BASIS FOR COMPENSATION FIXATION

Submitted By :

Pravin Pathrabe 8364

Anuja Kharote 8204

Flow Of Presentation

What is Compensation ? Nature &Purpose Of Compensation. Compensation Dimensions 3-P Compensation Concept. Strategic Compensation Policies. Basis For Compensation Fixation.

What is Compensation ?

Defined as money received in the performance of work plus the many kinds of benefits &services that organization provide their employees.

Compensation Provides Reward for past service Stimulus for performance in future

The progressive organization utilizes compensation as effective tool to develop, build & maintain human capital for Competitive Advantage.

Types Of Compensation

Direct Compensation Money in the form of wage & Salaries.

E.g.- D.A., Travelling Allowance Commission, Bonus.

Indirect Compensation Health insurance Mediclaim provident fund Gratuity Pay for vacation & illness

Nature & Purpose….

To establish &maintain equitable wage & salary structure.

Maintain equitable labour cost structure. Conflict minimization & Optimal balancing

of personnel interest. Compensation with financial aspect of

need, motivation and reward. To retain employees in Organization &

attract qualified applicant to organization.

Compensation Dimension Pay for work & performance. Pay for time Not worked. Continuation of income in event of

physical disability. Differed income. Spouse(family)income continuation. Health, Accident & Liability protection. Income Equivalent payments.

3-P Compensation Concept

Pay for Position Pay for Person Pay for Performance

Strategic Compensation Policies

Basic Work of Top Level Executives Internal Consistency External Competitiveness Employee Contribution Administration

Basis for Compensation Fixation1. Organizations ability to pay.2. Supply & Demand of labour.3. Prevailing market rate.4. Trade unions bargaining power.5. Job requirements.6. Managerial attitudes.7. Cost of living.8. Productivity

Continue……..

9. Pay for performance.10. Skills level available in market.11. Psychological & Sociological factors.12. Region & Area in practice.13. Attraction & Retention.14. Merit & Seniority progression.

1.Organization’s ability to pay

Companies with good sales & profits tends to pay higher compensation.

In the long run it is important because in prosperity time ,employers pay high to carry profitable operation. But in depression wages & compensation are cut down due to non availability of funds.

Where ever minimum wages legislation is applicable organization should pay, irrespective of their capacity to pay.

2.Supply & Demand of labour

Labour market condition always operate at National, Regional& local level.

Higher demand & low supply of skilled person results in rise in compensation.

Lower demand & higher supply results in decrease in compensation.

3. Prevailing Market rates

Also known as Comparable wage or Going wage rate.

Going rate system involves fixing wage/salary rate in tune with what is paid by different units of an industry in a locality.

Going rates are generally paid in the initial day of company and plant operation.

4. Trade Unions Bargaining Power

Generally stronger & more powerful the trade union ,higher the wages and compensation.

But the concept is changing with collective bargaining and strong Industrial relation.

5. Job Requirements

More difficult the job, Higher the Wages & Compensation.

Measure of Job difficulty, used with relative value of job to another Organization (Comparison).

Job Grading Relative Skills Efforts Responsibility Job Conditions

6. Managerial Attitude

Decisive Influence on Compensation Management

Whether Firm should pay Below Average Rate Above Average Rate What Job Factors used to reflect Job Worth Performance or Length of Service

These matters requires approval of Top Executives.

7. Cost of Living

Known as Automatic Minimum Equity Pay Criteria Based on Cost of Living Index DA and CCA are the Integral Part of it

Negative Effect Increase in Cost of Living usually possess

additional burden on Employer without corresponding improve in Productivity

8. Productivity

Measured in terms of Output per hour Technical Improvement Better Organisation & Management Better Methods of Production Greater Skills by Labour

Negative Productivity Calculation & Definitional

Measurement and Conceptual Issues

9. Pay for Performance

Linking Pay to Performance Jobs & Work Flows Continues Appraisal Incentive Methods

10. Skills level available in market

With growth of Industries, Business & Trades all over the world results in Shortage of Skilled Resources

Technological Advancement Automation of Work Process Computerization

11.Psychological & Sociological factors

These determine significant measures How hard a person work for Compensation What Pressure he exerts to get increased

Compensation Psychological

Level of Wages as success of Life Feeling of Security

Sociological No distinction on the basis of Colour, Caste,

Religion

12. Region & Area in practice

Differentiation on the basis of various Cities Metro Tier 1 Tier 2

Landscape and Hardship of Living Hilly Region

13. Attraction & Retention

Employee Retention Strategy through Perks & Fringe Benefits

Policy of Wage Leaders in the Organization

14.Merit & Seniority progression

Practice of Rewarding according to one’s Contribution Based on Annual Performance Appraisal

Include Production Incentive Profit Sharing Scheme Bonus & Promotion

Logic for Seniority Progression is that Person gains Experience, his skills get sharpened

Thank You