 Compensation management concept

 Fringe benefits

 Incentives
 Compensation
 It refers to wide rangeCompensation
of financial and non-financial
rewards to employees for their services rendered to the
organization.

Financial Non- Financial

wages salaries Employee

Employee benefits
benefits Family
Family Picnic
Picnic

Paid
Paid vacations
vacations Dinner/lunch
Dinner/lunch
Insurance with
with boss
boss

Maternity
Maternity leave
leave Free
Free travel
travel facilities
facilities Company
Company car
car
 Attracting and retaining personnel

 Motivating personnel

 Optimizing cost of personnel

 Consistency in compensation
Compensation Management Process
Organization’s strategy

Compensation policy

Job analysis and evaluation

Analysis of contingent factor

Design and implementation of compensation plan

Evaluation and review

 Wages Salary

 Workers or blue  White collared

collared employees employees including
managerial
personnel
 It is usually paid  monthly basis.

on hourly or daily
basis.
 Incentives Fringe benefits
 Additional payment  Additional benefits
 Linked with given irrespective of
performance
productivity
 Having long term
 Individual or group
effect
basis ◦ Provident fund
 Variable pay
◦ Gratuity
◦ Pension
◦ Medical allowance
 Provided to managerial
personnel
 To facilitate job
performance or to
retain them
 It includes
◦ Car
◦ Club membership
◦ Free residential
accommodation
Monetary Dimensions of Compensation
 Enhance dignity and satisfaction from work
performed
 Leads to self worth and pride in making a contribution

 Allocate sufficient resourced to perform work

assignments
 Provide necessary information and skills
 Maintain job related interest and satisfaction

 Offer supportive leadership and management

 Skills and interests in coaching and counseling
 Praise for the job well done
 Constructive feedback
 Flexible policies, rules and regulations
 Enhance physiological health, intellectual growth and
emotional maturity
 Safe working environment
 Minimization of noxious fumes
 Avoidance of extreme heat, cold, humidity conditions
 Elimination of disease related material

 Design jobs that require adequate attention and effort

 Problems related to monotonous jobs, boredom
 Flexibility in job requirements
 Rotating work assignments
 Opportunity to schedule workdays and workweeks

 Grant sufficient control over the job to meet personal

demands
 Opportunity to participate in decision making process
 Scheduling work activities
 2 part time employees to share one full time job
 Casual dress day
Internal and external factor
responsible for compensation
Nature of HR market demand & supply, productivity,
prevailing markets rates

Allowance given to maintain social

Cost of living Status according to place

Trade union Union bargains with management

Weapons-strikes, gheroes etc.

Legal framework Guidelines given by laws about

Eg. wages act 1936
 Demand and supply Demand for skill up prices will also
Productivity constant

Productivity Efficient employees paid higher

Prevailing market rate of Compare wages with other

wages companies' to retain and gain talent
Nature of HR market demand & supply, productivity,
prevailing markets rates

Allowance given to maintain social

Cost of living
Status according to place

Trade union Union bargains with management

Weapons-strikes, Gheroes etc.

Legal framework Guidelines given by laws about

Eg. wages act 1936
Organizational strategy It determine the organizational
and attitude attitude and hence its remuneration

compensation depends
Ability to pay
upon earning

Difficult job higher compensation

Nature of jobs Job evaluation is done

Nature of personnel Employee related factors

Performance, seniority, special skills
 They are supplementary compensation over
and above base compensation and consists
of incentives and variable payments
according to individual or group output.

 They are tangible benefits either in the form

of cash or other kinds

 Eg: housing, traveling allowance, facility of

refreshment and lunch etc
 Statutory Benefits
◦ Mandatory and provided by all the
organizations
◦ E.g.: paid holiday leaves

 Voluntary Benefits
◦ Determined by the individual
organizations on their own
◦ E.g.: transportation facilities, child care,
 Payment for time not worked
◦ Eg: payment for weekly-off day, Gazetted
holiday, Personal leave
 Retirement Benefits
◦ Provident Fund Scheme
◦ Pension Scheme
◦ Gratuity
 Compensation benefits
◦ Injuries during the course of employment
◦ Death during the course of employment
 Insurance Benefits
◦ Eg: medical benefit, disability benefit,
maternity benefit etc
 Health and Safety provisions
According to Factories Act, 1948:
◦ Health
◦ Safety
◦ Welfare
◦ Working hours
 Recreational and other Benefits
◦ Eg: Telco in Jamshedpur provide excellent
townships
1. Indian industries have recognized the
importance and are also providing such
benefits but progress in this area has not
been very encouraging.

◦ Reason- industrial development started late

here in comparison to developed nations i.e
only after 1947 and most of the industries are
still not in position to offer a great benefits
due to low profits
INCENTIVE PLANS-Incentive wages
relate earnings to productivity and
may use bonuses, premiums or a
variety of rates to compensate for
superior performance.
Itis the right given to employee to
purchase a fixed number of shares
of company stock at a specified price
for a limited period of time.

Itgives the employees an ownership

of the company due to which he can
participate in the company’s affaires
 It offers an option to purchase a certain of
stock in the future at a stated price or in the
present at a price lower than the market price.
 Makes the employee a part owner of company
 Mutuality of interest is created between the
individual and the company
 Stocks are held in an employee stock
ownership trust until the employee chooses to
withdraw from the plan or wants to leave the
company
 Esos i.e. employee stock option scheme, is a voluntary
scheme on the part of the company to encourage
employees participation in the company

 Suitable percentage of reservation can be made by the

issue of the employees of the company

 Under existing guidelines- 5% of the new issue may be

reserved for the esos subject in a maximum limit of 200
shares per employee who agree to participate the esos

 Membership of the esos should be restricted only to the

permanent employees of the company
1. Profit sharing means a system to distribute
a portion of the profits of the organization
to employees.

2. It is an agreement by which employees

receive a fixed portion of profit.
1. Agreement between employers and
employees for sharing of profit
2. Bonus paid to employees in addition to
their wages and profit as an incentive for
higher performance
3. Workers share only profits not the losses

4. Criteria for distribution of profits is

decided well in advance-based on the
position of an employee in an organization
1. Industry basis- profits of a number of industrial units in
the same industry may be group together to determine the
share for the laborers.

2. Unit basis- simplest way of giving a labourer a share in the

profits of individual undertaking in which he is employed

3. Department basis- workers in a particular department

share in the profits made by that department.

4. Locality basis- industrial units in particular locality may

pool their profits to determine labour’s remuneration by
profit sharing.

5. Individual basis- a worker receives a proportion of the

profit which may have been earned by a business through
the effort of that individual worker.
Gainsharing is a system that includes:
(1) A financial measurement and feedback system
to monitor company performance against an
agreed benchmark and distribute gains in the
form of bonuses when appropriate, and

(2) A focused involvement system to eliminate

barriers to improved company performance.
1. Purpose- In gain sharing the purpose is to drive performance of an
organization by promoting awareness, alignment, teamwork,
communication and involvement whereas in profit sharing the
purpose is to share the financial success of the total organization
and encourage employee identity with company success.

2. Application- In gain sharing The plan commonly applies to a single

facility, site, or stand-alone organization whereas in profit
sharing The plan typically applies organization-wide

3. Measurement – in gain sharing Payout is based on operational

measures (productivity, quality, spending, service) whereas in
profit sharing Payout is based on a broad financial measure of the
organization’s profitability.
4. Funding- in gain sharing Gains and resulting
payouts are self-funded based on savings
generated by improved performance whereas in
profit sharing Payouts are funded through
company profits

5. Employee eligibility- in gain sharing Typically all

employees at a site are eligible for plan payments
whereas in profit sharing Some employee groups
may be excluded, such as hourly or union
employees
 Principle
◦ “choose your own reward”

 Employees are allowed to select their own

incentives schemes from a variety of
possibilities this arrangement is known as
“smorgas Board”
 This program requires more information
to be provided to employees by
management.
 Help employees to make correct decision.
 HALSEY-WEIR PREMIUM PLAN
Bonus =(1/2) time saved x hourly rate

 ROWAN PREMIUM PLAN

Bonus =Saved time x Actual time taken x Rate per hour
Standard time

 BEDEAUX POINT METHOD

Value of time saved =(S-T) x R
Bs
where,
S =Standard time R =Rate of wages
T =Actual time Bs= Bedeaux point
 A smart compensation plan
with right mix of monetary
and non-monetary
compensation can motivate
the employees to stretch
their limits and perform
beyond expectation
 leading to higher productivity
and profits
 Good communication and
uniformity of procedure is the
key to success of such plans
The following are the new trends in compensation
management
Group Mediclaim/Insurance Scheme
Personal Accident Insurance Scheme
Company Leased Accommodation
Recreation/ATM facilities
Corporate Credit Card
Club memberships
Cellular Phone/Laptop
Personal Health Care (Regular medical check-
ups)
Loans

Educational Benefits (For Higher studies)

RegularGet together and other cultural
programs
Wedding Day/Birthday Gift
Work-life Balance
Pay Transperancy
Broad banding
Variable Pay (Incentive Pay)
Flexible Benefits
Flexi-time

Compressed workweek
Job sharing
Telecommuting

Part-time work
Modified retirement
Employee Assistance Programme
Child Care Assistance
5
Employees want transparency in pay system.
Now a days some organisations are using
transparent pay system.
Pay transparency influences employees in
•Fostering trust in management
•Increasing employee engagement
•Encouraging discretionary efforts
•Reducing turnover
•Creating competitive advantage
Consolidating salary grades and ranges into just a
few wide levels or “bands,” each of which contains a
relatively wide range of jobs and salary levels.
 Wide bands provide for more flexibility in assigning
workers to different job grades.
 Lack of permanence in job responsibilities can be
unsettling to new employees.
Tying pay to some measure of
individual, group, or
organizational performance.
Piecework incentive
Pay-for-performance

Pay-for –person
Merit pay
Bonuses

Sales incentives
Profit sharing
 Employee Stock Ownership Plan (ESOP) is an
employee benefit plan.
 The scheme provides employees the ownership of
stocks in the company.
 Employers have the benefit to use the ESOPs as a
tool to fetch loans from a financial institute.
 It also provides for tax benefits to the employers.
 Company makes annual contributions in a special
trust set up for ESOPs.
Flexiblebenefits allow employees to pick benefits
that meet their needs. The idea is to allow each
employee to choose a benefit package that is
individually tailored to his or her own needs and
situation.
The three most popular type of benefit
plans are:
- modular plans,
- core-plus options and
- flexible spending accounts.
Modular plans are pre-designed packages of benefits,
with each module put together to meet the needs of a
specific group of employees.
Soa module designed for single employees with no
dependents might include only essential benefits.
Another,designed for single parents, might have
additional life insurance, disability insurance, and
expanded health coverage.
 Core-plus plans consist of a core of essential
benefits and a menu-like selection of other
benefits options from which employees can
select and add to the core.
 Typically, each employee is given “benefit
credits,” which allow the “purchase” of
additional benefits that uniquely meet his or
her needs.
Flexible spending plans allow employees to set aside
up to the amount offered in the plan to pay for
particular services.
It’s
a convenient way, for example, for employees to
pay for health-care and dental premiums.
Flexible spending accounts can increase employee
take-home pay because employees don’t have to pay
taxes on the amount they spend out of these
accounts.
Physical Fitness
Healthy Eats - a chef makes custom cook every single day
Rejuvenating

Dry-cleaning and alterations

Car wash
Unrestricted dress code
DVD rental
Bike repairs
Haircuts

Theatres