Compensation

Administration: Nature
and Objectives of
Compensation,
Components of Pay
Structure in India.

Introduction
Compensation is what employees receive in exchange for
their contribution to the organisation. Generally speaking,
employees offer their service for three types of rewards
Base Pay: as a wage salary
Variable Pay: directed linked to the performance such as a
Bonus,commission.
Benefits : indirect rewards---insurance,medical etc
The most important objectives of any pay system is fairness
or equity ,generally expressed in three forms
Internal Equity: where more difficult jobs are paid more
External Equity: where jobs are fairly compensated to
similar jobs in labour market.
Individual Equity: where equal pay is ensured for equal
work.

Introduction cont
Compensation refers to a wide range of financial
and non-financial rewards to employees for
their services rendered to the organisation.
It is paid in the form of wages, salaries, and
employee benefits such as paid
vactations,insurance,maternity leave, free
travel facility, retirement benefits,etc.
So,the term Compensation is a comprehensive
one including pay, incentives and the benefits
offered by the employer for hiring the services
of employee.

Objectives of Compensation

Attracting the Talent

Retaining the Talent
Motivating the Employee
Ensure Equity
Comply with legal rules
Ease of operations

Components of
Compensation

Wages and Salary

Incentives
Fringe Benefits
Perquisites

Wages : Remuneration to workers,

hourly rated payment
Salary: Remuneration paid to collar
employees and managerial personnel
paid on the basis of fix time period, not
associated with productivity of an
employee

Incentives
Any reward of benefits given to employee
over and above the wages or salary with
a view to motivating him to excel in his
work.
It includes both monetary and non
monetary rewards.
A scheme of incentive is a plan to
motivate individual or group performance

Fringe Benefits

Provident Fund
Gratuity
Pension
Medical benefits
Accident relief
Health and life insurance
Facilities like uniform, canteen

Perquisties

Provided to managerial personnels

either to facilitate their performance or
to retain them in organisation.
It includes company car,
membership,accommodation,paid
holidays trips

Equity and Pay Rates

Equity in pay rates could be achieved through five steps:
ENSURING EQUITY IN PAY RATES
Find the worth of each job through job evaluation
Conduct a salary survey through the following methods
Key Job matching: similar key jobs are identified
Key class matching: similar class of jobs are identified
Occupational Method: occupational groups like clerks, officers
managers are identified
Job evaluation Method
Broad Classification method
Group similar jobs into pay grades(pay grades are groups of jobs
within the particular class that are paid the same rate)
Price each pay grade by using wage curve( curve in a scatter diagram
representing the relationship between relative worth of jobs and
wages rates)
Fix a pay rage for each grade (like pay for officer category I,II,III etc)

Components of Pay Structure

The two essential components of pay structure are ;
basic wages and dearness allowance. The basic wage
is fixed taking the skill needs of the job, experience
needed, difficulty of work, training required,
responsibilities involved and the hazardous nature of
the job. Dearness allowance it paid to employees in
order to compensate them for the occasional or
regular rise in the price of essential commodities.
The DA is paid to neutralize the effect of inflation.
When the price goes down DA can always be
reduced.
The pay structure of a company depends on several
factors such as labour market conditions, company's
paying capacity and legal provisions.

Components of Pay Structure

cont
Under the Workmens Compensation Act
Wages for leave period, holiday pay, overtime pay ,bonus,
attendance bonus and good conduct bonus.
Under the Payment of wages Act,1936,Section 2 (vi) any
award of settlement and production bonus, if paid,
constitute wages.
The following ,however, do not come under the term wages:
Bonus
Payments made under a profit sharing scheme
Value of house accommodation
Medical allowances
Travelling allowances
Contribution to pension, provident fund

Wages and Salary Administration

It is a process of managing a companys compensation
(base compensation as well as supplementary )
programme Base Compensation,here,refers to
monetary payments to employees in the form of wages
and salaries. It is a fixed, non-incentives kind of
payment calculated on the basis of time spent by an
employee on the job. Supplementary compensation
signifies incentive payments based on the actual
performance of an employee.
The term compensation administration or wage and
salary administration denotes the process of managing
a companys compensation programme.

Objectives

To establish a fair and regular

remuneration similar offering similar
pay for similar work
To attract qualified and competent
personnel
To retain the present employee
To improve motivation and morale of
employee
To project a good image of Company

Principles of Wage and

Salary Administration

Wage and salary plan be

sufficiently flexible
Job evaluation being done
scientifically
Wage and salary plans being
responsive to changing
conditions.
Wage and salary plans be always
consistent with over all plan.

Factors affecting
compensation levels

Job Needs
Ability to Pay
Cost of living
Prevailing wage rates
Unions
Productivity
State regulation
Demand and supply of labour

Wages policy in India

A wage policy offers certain guidelines for determining a
wage structure. The term wage structure refers to various
pay scales showing ranges of pay within each grade. Three
important elements of wage policy in India need to be
elaborated here:
Minimum Wage: Wages sufficient to sustain and preserve the
efficiency of the workers and offer basic amenities of life.
Fair Wages: it is above the minimum wage but below the living
wage. It is fixed, taking into account factors such as the
productivity of labour,prevaling wage rates, level of national
income and its distribution, the employers capacity to pay
etc.
Living Wages: This is the highest amount of wages proposed
by the government, offering basic amenties of life, efficiency
of workers and satisfying the social needs of workers such as
medical,education,retirement,etc. Is a dynamic concept,
which grows in line with the growth of the national economy.

State regulation of Wages

Institutions involved in fixation of

wages

Employer
Collective Bargaining
Minimum Wages Act
Legislation_________________Payment of Wages
Act
Wage Boards
Collective
Bargaining
Pay Commission

Minimum Wages Act,1948

Act prescribes minimum rates of wages

for certain sweated and unorganized
sectors covered under the Act.
Wages can be fixed by hour, day,
month or any other longer period.
Act provides for setting up a tripartite
body consisting of employees, unions,
and the government, to advise, and
assist in fixing and revising minimum
wages rate.

The Payment of Wages

Act,1936

Objective is to provide for regular

payment wages without any
unauthorized reduction to persons who
are employed in any industrial
establishment or factory or railway or
by a railway contractor whose monthly
wages are less than Rs 1600.

Adjudication of Wage
Dispute

Collective Bargaining is a procedure

through which employee problems
relating to various issues including
wages are settled through the process
of joint consultation, in an atmosphere
of give and take', trust and mutual
confidence.

Wage Differentials

Differences in wages rates are inevitable

in any industry and the reasons are
fairly obvious reasons for wages
Wage Differentials
Reasons
differentials:
Interpersonal Differentials

Differentials in Sex,skills,
age, knowledge, experience

Inter-occupational
Differentials

Varying requirements of
skill,knowledge,demandsupply situation.

Inter-area Differentials

Cost of Living, ability of

employers to pay, demand
and supply situation, extent
of unionisation

Inter-firm Differentials

Ability of employer to pay

,employee bargaining power,
degree of unionisation, skills
needs,etc.

Choice in designing a Compensation

System
The compensation that is followed by a
firm should be in tune with its own
unique character and culture and allow
the firm to achieve its strategic
objectives. A variety of choices
confront a firm here:
Internal and External Pay
Fixed vs. Variable pay
Performance based Pay System

Guidelines for effective

performance based pay systems
To be fair to employees,organisational should keep the following
guidelines in mind while instructing merit-pay system
Establish high standards of performance, so that only the
truly outstanding employees emerge as winners.
Develop Accurate performance appraisals system. The focus
must be on job-specific ,results-oriented criteria as well as
employee behaviours.
Train supervisions in the mechanics of carrying out appraisals
and offering feedback to employees in a proper way.
Tie rewards closely to performance.
Use a wide range of increase.Also,make pay increase
meaningful

Managerial Compensation
in India
Executive compensation is built around
three factors in India:
Job Complexity
Employers ability to pay
Managerial Productivity

How to retain Talent

Improving Communication
Changing works rules
Increase pay and incentives
Opportunities to upgrade skills and
knowledge
Offering jobs with full of challenges