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administration is a segment of Human Resource Management focusing on planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform.  Compensation includes direct forms such as base, merit, and incentive pay and indirect forms such as vacation pay, deferred payment, and health insurance.  The ultimate objectives of compensation administration are: efficient maintenance of a productive workforce, equitable pay, and compliance with federal, state, and local regulations based on what companies can afford.


A pay program may include the following four components: 1. Base pay 2. Wage and salary add-ons 3. Incentive payments 4. Benefits and services

Base Pay
 Base pay refers to the cash that an employer pays for

the work performed.  This base pay can be further delineated as either a wage or a salary.  Wages are hourly rates of pay regulated by the Government  Salaries, which are usually paid to managers and professionals, are annual or monthly calculations of pay that usually have less relation to hours worked.

Wage and salary add-ons

 Wage and salary add-ons are used to compensate employees for work above and beyond their normal work schedules or to reimburse them for expenses related to their jobs.  Wage and salary add-ons include cost-ofliving adjustments (or COLAs), overtime, holiday and other premium wages, travel and apparel expenses, and a host of related forms of premiums and reimbursements.

Incentive payments
 Incentive payments refer to funds employees receive for meeting performance or output goals as well as to seniority and merit pay.  Companies provide these forms of compensation to influence employee behavior, improve productivity, and reward employees for their years of service or their strong job performance.

Benefits and Services

 Benefits and Services include paid time off, health insurance, deferred income such as pension and profit sharing programs, company cars, fitness club memberships, child care services, and tuition reimbursement.

Factors affecting Compensation

 The interaction between 13 factors affects the

actual pay rates employees receive, according to Richard I. Henderson, author of Compensation Management in a Knowledge-Based World. While each factor is straight forward when considered in isolation, it becomes far more complicated when considered alongside the other factors.

The 13 factors are:

1. Types and levels of skills and knowledge required. 2. Type of business. 3. Union affiliation or no union affiliation. 4. Capital-intensive or labor-intensive. 5. Company size. 6. Management philosophy.

7. Complete compensation package. 8. Geographic location. 9. Labor supply and demand. 10. Company profitability. 11. Employment stability. 12. Gender Difference 13. Length of employment and job performance.

Management is all about managing men. The main task of any manager in an organization is to get things done through his subordinates. And to get things done, motivating the employees and keeping their morale up is very essential. There are a number of ways which different managers in organizations employ to improve employee motivation, such as by treating the employees fairly, setting achievable goals, giving positive reinforcement, following an effective discipline policy, satisfying the employee needs and lastly, the most important of all, basing the rewards or incentives on job performance. Although, all of the above methods of motivating employees should be applied by a manager to increase work productivity, yet special attention should be paid while deciding upon incentives for employees, as nothing can motivate an individual like them

 Financial incentives for employees are the amount of

increment they will get upon achieving a particular target, i.e. if an employee does A amount of work, he will get B amount of money.  Financial incentives are not the only types of incentives for employees, there are companies which give incentives in the form of gift items or organizing events for the high achieving employees as well.  Many organizations these days give rewards to their high performing employees in the form of books, gadgets, restaurant passes and movie tickets.  Throwing parties for employees or having events such as special dinners for the employees are some of the other employee incentive ideas used by companies these days

Benefits of incentives
The incentives for employees, such as a rise in the salary of the high performing employee, benefits the organization in two ways. 1: The employee who receives a pay hike gets even more motivated and thus, maintains his high level of performance. 2: Other employees too get indirectly motivated to work harder in aspiration of receiving similar incentives

Motivational Incentives for Employees

Before implementing employee incentive programs, a good idea is to make a list of all the rewards that have been planned and make the employees vote the ones that they think are the best for them. An organization can also consider the following incentives for employees. Staff meetings in a good hotel instead of office. A birthday program in which a gift is delivered to the employees house on his birthday. Attendance incentives for employees could be something like certificates with "time offs" for the employee. Soccer game tickets or concert tickets to a group which has achieved its target. Certain health incentives for employees who do social work.


Bonus Pay
Bonus pay is compensation over and above the amount of pay specified as a base salary or hourly rate of pay. The base amount of compensation is specified in the employee offer letter, in the employee personnel file, or in a contract. Bonus pay can be distributed randomly as the company can afford to pay a bonus, or the amount of the bonus pay can be specified by contract.

 Bonus pay is used by many organizations as a thank you to employees or a team that achieves significant goals.  Bonus pay is also used to improve employee morale, motivation, and productivity.  As long as bonus pay is discretionary by the employer, it is not considered to be a contract.  If the employer promises a bonus, however, the employer may be legally liable to pay the bonus.

Profit sharing
 Profit sharing refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses.  In publicly traded companies these plans typically amount to allocation of shares to employees.

How does Profit sharing work?

 The company contributes a portion of its pretax profits to a pool that will be distributed among eligible employees.  The amount distributed to each employee may be weighted by the employee's base salary so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits.  Generally this is done on an annual basis.

 Brings groups of employees to work together toward a common goal (the success/benefit of the company).  Helps employees focus on profitability.  The costs of implementing the plan rise and fall with the company's revenues.  Enhances commitment to organizational goals.

 The pay for each employee moves up or down together (no individual differences for merit or performance).  Focuses only on the goal of profitability (which may be at the expense of quality).  For smaller companies, these plans may result in drastic swings in earnings for employees which the employees may find difficult to manage their personal finances.

 An employee stock ownership plan (ESOP) is a way in which

employees of a company can own a share of the company they work for. There are different ways in which employees can receive stocks and shares of their company. Employees can receive them as a bonus, buy them directly from the company, or receive them through an ESOP.

 In the United States, ESOPs are a very common form of employee

ownership. They have been growing in strength since about 1974. Around 11,000 companies have an ESOP in place, and nearly 8 million employees are involved in them.

 Companies may establish an ESOP for a number of purposes.

Most press attention regarding the use of ESOPs focuses on their use as a takeover defense or as buyouts of failing companies. These account for a very small percentage of ESOPs.

 The main purpose of an ESOP is to reward and motivate

employees. They are also used to provide a market for departing owners of successful companies. In most cases, an ESOP is given to an employee, rather than purchased by an employee.

 An ESOP is similar to a profit-sharing plan. A company sets up a

trust fund, into which it contributes either new shares of its own stocks or cash to buy existing shares. Another version of the ESOP borrows money in order to buy existing or new shares. In this case, the company makes cash contributions to the plan in order to repay the loan.

 When employees leave the company, they receive their share

options, and the company must be able to buy back these options. They must buy them back at their full market value. In private companies, employees are able to vote their shares on major issues such as relocation or closure. In public companies, employees can vote on all issues.

Pay for performance compensation

 Pay for performance, or P4P is a system in which employees attain increased levels of compensation if their team, department, or company reaches specified targets.  P4P has been implemented as a motivational tactic and with an eye to persuade employees to work harder and benefit the company while at the same time providing an added benefit for themselves.

 Pay for performance compensation structures not only account for individual, but also account for the working environment and performance of the team as well.  This is a valuable benefit, as knowing that compensation increases will be based on the performance of the team will coerce employees to operate as a cohesive unit in order to reach a common goal

Employee Welfare
 Welfare includes anything that is done for the comfort

and improvement of employees and is provided over and above the wages.  Welfare helps in keeping the morale and motivation of the employees high so as to retain the employees for longer duration.  Employee welfare includes monitoring of working conditions, creation of industrial harmony through infrastructure for health, and insurance against disease, industrial relations accident and unemployment for the workers and their families.

 To provide better life and health to the workers  To make the workers happy and satisfied  To relieve workers from industrial fatigue and to improve intellectual, cultural and material conditions of living of the workers.

 They provide better physical and mental health to

workers and thus promote a healthy work environment  Facilities like housing schemes, medical benefits, and education and recreation facilities for workers families help in raising their standards of living. This makes workers to pay more attention towards work and thus increases their productivity.  Employers get stable labor force by providing welfare facilities. Workers take active interest in their jobs and work with a feeling of involvement and participation

Working conditions
 Working conditions refers to the working environment and to the non-pay aspects of an employees terms and conditions of employment.  It covers such matters as the organization of work and work activities; training, skills and employability; health, safety and well-being; and working time and work-life balance.

The measures taken by an Organisation to improve the working condition of its employees can be divided into 2 categories: 1: Statutory measures: the measures defined by the Government as compulsory 2: Voluntary measures: The company makes its own efforts to make the employees feel better and motivated

Statutory Measures


Drinking Water: At all the working places safe hygienic drinking water should be provided. Facilities for sitting: In every organization, especially factories, suitable seating arrangements are to be provided. First aid appliances: First aid appliances are to be provided and should be readily assessable so that in case of any minor accident initial medication can be provided to the needed employee. Latrines and Urinals: A sufficient number of latrines and urinals are to be provided in the office and factory premises and are also to be maintained in a neat and clean condition. Canteen facilities: Cafeteria or canteens are to be provided by the employer so as to provide hygienic and nutritious food to the employees. Spittoons: In every work place, such as ware houses, store places, in the dock area and office premises spittoons are to be provided in convenient places and same are to be maintained in a hygienic condition. Lighting: Proper and sufficient lights are to be provided for employees so that they can work safely during the night shifts. Washing places: Adequate washing places such as bathrooms, wash basins with tap and tap on the stand pipe are provided in the port area in the vicinity of the work places. Changing rooms: Adequate changing rooms are to be provided for workers to change their cloth in the factory area and office premises. Adequate lockers are also provided to the workers to keep their clothes and belongings. Rest rooms: Adequate numbers of restrooms are provided to the workers with provisions of water supply, wash basins, toilets, bathrooms, etc.

Voluntary measures


Personal Health Care (Regular medical check-ups): Some of the companies provide the facility for extensive health check-up Flexi-time: The main objective of the flextime policy is to provide opportunity to employees to work with flexible working schedules. Flexible work schedules are initiated by employees and approved by management to meet business commitments while supporting employee personal life needs Employee Assistance Programs: Various assistant programs are arranged like external counseling service so that employees or members of their immediate family can get counseling on various matters. Harassment Policy: To protect an employee from harassments of any kind, guidelines are provided for proper action and also for protecting the aggrieved employee. Maternity & Adoption Leave Employees can avail maternity or adoption leaves. Paternity leave policies have also been introduced by various companies. Medi-claim Insurance Scheme: This insurance scheme provides adequate insurance coverage of employees for expenses related to hospitalization due to illness, disease or injury or pregnancy. Employee Referral Scheme: In several companies employee referral scheme is implemented to encourage employees to refer friends and relatives for employment in the organization.