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Unless the organization satisfies one of the basic

psychological needs of being valued and
appreciated, people, howsoever well paid, may not
like to continue.
There compensation system should communicate to
the employees that they are valued.

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Distinction needs to be made between compensation,
incentives and rewards:
Compensation is the money paid to an individual in various
forms (and other benefits given) for the work he or she does.
Incentive is additional payment in cash or kind, for extra
work (production of more units), or effort (more time spent),
or working in unfavourable places or conditions.
Reward is a symbol or indicator of recognition of
exceptional contribution, exemplary behaviour, or unique
accomplishment. 3
The objectives of a compensation systems are to:
1) attract competent people;
2) retain competent and high performing people;
3) achieve and maintain high levels of performance;
4) develop team work and networking;
5) promote continuous growth and development of people;
6) promote empowerment
7) attaining and maintaining leadership position
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Compensation System
Components
Benefits

Pay

Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 11.1, p. 485

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A number of factors influence the Compensation to
employees. They can be categorized into:
1) External Factors
2) Internal Factors.

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1. Labor market,
2. Cost of living
3. Labor unions
4. Government legislations
5. The society,
6. The economy'

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i. Company’s Business Strategy
ii. Job Evaluation
iii. Performance Appraisal (organization)
iv. Worker him/herself

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Identify the key jobs that must be done and set value for each of
the Compensable Factors that is, the characteristics about jobs
that are used to set pay
Education
Skills, Knowledge, experience
Effort (physical and mental)
Responsibility
Working conditions
Job hazards 9
“Have you come across any individual who has

been lucky enough to be paid more than he/she

deserves?”

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1. Expectancy Theory

2. Equity Theory

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 I’d feel underpaid
if:
 My contributions
are the same as
my co-workers’,
but I’m paid less
 I’m paid the
same as my co-
workers, but my
contributions are
greater than my
co-workers’
contributions
Figure adapted from: Fisher,
Schoenfeldt, & Shaw (2006),
Figure 11.2, p. 487

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13
Factors to be considered to use
variable pay

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Welfare is a broad concept referring to a state of living of an
individual or group in a desirable relationship with the total
environment–ecological, economic and social.
It is argued that the prime responsibility for welfare should rest with
the line manager or the HR manager.
“Every organization hears what employees says, good organization
listens to what employees have to say but organizations with
employee welfare schemes listens what employees don’t say”

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•Motivates employees
•Employee retention
•Minimized social evils/problems
•Better job satisfaction
•Reduction in turn-over and absenteeism
•Improved productivity
•Improved quality
•Enhanced sense of security
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Huge investment

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Health service
Health center
First aid
Health education
Counseling
Ambulance service

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Women and child welfare
Maternity aid
Child care
Separate facilities for
women
Women’s recreation
Family planning services

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 Comfortable and hygienic residences

 Sanitation and water disposal

 Proper roads and lighting facility

 Plentiful markets

 Security

 Health and medical services

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Safety:- freedom from the occurrence or risk of injury or loss.

Industrial safety:- protection of workers from the danger of

industrial accidents.

Accident:- an unplanned and uncontrolled event in which an action

or reaction of an object, a substance, a person, or a radiation results

in personal injury.
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Cost saving

Increased productivity

Moral

legal

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