Compensation Management

Introduction

• Money is a crucial incentive and directly or indirectly

related with fulfillment of all human needs.
• Various perspectives:
Cost perspective: effective management of
compensation becomes critical because of the total
operating costs.
Employer’s perspective: increase in productivity.
Employee’s perspective: to offset increased cost of
living and the price his skill will fetch in the
competitive job market.
Compensation: most strategic and important functions
of human resource management.
Compensation: complicated issue – internal equity,
external parity, wider issues of economy and society.
Objectives of providing compensation:
- As a reward for the past services to the organisation.
-As stimulus to increase performance in future.
 Concept of compensation
• ‘fair days pay’ for fair days work.
• All forms of financial returns and tangible service and
benefits employees receive as part of an employment
relationship.
• A system of rewards that motivates employees to
perform.
• A tool used by organisations to foster the values,
culture and the behaviour they require.
• An instrument that enables organisations to achieve
their business objective.
Competitive advantages of Compensation and Rewards
System:

1. Compensation can serve to attract qualified

applicants in the organisation.
2. Compensation helps to retain competent employees
in the organisation.
3. Compensation serves as an incentive to motivate
employees to put forth their best efforts.
4. Compensation is a significant cost. Minimising the
cost of compensation can also contribute to
organisational effectiveness.
 Compensation Management

 What is compensation management

• Compensation Management is designing and
implementing total compensation package with a
systematic approach to providing value to employees
in exchange for work performance,

• Compensation is a systematic approach to providing

monetary value to employees in exchange for work
performed.
• Compensation may achieve several purposes assisting
in recruitment, job performance, and job satisfaction.
 Objective of compensation management
1. To attract capable and efficient employees.
2. To retain talented employees
3. To increase the motivation and morale of employees
4. To maintain market competitiveness
5. To reward employees for their productive
contribution
6. To integrate employees goals with organisation
7. To build employer brand
8. To help employees meet his personal needs
9. To encourage employees to develop their skills
10. To elicit desired behaviour from employees
11. To comply with labour legislations
 Compensation Management
Purpose of Compensation
– For Employer
• Brand image (employer of choice) for attracting
candidates
• Motivating employees for higher productivity
and performance
• Retaining talent
• Consistency in compensation
• Provoking healthy internal competition

– For Employee
• Work-life Balance
• Recognition as tool to self esteem
• Planning for better quality of life
 Types of Compensation and Benefits

• There are three types of Compensation and Benefits

namely;
• Base Compensation
• Variable Compensation
• Supplementary Compensation
 Base Compensation and Benefits

• Base Compensation is one type of Compensation. It

refers to the basic salaries and wages given to he
employees. It is normally constant at a given amount
irrespective of the difference in work performance.
 Variable Compensation and Benefits

• This type of compensation as by its name is variable.

It means that one gets compensation as per the work
done. If one does a remarkable job then he or she
deserves a higher compensation package than one
whose work is of poor quality.
 Supplementary Compensation and Benefits

• Supplementary Compensation is compensation given

by an employer when he or she wishes to. It is not
compulsory or a routine one. In this type of
Compensation the employer has a right to add, deduct
or even withdraw the benefits when he or she wishes
to.
Components of compensation

Direct Indirect

Basic pay Provident fund

Dearness Pension
Allowance Medical and
Overtime pay health insurance
Shift allowance Sick leave
Incentive Other benefits and
Bonus perks
Profit sharing
Commissions
etc
 Factors affecting compensation
• Employees’ work, skills, performance and motivation
• Ability of the organisation to pay
• Labour market conditions
• Government regulations with respect to compensation
• Economic, socail, political and technological
environment
• Equity considerations in compensation
• Psychological contract
• Improving individual motivation, morale,
productivity and quality of work performed by
employees, and
• Building competitive advantage by organisations.