respondents

1 Hourly pay 0 0%

57
 2 Annual pay 47 47%
3 Part time 2 02%
4 Contract 1 01%
Total 50 100%

Figure: 4

Interpretation:

In the above table it is evident there are no employees who work

an hourly pay basis as mentioned 0% in the table, 47% of the employees
work on annual pay base, 2% of the employees work on part time base and
1% of the employees work on contract basis.

5. Pay package according to……. factor

S. No According to No. of respondents % of respondents

58
 1 Market level 26 52%
2 Below market level 4 3%
3 Above market level 19 19%
4 Organization’s capability 1 1%

Total 50 100%

Figure: 5

Interpretation:

In the above table it is evident that 52% of the employees

compensation package is defined on the market level, 4% of the
employees pay package is defined below the market level, 19% of the
employees compensation package is defined above market level and
1% of the employees compensation package is defined on organizations
capability.

6. Determination of incentives pay factor

59
S. No Determined by No. of respondents % of respondents
1 Manager 1 1%
2 Profit 18 18%
3 Seniority 5 5%
4 Performance 26 52%
5 Cost of living 0 0%
Total 50 100%

Figure:6

Interpretation:

In the above table shows that the incentive pay factor is

determined 1% by the managers, 36% by the profit of the organization,
11% by the seniority, 52% by the performance of the employees and cost
of living is not taken into the consideration to pay incentives.

7. Kinds/Plan of incentives in the organization

60
S. No Kinds / Plans No. of respondents % of respondents
1 Organization portfolio 0 0%

2 Group incentive plans 0 0%

3 Individual plans 0 0%
4 All 3 above 49 98%
5 None 1 1%
Total 50 100%

Figure - 7

Interpretation:

In the above table it indicates that 98% of the employees are

provided all 3 kinds of incentives plans which are organization profit, group
incentive plan &individual plan and only 1% of the employees are not
getting any kind of incentives because, they are contract employees

8. Satisfaction factor about fringe benefits

61
S. No Level of satisfaction No. of respondents % of respondents
1 Highly satisfied 6 6%
2 Satisfied 42 84%
3 Dissatisfied 2 2%
4 Highly dissatisfied 0 0%
Total 50 100%

Figure: 8

INTERPRETATION

After studying the above table it is concluded that 84% of the employees are
satisfied with their fringe benefits, 6% of the employees are highly satisfied with their
fringe benefits, 2% of the employees are dissatisfied with their fringe benefits and none
of the employees is highly dissatisfied regarding their fringe benefits.

9. Types of benefits factors

S. No Types of benefits No. of respondents % of respondents

62
1 Protection 0 0%
programme
2 Paid time-off 0 0%
3 Above two 48 96%
4 None 2 2%
Total 50 100%

Figure:9

Interpretation:

In the above table, 96% of the respondents are provided both

the protection and paid time-off benefits and only 2% of the respondents are
not provided with either one of the benefits.

10. Level of fringe benefits providing to the employees

Grades Scored points No. of respondents % of respondents

Grade – I 76 to 100 points 4 4%

63
Grade – II 51 to 75 points 43 86%
Grade – III 26 to 50 points 2 2%
Grade – III 1 to 25 points 1 1%
Grade – IV Total 50 100%

Figure: 10

Interpretation:

Note: In the questionnaire, question No. 11 deals with the checklist about fringe
benefits which contains 20 benefits and each marking allocates 5 points. According
to this,
interpretation has made. In the above table 6% of the respondents got 76 to 100
points, it indicates that these respondents are getting total fringe benefits from
the organization and these employees called as Grade-I employees who are top
level executives, 86% of the respondents have scored between 51 to 75 points, it
indicates that they are getting Grade-II employees benefits, 2% of the respondents have
scored between 26-50, it indicates that they are getting Group-III employees benefits
and 1% of the respondents are getting Group-IV employees benefits.

11. What is the average working duration/ hour of an employee?

S. No Basis No. of respondents % of respondents

64
1 8 hours 8 8%

64
 2 9 – 10 hours 34 68%
3 More than 10 hours 5 5%

Total 50 100%

INTERPRETATION

In the above table, 68% of the respondents are provided for 9-10
hours working duration of an employee.

65
12. Do you agree that the shift system is convenient than adopting a fixed timing to
work?

S. No Level of satisfaction No. of respondents % of respondents

1 Strongly Agree 6 6%
2 Agree 42 84%
3 Neutral 2 2%
4 Disagree 0 0%
Total 50 100%

INTERPRETATION
After studying the above table it is concluded that 12% of the employees
strongly Agree and Agree which is shows the highest 84 percentage and the natural
which is 4% and disagree there is null.

66
13 Do you have a formal job evaluation plan in place?

Opinion respondent No of respondents % of respondents

Yes 43 86%
No 7 14%
Total 50 100%

INTERPRETATION

In the above table, the formal job evaluation plan which is shows
the 86%. Yes and 14 % for No.

67
14 Do you have an employee policy manual?

Opinion respondent No of respondents % of respondents

Yes 43 86%
No 7 14%
Total 50 100%

INTERPRETATION

In the above table, employee policy manual which is shows the 86%.
Yes and 14 % for No.

68
15. Which type of Compensation payment system do you prefer?

S. No Basis No. of respondents % of respondents

1 Fixed pay system 8 8%
2 Variable pay system 34 68%
3 Balanced-Debt Method 5 5%

Total 50 100%

INTERPRETATION

In the above table Compensation payment system which is shows the Fixed pay
system is 16 % and Variable pay system 68% and balance Debt method 10 %.

69
 CHAPTER – V
FINDINGS, SUGGESTIONS
AND

CONCLUSION

70
 FINDINGS

After doing this project work in the company, we found few of the main things
in the organization. They are as follows:

. The company is providing the competitive compensation packages to its

oyees.
empl
. The structure of the compensation is not same as when compared with IT sect
and other sectors.
. The company practices 2 different kinds of compensation packages for operational
group employees and non operational group employees.
. The company determines the packages based on the job grade, market pay line,
experience, skill based, performance based to its employees.
. The company is providing bonus and profits to its employees.
. The company is providing a wide range of fringe benefits as an important element
in the compensation structure.
. The company is providing pay-for-knowledge programme to its employee
because, the company is ‘innovative’ oriented.
. There is an internal consistency in the compensation structure within the job
family.
. The company is communicating soundly about the benefits to its employees and
updating the information about the new benefits.

CONCLUSION

Compensation employees represent a critical human resource management

practice: without sound compensation systems, companies cannot attract and retain
the
71
best-qualified employees. Practicing various human resources policies and programs like
employment, development and compensation and interaction among employees create
a sense of relationship between the individual worker and management, among workers
and trade unions and management.

It is the process of interaction among human beings. Human relations is

an area of management in integrating people into work situation in a way that
motivates them to work together productively, co-operatively and with economic,
psychological and social satisfaction. It includes:

The main objectives of compensation administration are to design a cost-

effective pay structure that will attract, motivate and retain competent employees and that
will also be viewed as fair by these employees apart from meeting legal requirements
organization have to take care of ever-rising employee expectation and competitive
pressures while designing an effective compensation plan. The purpose of this protect to
bring out the importance of designing an effective compensation plan that takes care of
legal stipulations, industry practices, employee expectation, competitive pressures, etc.,
so as to attract and retain talent.

72
 SUGGESTIONS
After doing this project work in the company, we found few of the main
things in the organization. They are as follows

. Continuously updating the compensation packages information in the

organization.
. Company should find out the various tax relaxation benefits to the employees.
. Providing a handsome compensation package can boost up the employee

motivation.
. Communicate about the benefits the employees in an effective manner.
. Adjust labor cost to financial results – the basic idea is to create a bonus plan

where the company is paying more bonuses in ‘ good times ’ and less (or no)

bonuses in ‘bad times ’.

. Drive employee performance – the basic idea is that if an employee knows

that his/her bonus depends on the occurrence of a specific job.

. Employee retention – retention is not a primary objective of bonus plans, yet

bonuses are thought to bring value with employee retention as well,

. Employees paid more are more satisfied with their job (all other things being

equal) thus less inclined to leave their employer.

. Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion,

performance, or results achieved.

. There are different types of variable pay plans, such as bonus schemes, sales incentives

(commission), overtime pay, and more.

73
BIBLIOGRPHY

74
 BIBLIOGRPHY

Books

(i) Joseph J. Martocchio “STRATEGIC COMPENSATION” THIRD

EDITION -2007, PUBLISHED BY PEARSON EDUCATION

(ii) Richard j. Henderson “COMPENSATION MANAGEMENT IN

A KNOWLEDGE BASED WORLD” TENTH EDITION-2008, PUBLISHED
BY
PEARSON EDUCATION

(iii) Brow Harvey “COMPENSATION MANAGEMENT” .

(iv) V.S.P RAO “HUMAN RESOURSE MANAGEMENT” SECOND

EDITION-2007, PUBLISHED BY EXCEL BOOKS.

(v) L.M.PRASAD: “HUMAN RESOURCES MANAGEMENT”.

(vi) Mirza S Saiyadain “HUMAN RESOURCES MANAGEMENT”.

Web sites:

www.google.com

www.hdfc.com

www.cite.H.R.com

www.msn.com

75
 QUESTIONNARIES

EMPLOYEES SATISFACTION LEVEL REGARDING

COMPENSATION POLICIES

PERSONAL INFORMATION:-

NAME :-----------------------

AGE :-----------------------

QUALIFICATION :-----------------------

EXPERIENCE: :------------------------

QUESTIONNARIES

1. Are you aware of the procedure of pay policies in your

organization?

A) Yes B) No [ ]

2. Do you know about compensation packages in IT industry?

A) Yes B) No [ ]

3. On what basis remuneration is provided in HDFC BANK ?

A) Previous work history [ ]

B) Experience

C) Length of Service

D) If any other

76
 4. On what base you are provided the compensation in the HDFC
BANK ?

A) Hourly pay B) Annual salary C) Contract base D) Part time

[ ]

5. What do you feel about your pay package according to……………?

A) To market level [ ]

B) To below of market level

C) To above of market level

D) To company capability

6. In an incentive payment, worker pay is determined by [ ]

A) Manager B) Profit C) Seniority D) Cost of living

E) Performance

7. What kind of incentives are providing in your organization?

[ ]

A) Organization profit plan

B) Group incentive plan are

C) Individual incentive plan

D) Above

77
 8. Which type of fringe benefits you are provided in the BANK
[ ]
A) Protection programs
B) Paid time – off

C) Services
D) All are above

9. What kind of insurance policies is providing to you in

your organization?
A) Group insurance [ ]
B) Individual insurance
C) Group and individual insurance

D) None

10. How do you satisfy with the fringe benefits provided by

the organization?
A) Highly satisfied [ ]

B) Satisfied
C) Dissatisfied
D) Highly dissatisfied

11. What is the average working duration/ hour of an employee? [

] A. 8 hours B. 9 – 10 hours

C. More than 10 hours

12. Do you agree that the shift system is convenient than adopting a fixed timing to
work? A. Strongly Agree [
]

B. Agree
C. Neutral
D. Disagree
78
13 Do you have a formal job evaluation plan in place?
[ ]

A. Yes B. No

14 Do you have an employee policy manual?

[ ]

A. Yes B. No

15 Which type of Compensation payment system do you prefer? [ ]

A. Fixed pay system

B. Variable pay system
C. Balanced-Debt Method

D. All

79