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COMPENSATION
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Definition of Compensation:
 According to HRM, compensation is as money and
other benefits received by an employee for providing
services to his employer.

 Compensation is something value given in exchange for
something else.

Example of compensation:
 The money a company pays to its employee to do work .
 When a person gets into a car accident and injures
someone, the money he pays to the injured victim for his
losses.
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Nature of Compensation:
Nature of
Compensation
Return
System of
Rewarding
Organizational
Tool
Management
Instrument
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Objectives of Compensation:
Objectives
Equity
Retain the best
talent
Reward new
ideas &
behaviours
Cost
Control
Compliance
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Other Objectives
 To recruit & retain qualified
employees

 To increase or maintain morale

 To determine basic wage
& salary

 To reward for job performance






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Need of Compensation:
Compensation
Motivation
Need
Satisfaction
Employee
Retention
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Evolution of Strategic Compensation:
Today the compensation systems are designed, aligned
to the business goals & strategies. The employees are
expected to work and their own decisions. Authority is
being delegated. Employees feel secured and valued
in the organisation. Organisations offer monetary &
non-monetary benefits to attract and retain the best
talents in the competitive environment.




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Principles of Compensation:
Principles
of
Compensation
Equity
Considerations
Non-
Discriminatory
Performance
Orientation
Simplicity &
Flexibility
Legal
Compliance
Ability to pay
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Components of Compensation:
Components
Direct Compensation
Non-Monetary
Compensation
Indirect
Compensation
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Direct Compensation:-
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Indirect Compensation:-
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Non-Monetary
Compensation:-
 Promotes social relationship with co-
workers.
Allocate sufficient resources to perform
work assignments.
Offer supportive leadership &
management.
Enhance physiological health, intellectual
growth.

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Levels of Compensation:
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Factors influencing
Compensation:
Internal Factors
•Ability to pay
•Productivity of Labour
•Job Need / Requirement
•Government Policy
•Good Will of the Company
External Factors
•Labour Market
•Bargaining Power
•Cost of Living
•Condition of Product
Market
•Comparative Wages
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Conclusion:
We can say that good compensation
can increase the productivity of an
organisation because it provides various
rewards, bonus, schemes etc. & its
compulsory for every organisation.

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Wage & Salary:
Wages:
A wage is monetary compensation (or) remuneration
paid by an employer to an employee in exchange for
work done at an hourly or daily rate.

Salaries:
Salary refers to how much you get paid every year.
Salary earners rarely have to punch a time clock, or keep
an accurate account of their hours, because they get paid
for performance rather than by the hour. Salaried
workers are much more likely to have paid sick days and
paid vacations, and are not docked pay for being late or
leaving early from time to time.

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Purpose of Wage & Salary:
 Attracting talented resources
 Financial Management
 Legal Requirements
 Retaining & motivating employees

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Difference between Wage & Salary:
Wages Salaries
•Wage earners are paid by
the hourly/daily basis
•Salary earners are paid by
the yearly basis
•Wage earners often have to
give up pay for time off
•Salary earners usually
receive paid time when they
are not working.
•Wage earners get paid more
for working more than 40
hours per week
•Salaries are often calculated
as packages
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Types of Wages:
Wages are broadly based on the needs of
the workers, capacity of the employer to
pay, and the general economic conditions
prevailing in a country.


Wages
Subsistence
Wages
Minimum
Wages
Fair Wages
Living
Wages
Real Wages
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 Subsistence Wages: The wage that
can meet only to bare physical needs
of a worker and his family is called
subsistence wage.

 Minimum Wages: Minimum wage is the wage that
is able to provide not only for
bare physical needs but also
for preservation of efficiency
of worker plus some measure
of education, health and other things.
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 Living Wages: "A living
wage is one which should
enable the earner to provide
for himself and his family
not only the bare essentials
of food, clothing and shelter
but a measure of frugal
comfort including education for his children, protection
against ill-health, requirements of essential social needs
and a measure of insurance against the more important
misfortunes including old age. “
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 Fair Wages: Fair wages is an adjustable step that
moves up according to the capacity of
the industry to pay, and the prevailing
rates of wages in the area of industry.

 Real Wages: Real wage means that the total “ amount of
things that this can buy”, is equal to real wage. Real wages
are generally taken to be money wages adjusted for
Variations in value of money:
Wr = Wn / Pg
Where: Wr = Real Wages
Wn = Nominal or Money Wages
Pg = General Price Level

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Wage as a Motivator:
Motivation
Affiliation
Motivation
Performance
Motivation
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Methods of Wage Fixation:
Wages and Salary incomes in India are fixed
through several institutions , those are:
 Collective bargaining
 Industrial wage bound
 Govt. appointed pay commissions
 Adjudication by courts & tribunals

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 Collective Bargaining:
Collective bargaining relates to those
arrangements under which wages and
conditions of employments are
generally decided by agreements negotiated between
the parties.
 Industrial Wage Boards:
a) Statutory wage board: Statutory wage board means a body set up
by law or with legal authority to establish minimum wages and
other standards of employment which are then legally enforceable
in particular trade or industry to which board’s decision relate.
b)Tripartite wage board: Tripartite wage board means a voluntary
negotiating body set up by discussions between organized
employers, workers and govt. to regulate wages, working hours
and related conditions of employment.


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 Government Appointed Pay Commissions:

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Central Pay
Commission
Date of
Appointment
Date of
Submission of
Report

Related With
1
st
May 1946 May 1946 Living Wages
2
nd
August 1957 August 1959 Salaries have to
be determined
3
rd
April 1970 March 1973 Pay Structure
4
th
June 1983 May 1986 Examine Structure
of central govt.
5
th
April 1994 January 1997 Restricting Pay
Scale
6
th
October 2006 March 2008
 Adjudication by Courts & Tribunals:
Courts and Tribunals were primarily
intended to deal with settlement of
industrial disputes. Numerous wage
disputes in many industries have been referred
for adjudication to labour courts and tribunals. The
awards given by these authorities not only helped in
formulation of a body of principles governing wage
fixation but laid foundation for present wage structure
in many of major industries.

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Principles of Wages & Salary
Administration:
 Wage policy should be developed keeping in view the
interests of the employer, the employees, the
consumers and the community
 Wage policy should be stated clearly in writing to ens
ure uniform andconsistentapplication.
 Wage and salary administration should be consistent
with the overall plans of the company. Compensation
planning should be an integral part of the financial
planning.
 Wage and salary plans should be sufficiently flexible
or responsive to changes internal and external
conditions of the organization.

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Factors influencing Wage &
Salary Determination:
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Internal Factors
• Ability to pay
• Job Requirements
• Management Strategy
•Employee

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External Factors
•Demand & Supply
•Cost of Living
• Trade Unions Barriers
Power
•Government Legislation
• Psychological & Social
• Economy
• Technological Development
• Prevailing Market Rates