Introduction to Compensation Mgt

8/8/2019 Introduction to Compensation Mgt

1/29

AMITY GLOBALBUSINESS SCHOOL Chandigarh

1

Compensation

Management

Module IProf. Neha Walia


2/29


2

Module I: Overview of Compensation

Management

Nature, mportance & bjective of ompensation anagement

Philosophy, cope and wage concepts

Principles & achinery for wage determination

Management hinkers & critical evaluation Acts related to ompensation management


3/29


3

Introduction :Human Resource Management

The most important "products" in today's economy

are services provided by people; there is, therefore,considerable interest in the field of human resources.

By gaining an understanding of appropriate principles

and procedures, strategies can be developed to meetthe human resource management challenge presented

by reinvention initiatives.


4/29


4

Need for Compensation Management aswell as Management of Change:

(a)T

he managerial environment,(b) The acquisition, allocation, development, and

sanction of human resources, and

(c) hange and the future.


5/29


5

Major Concepts:

1. Compensation

2. Rewards

3. Incentives

4. Benefits


6/29


6

Do we all need rewards and

incentives to be motivated forwork?


7/29


7

Motivation is very personal and stems primarily

from the interaction between an employee and his or

her manager.

What is motivating to an individual also varies from

person to person.

The best motivation comes from daily positive

reinforcement by management of desired performance

with as many employees as possible - not something

that occurs once a month for a single employee.


8/29


8

Compensation ManagementWhat is Compensation?

T

he word ompensation means something, such asmoney, given or received as payment or reparation, as

for a service or loss.

Compensation may be defined as, Money received

in the performance of work, plus the many kinds ofbenefits and services that organizations provide their

employees.


9/29


9

Types of Compensation :Compensation can be classified into:

(1) Direct compensation.

(2) indirect compensation.

Money (popularly known as basic salary or wage, i.e. gross pay)

is included underDirect Compensation

Benefits (life, accident, and health insurance, the employerscontribution to retirement (pensions), pay for vacation or illness,

and employers required payments for employee welfare as social

security, etc.) come underIndirect Compensation.


10/29


10

To establish and maintain an equitable compensation

structure.

The establishment and maintenance of an equitable

labor-cost structure, an optimal balancing of conflicting

personnel interests so that the satisfaction of employees

and employers is maximized and conflicts minimized.

Basic purpose for establishment of a soundCompensation and Reward administration


11/29


11

Objectives of Compensation Management

1. Incentives

- Performance

- Job assignments

- Retention

- Training

2. Cost3. Fairness

4. Legal compliance


12/29


12

(a) For Employees:

(1) mployees 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) mployees' morale and motivation are increased because a

wage programme can be explained and is based upon facts.

Objectives of a sound CompensationManagement Plan:


13/29


13

(b) For Employers:

(1) They can systematically plan for and control their labor costs.

(2) n dealing with a trade union, they can explain the basis of their

wage programme because it is based upon a systematic analysis

of job and wage facts.

(3) A wage and salary administration reduces friction and

grievances over wage inequities.

(4) t enhances an employee's morale and motivation because

adequate and fairly administered wages are basic to his wants and

needs.

(5) t attracts qualified employees by ensuring and adequate

payment for all the jobs.


14/29


14

(1) To recruit qualified personnel for a firm;

(2) Retain current employees

(3) To control payroll costs;

(4) Reward desired behavior

(5) To satisfy people to reduce the occurrence of quitting

grievances, and fractions over pay

(6) To motivate people to perform better.

(7) Comply with legal regulations

(8) Further enhance administrative efficiency-making optimal

use of the HRIS

Other Objectives of Compensation Management


15/29


15

Components of employee remuneration

Remuneration

Financial Non-financial

Basic wagesIncentives,

Individual plans

Group plans

Fringe benefits

P.F.

Medical care

Accident relief

Health and

Group insurance

Perquisites

Car

Club membership

Paid holidays

Furnished house

Stock option scheme

Job context

Challenging job

Responsibilities

Growth prospects

SupervisionWorking conditions

Job sharing etc


16/29


16

Components of compensation

Basic wages / Salaries:-

These refer to the cash component of the wage structure

based on which other elements of compensation may be

structured. t is normally a fixed amount which is

subject to changes based on annual increments or

subject to periodical pay hikes. t is structured based on

the position of an individual in the organization and

differs from grades to grades.


17/29


17

Bonus:-

The bonus can be paid in different ways. t can befixed percentage on the basic wage paid annually orin proportion to the profitability. The overnment

also prescribes a minimum statutory bonus for allemployees and workers.

There is also a bonus plan which compensates the

Managers and employees based on the sales revenueor Profit margin achieved. Bonus plans can also be based on piece wages but depends upon theproductivity of labour.


18/29


18

Commissions:-

Commission to Managers and employees may be based

on the sales revenue or profits of the company. t is

always a fixed percentage on the target achieved. Fortaxation purposes, commission is again a taxable

component of compensation.

The payment of commission as a component ofcommission is practiced heavily on target based sales.

Depending upon the targets achieved, companies may

pay a commission on a monthly or periodical basis.


19/29


19

Dearness allowance:-

The payment of dearness allowance facilitates employeesand workers to face the price increase or inflation of pricesof goods and services consumed by him. The onslaught of

price increase has a major bearing on the living conditionsof the labour.

The increasing prices reduce the compensation to nothingand the money's worth is coming down based on the level

of inflation.

The payment of dearness allowance, which may be a fixedpercentage on the basic wage, enables the employees toface the increasing prices.


20/29


20

Mixed plans:-

Companies may also pay employees and others a

combination of pay as well as commissions. This plan is

called combination or mixed plan. Apart from the salaries paid, the employees may be eligible for a fixed

percentage of commission upon achievement of fixed

target of sales or profits or Performance objectives.

Nowadays, most of the corporate sector is following this

practice. This is also termed as variable component of

compensation.


21/29


21

Piece rate wages:-

Piece rate wages are prevalent in the manufacturing

wages.The laborers are paid wages for each of the

Quantity produced by them.T

he gross earnings of thelabour would be equivalent to number of goods produced

by them.

Piece rate wages improves productivity and is anabsolute measurement of productivity to wage structure.

The fairness of compensation is totally based on the

productivity and not by other qualitative factors.


22/29


22

Sign-on Bonuses:-

The latest trend in the compensation planning is the

lump sum bonus for the incoming employee. A person

who accepts the offer, is paid a lump sum as a bonus.

ven though this practice is not prevalent in most of the

industries, quity research and investment banking

companies are paying this to attract the scarce talent.


23/29


23

Profit sharing payments:-

Profit sharing is again a novel concept nowadays.This can be paid through payment of cash or through

P . The structuring of wages may be done insuch a way that, it attracts competitiveness andimproved productivity.

Profit sharing can also be in the form of deferredcompensation at the time of retirement. At the time ofretirement the employees may be paid a lump sum orretiral benefits.


24/29


24

Fringe benefits:-

a) Company cars

b) Paid vacations

c) Membership of social/cultural clubs

d) ntertainment tickets/allowances.

e) Discounted travel tickets.

f) Family vacation packages.


25/29


25

Reimbursements:-

Employees, depending upon their gradations in theorganization may get reimbursements based on theExpenses incurred and substantiated. Certain expensesare also paid based on expenses incurred during thecourse of business.n many cases, employers provides advances to the

employees for incurring certain expenses that areincurred during the course of the business.

Some examples of Reimbursements(a) Travel expenses.(b) Entertainment expenses(c) ut of pocket expenses(d) Refreshments expenses during office routine outside office

premises.


26/29


26

Sickness benefits:-

The increasing social consciousness of corporate hadresulted in the payment of sickness benefit to theEmployees of companies. This also includes payments

during pregnancy of women employees.

The expenses incurred due to injury or illness arecompensated or reimbursed to the employees. n certaincompanies, the death of an employee is compensated

financially. Companies are also providing supportingfinancial benefits to the family of the deceased employees.

owever, companies cover these cost through appropriateinsurance policies like, Medical and life insurance.


27/29


27

Influencing factors of Remuneration

Remuneration

External Internal

LabourMarket

Cost ofLiving

Labour nions

ovt. Legislations

ociety

Economy

Business trategy

Job evaluation & PA

The Employee


28/29


28

Challenges of remuneration

Remuneration

Skills-based

pay

Employee

participation

Comparable

worth

Pay

secrecy

Salary

reviews


29/29


29

Wages Vs SalaryWages

1. Quantum of service

can be measured2. Shorter Service

period

3. Payment based onactual production.

Salary

1. Quantum of service

cannot be measured2. Longer service

period

3. Paid uniformlygenerally onmonthly basis

Introduction to Compensation Mgt

Documents

Transcript of Introduction to Compensation Mgt