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◦“If you pick the right people and give
them the opportunity to spread their
wings - and put compensation and
rewards as a carrier behind it - you
almost don’t have to manage them.”
◦— Jack Welch
◦ In very simple terms, compensation is the results or rewards
that the employees receive in return for their work.
◦ Compensation includes payments like bonuses, profit
sharing, overtime pay, recognition rewards and sales
commission, etc.
◦ Compensation can also include non-monetary perks like a
company-paid car, company-paid housing and stock
opportunities. Compensation is a vital part of human
resource management, which helps in encouraging the
employees and improving organizational effectiveness.
◦It can be said that compensation is the “glue” that
binds the employee and the employer together and
in the organized sector, this is further codified in the
form of a contract or a mutually binding legal
document that spells out exactly how much should be
paid to the employee and the components of the
compensation package.
◦Compensation management is a general policy,
implemented in conjunction with specialized
software, designed to help an organization to
maximize the returns on available talent. The
ultimate goal is to reward the right people
to the greatest extent for the most relevant
◦ Compensation management is the act of distributing some type
of monetary value to an employee for their work by means of the
company's policy or procedures.
◦ In basic terms, it is paying an employee based upon the
decided pay and benefit package for the position.
◦ The goal of compensation management is to find quality people
who perform quality work and then compensate them in order to
retain them and reduce turnover rates.



◦ To Attract Top Talent
◦ To Retain & Reward Personnel
◦ To Boost Motivation
◦ To Be Compliant
◦ To Maximize ROI
Before preceding further to the
topic of components of
compensation it is important to
study the two major components
of compensation management
Job Description
◦ The Job Description of the employee that specifies how much
should be paid and the parts of the compensation package.
◦ The Job Description is further made up of responsibilities,
functions, duties, location of the job and the other factors like
environment etc.
◦ These elements of the job description are taken individually to
arrive at the basic compensation along with the other
components like benefits, variable pay and bonus.
◦ It needs to be remembered that the HRA or the House Rental Allowance is
determined by a mix of factors that includes the location of the employee
and governmental policies along with the grade of the employee.
Job Evaluation
◦The Job Evaluation that is a system for arriving at
the net worth of employees based on
comparison with appropriate compensation
levels for comparable jobs across the industry as
well as within the company.
◦Factors like Experience, Qualifications, Expertise
and Need of the company determine how much
the employer is willing to pay for the employee.
Incentives: Drivers in attracting the
best employees
◦ Compensation can be divided into salary, benefits and incentives. While salary and
benefits must be competitive, incentives are the most likely drivers of attracting and
retaining the best employees in startups. There are three key types of incentives:
bonuses, profit sharing and stock options.

◦ Individuals are rewarded based on attainment of performance-

based goals (individual, team and/or company).
◦ Goals must be realistic and closely matched to the business
and people involved.
◦ Payout potential should be large enough to be significant to the
◦ Bonuses can be set up to directly drive and support the
company’s needs (for example, profitability, annual results,
successful completion of projects and/or significant project
Profit sharing

◦Payment is tied to company profits.

◦A pre-determined percentage of profit is
shared among all employees.
◦Profit-sharing bonuses are generally paid
out once a year in the form of cash or on
a deferred basis.
Stock options

◦ An individual receives the option to buy company

shares for a set price during a specified time frame.
◦ Option can be exercised by the individual at any time
during the agreed-upon term and subject to any
vesting schedule.
◦ Stock options are often part of management’s
executive compensation but may be offered to key
employees in lieu of a higher salary—especially where
the business is not yet profitable and/or cash flow is
Compensation strategy

◦ Defining a compensation strategy is an important activity for all companies, including

startups. The compensation strategy must be affordable, structured and reasonably
The type and amount of compensation is
understand by these terms.
◦PCNs (parent country nationals)
◦TCNs (third country nationals)
◦HCNs (host country nationals)
PCNs (Parent Country Nationals)

Those employees who are of the same nation ,

means birth country of any organization
◦ These persons are from the country in which
operations are firstly started or performed.
◦ The policy PCNs is usually worked when the host
country nation is not ready of provide sufficient
manpower , communication required with
headquarter at a high degree and a centralized
approach is followed for the globalization
◦TCNs (Third Country Nationals)
◦ Those personnel are the foreign national citizen i.e.
whose birth nation or home residence country is neither
the host country nor the parent country.
◦ These personnel basically recruited from outside the host
country and the parent country
◦HCNs (Host Country Nationals)
◦ These are employees who are selected or recruited from
the host country or to the area of operations. The basic
residence or home is the host country.

◦ Expatriates are the person of the parent country and work in the host country
for a specific assignment and when he comes back then they will known as
the repatriate
◦ Let us take an example of defining these terms from Indian
perspective. Dabur India limited is an Indian company.
◦ If the Chinese citizen who work for the Dabur in Shanghai is
known as HCNs. It means HCNs are those countries national who
work where the operation are conducted. If the US citizen who
work for the Dabur in Shanghai is known as TCNs. An Indian
citizen who works for Dabur in Shanghai is an Expatriate.