Compensation and Benefits

BYK R Prathap

Meaning of Compensation

Sum of direct benefits (such as salary, allowances, bonus, commission)

and indirect benefits (such as insurance, pension plans, vacations) that

an employee receives from an employer.

Something, such as money, given or received as payment or reparation, as for a service or loss.

Meaning of benefitsAn advantage or profit gained from something.

Benefits are a form of compensation paid by employer to employee over

and above the amount of pay specified as a base salary or hourly rate of

pay.

Significance of compensation and benefits

 Job satisfaction:  Fair rewards in exchange of their services. 

Motivation: A compensation plan that hits workers’ needs is more likely to motivate

them to act in the desired way. 

Low Absenteeism.

Low Turnover.

 Peace of Mind.

Increases self-confidence.

Components of compensation system

• Job description

• Job analysis

• Job evaluation

• Pay structure

• Salary surveys.

A benefits includes

IncentivesA thing that motivates or encourages one to do something: "incentive to

conserve".

Incentives aim to provide value for money and contributes to organization success.

A payment or concession to stimulate greater output.

Common kind of incentive is cash reward.

List of incentive pay plans• Bonus pay

• Profit sharing

• Stock incentive

• Retirement incentive

• Vacation incentive

• prizes

Basic wage/salaryIt is the price for service render. it varies according to mental and physical requirements of

the job evaluation.

It is a need based minim wage it should take care of the cost of basic existance which

include food, clothing, housing.

Base salary does not include benefits, bonuses or any other potential compensation from an

employer.

Level of wage• Living wage

• Fair wage

• Minimum wage

Allowances

A sum of money paid regularly in addition to salary to meet some particular requirements.

Money that a company or government agency provides to an employee for a specific purpose,

such as transportation, healthcare costs or a flexible spending account. Benefit allowances

administered to employees can be distributed through regular payroll. regularly to a person,

typically to meet specified needs or expenses.

Important allowances• Housing rental allowance

• Leaves travel allowance

• Washing allowance

• Conveyance allowance

• Shift allowance

• Education allowance

• Food allowance

• Servant allowance

Perquisites• Perk range from such amenities special parking and plus offices to pay

for vacation travel, automobile expenses, and company paid membership in clubs.

• The perks goes with the executive status.

• Strictly restricted to the CEO’S and small group of key officials.

Fringe benefits• It is an various extra benefits provided to the employees in addition to

the compensation paid in the form of wages or salary.

• Not directly connected with the employee’s productive effort, performance, services or sacrifice.

Purpose of fringe benefits• For employment security

• For health protection

• For old age and retirement

• For personnel identification

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