Syllabus

Unit I Overview of compensation: Meaning, Importance of compensation, Elements of compensation,

Factors influencing Effective compensation, Compensation process, Designing Compensation System,
Strategic Compensation System. Wage concepts: Minimum, Fair and Living wage; Compensation
Philosophies, Conceptual and theoretical understanding of economic theory.

UNIT II
Employee satisfaction and motivational issues in Compensation; Executive Compensation; Differentials;
Internal and External Equity in Compensation system.

UNIT III
Performance management framework: Definition and coverage, reason for undertaking PM, PM Process,
Diagnosis and Bench marking, Setting Performance standards, Performance measurement, Review of
performance, Rewarding Performance through Financial and Non-Financial aspects. Understanding
different components of compensation packages like fringe benefits, perks, incentives and retirement
plans.

UNIT IV
Laws relating to Workmen Compensation: Workmen’s compensation Act, Minimum Wages act, Payment of
Wages act, Payment of bonus act, Provident fund act, Equal Remuneration Act.

UNIT V
Institution/machineries related to Reward system: Wage boards, pay commission. Government, public and
private sector compensation, Wage and productivity: Concepts and regulations.
 Compensation Management

Compensation Management Also Known as

• Wage & Salary Management
• Reward Management
• Remuneration Management
• It is concerned with designing & implementing total compensation
package
• Traditionally related determination of wage & salary structure in an
organization but recently it deals with establishing & implementation of
polices & practices of employee compensation.
 Definition
“Wage & Salary Management refers to the
establishment & implementation of sound
policies & practices of employee
compensation. It includes such area as job
evaluation, surveys of wages & salaries,
analysis of relevant organizational problems,
development & maintenance of wage
structure, rules for administrating wage,
incentives, wage change &other related items.”
 Meaning
• In general- Counter Balance
• In HRM- It means money & other benefits
received by an employee for providing his
services.
• Compensation Management includes direct
cash payments, indirect payments in the form
of employee benefits & incentives to motivate
employees to strive for higher levels of
productivity.
 Components of
Compensation Management
• Wage & Salary Administration
• Incentives
• Fridge Benefits
• Perquisites
 Objectives of
Compensation Management

• Attracting & retaining Human Resources (High amount of

compensation attracts new entrants & reduces turnover)
• Motivating Human Resources (For Increased productivity)
• Optimizing cost of compensation (High Compensation
leads to high productivity)
• Consistency in compensation (Equal & Fair)
• To Improve Public Image of the Company
• To Improve Job Satisfaction
• To Improve Union Management Relations
Direct Compensation
 Direct Compensation
• Direct compensation refers to monetary benefits offered and provided to
employees in return of the services they provide to the organization. They
are given at a regular interval at a definite time.
• Basic Salary - Salary is the amount received by the employee in lieu of the
work done by him/her for a certain period.
• HRA - Organizations either provide accommodations to its employees who
are from different state or country or they provide house rent allowances
to its employees. This is done to provide them social security and motivate
them to work.
• Conveyance - Organizations provide for cab facilities to their employees.
Few organizations also provide vehicles and petrol allowances to their
employees to motivate them
 Direct Compensation
• Leave Travel Allowance These allowances are provided to retain the best
talent in the organization. The employees are given allowances to visit
any place they wish with their families. The allowances are scaled as per
the position of employee in the organization.

• Medical Reimbursement Organizations also look after the health

conditions of their employees. The employees are provided with medi-
claims for them and their family members. These medi-claims include
health-insurances and treatment bills reimbursements.

• Bonus Bonus is paid to the employees during festive seasons to

motivate them and provide them the social security. The bonus amount
usually amounts to one month’s salary of the employee.
Indirect Compensation
 Indirect Compensation
• Indirect compensation refers to non-monetary benefits offered and provided
to employees in lieu of the services provided by them to the organization.
They include Leave Policy, Overtime Policy, Car policy, Hospitalization,
Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday
Homes.
• Leave Policy
It is the right of employee to get adequate number of leave while working
with the organization. The organizations provide for paid leaves such as,
casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay,
etc.
• Overtime Policy
Employees should be provided with the adequate allowances and facilities
during their overtime, if they happened to do so, such as transport facilities,
overtime pay, etc.
 Indirect Compensation
Insurance
• Organizations also provide for accidental insurance and life
insurance for employees. This gives them the emotional
security and they feel themselves valued in the organization.
Leave Travel
• The employees are provided with leaves and travel
allowances to go for holiday with their families. Some
organizations arrange for a tour for the employees of the
organization. This is usually done to make the employees
stress free.
 Indirect Compensation
• Holiday Homes
Organizations provide for holiday homes and guest house for their
employees at different locations. These holiday homes are usually located in
hill station and other most wanted holiday spots. The organizations make
sure that the employees do not face any kind of difficulties during their stay
in the guest house.
• Flexible Timings
Organizations provide for flexible timings to the employees who cannot
come to work during normal shifts due to their personal problems and valid
reasons.
• Retirement Benefits
Organizations provide for pension plans and other benefits for their
employees which benefits them after they retire from the organization at the
prescribed age.
 Compensation Management Process

• Organization’s Strategy
• Compensation Policy
• Job Analysis & Evaluation
• Analysis of contingent Factors
• Design & Implementation of Compensation
Plan
• Evaluation & Review
 Step 1 Organization’s Strategy

• Recognize remuneration as pivotal control &

incentive mechanism used flexibly to attain
organizational objectives.
• Pay system should be integral part in
formulating strategies of an organization.
• Integrate pay system in decision making for
planning & control.
 Step 2 Compensation Policy
• The compensation policy should be clearly
defined which should include base for
compensation, incentives, benefits & other
perquisites.
• The compensation policy should be linked
with HR policy of the organisation.
 Step 3 Job Analysis & Evaluation
• Job Analysis & job evaluation describes
characteristics & responsibilities involved in a
job & according compensation is decided.
 Step 4 Analysis of Contingent Factors

• Internal & External Factors

• Internal factors includes organizations ability to
pay, employees work performance, skills,
seniority etc.
• External factors includes organizations HR
management system cost of living, level of
economic development, social factors, pressure
of trade unions & various laws dealing with
labours.
 Step 5 Design & Implementation
of Compensation Plan

• Plan may be incorporated on base

compensation with provision of wage increase
over a period of time, various incentive plans,
benefits and perquisites.
• After designing it is to be communicated to
employees & should be practiced.
 Step 6 Evaluation & Review
• Compensation plan needs reviewing
periodically so as to know the intervening
factors.
 Factors Influencing Compensation

• Complexity of the Job

• Competency Required
• Capacity to Pay
• Organizational Philosophy
• International Impact
• Legal Provisions
 Factors…..
• Degree of complexity of job is directly related to
compensation as the company is located in different
geographical area, with multiple products line have high
compensation as compared to small organizations.
• Competency requirement for different jobs are different
depending upon the nature of work executed in it. The
compensation plan also varies accordingly. Firm working in
dynamic environment provide higher compensation against
stable environment.
• Capacity to pay depends on earning capacity of organization,
high rates of return, availability of funds, profit margins etc.
 Cont…..
• Organizational Philosophy states that what is purpose of the organizations
existence. This attracts the individuals to serve the organization better. Eg.
Quality product, customer satisfaction, added features, value added services
etc.
• International Impact is significant factor when companies perform business
outside their nation’s boundary i.e either FDI, Exports, Import, Transnational
practices. The compensation will consider currency value of the countries.
• Legal Provisions restricts all the organization to follow rules and regulations
imposed by government. Tax rates, custom duties, freight charges, excise
duties are to be considered. The interventions mentioned in the labor
legislation laws are also considered
Nature, Significance & Functions of Compensation Management

• Compensation provides job satisfaction to the

employees.
• It helps in job rotation, job enrichment and job
enlargement of employees.
• It motivates and increases morale of the employees.
• It provides job security to the employees.
• It helps in increasing efficiency of employees.
• It helps in effective wage and salary administration
of the organisation.
 Principles of Compensation
• Compensation policy should be developed by taking into
consideration of the views of employers, the employees, the
consumers and the community.
• The compensation policy or wage policy should be clearly
defined to ensure uniform and consistent application.
• The compensation plan should be matching with overall
plans of the company.
• Compensation planning should be part and parcel of
financial planning.
• Management should inform the wage/salary related policies
to their employees.
Cont…..
• Workers should be associated in formulation and
implementation of wage policy.
• All wage and salary related decisions should be checked
against the standards set in advance in the wage/salary
policy
• To manage compensation related matters adequate
information/data should be developed and stored for
future planning and execution.
• The compensation policy and programme should be
reviewed and revised periodically in conformity with
changing needs.
 Compensation may be used to…..

• Recruit and retain qualified employees.

• Increase or maintain morale/satisfaction.
• Reward and encourage peak performance.
• Achieve internal and external equity.
• Reduce turnover and encourage company
loyalty.
• Modify (through negotiations) practices of
unions.
 Significance of Compensation
For Employees:

1. Employees are paid according to requirements of their jobs,

i.e., highly skilled jobs are paid more compensation than low
skilled jobs. This eliminates inequalities.
2. The chances of favoritism (which creep in when wage rates
are assigned) are greatly minimized.
3. Job sequences and lines of promotion are established
wherever they are applicable.
4. Employees’ morale and motivation are increased because of the
sound compensation structure.
Cont…..
To Employers:
1. They can systematically plan for and control the turnover in
the organization.
2. A sound compensation structure reduces the likelihood of
friction and grievances over remuneration
3. It enhances an employee’s morale and motivation because
adequate and fairly administered incentives are basic to his
wants and needs.
4. It attracts qualified employees by ensuring and adequate
payment for all the jobs.
 Case Study: Roshan’s Limited-Transport Facility

The HR Manager of Roshan’s Limited have received an application for the

introduction of company conveyance for employees staying in town.
Although Roshan’s Limited has provided living facilities to its employees
about 60 percent of its 1000 employees still have to commute an average of
10 km to come to work. The union and some of the employee s living on
campus have supported the demand. Though the management might favor
such a move some sections of the work force are concerned that the
introduction of the company conveyance facility may cut down their wages.
The company under disguise of compensation allowance pays Rs.20/- per
month for traveling to employees staying more than 8 km away from the
company premises.

1. What factors would you take into account in evaluation of this demand from
the workers?
2. Provide the rationale for implementing or not implementing this demand.
 CASE STUDY

• In 2007, the Indian subsidiary of a multinational refinery became a

Government of India company. The government company had announced
an ambitious expansion programme which meant doubling the work force
in less than four years. In 2007 at the time of wage revision, the union and
management agreed to a two-tier pay structure. Those already employed
will be eligible for a higher grade and those who are (to be) recruited
afresh will get a lower grade though jobs are similar in skill, responsibility
and effort. Both the union and the management justified that this is an
innovative practice widely followed in deregulated companies abroad,
particularly the airlines in North America.
• Questions
• a) Is it fair agreement
• b) Would it contravene with the concept of equal pay for equal work?.