Compensation Benefits

Q1. Discuss the element of compensation packages?

Ans1. The primary elements of a compensation package are: Base pay: base pay is the fixed rate of compensation that an employee receives for performing the standard duties and assignment of a job. Employers need to ensure that base-pay programs are designed to reveal market practices within their identified competitor group. To achieve this, organization must first identify their competitive market. This can be achieved by considering different factors, including the nature of the industry, geographic location, total employment and annual revenue. Variable pay: performance-based variable pay continues to achieve momentum as a more successful way to identify and reward employee performance. Also known as pay-per-performance of variable pay in the compensation plan, organizations ensures that two people with different efficiency levels do not get the same benefits. By doing this, the company rewards productivity and hard work and motivates the under performers to work hard. Once limited to senior management levels, these incentive or bonus plans are being redesigned to reward the achievement of specific company performance objectives. Skill and competency-based pay: Skill-based pay offers employees extra compensation when they have new skills specially recognized by the company as essential to achieve a competitive advantage. Skillbased pay can be particularly useful for employees who like their current jobs but are looking for new challenges. Competency- based pay is more widespread than skilol-based pay because the criteria cover not only measurable skills but also knowledge, performance behaviours and personal attributes. Long-term incentive compensation: long-term incentive compensation vehicles, such as stock-option plans and other deferred-compensation plans, which are not usually used to reward performance, are achieving desirability among employees. These long term incentives compensation plans appreciate employees based on company performance over a long term that is typically three to five years. Stockoption plans are a common form of long term compensation at public organization. In most private companies, incentives that reflect stock plans are used for key employees. Long-term compensation plans can be valuables presentation tools for the success of an organization. the company over a longer term.

Q2. Describe the importance of employee satisfaction. Explain the link between employee satisfaction and compensation?
Ans2. Employee satisfaction is the individual employees general thoughts towards the job. Employee satisfaction is also an employees cognitive and affective evaluation of their job.

The employees satisfaction with rewards is, in part, related to what is expected and how much is received. Feelings of satisfaction or dissatisfaction occur when employees compare their input like job skills education, effort and performance with output that is the mix of extrinsic and intrinsic rewards they receive. Employees satisfaction is also affected by comparisons with other employee in the same types of jobs and the same types of organization. As a result employees compare themselves to others, most of the employees highlight only their strong points, such as certain skills or a recent incident of effective performance. Employees also give their own performance a higher rating than the one they receive from their supervisors. The problem of unrealistic self-ratings exists to some extent as managers in most organizations do not communicate a candid evaluation of their subordinates performance to them. Employee satisfaction is very important for organization, as it: Enhances employee retention Increases productivity Increases customer satisfaction. Reduces turnover, recruiting and training costs . Enchances customer satisfaction and loyalty. Improves teamwork.

Employees satisfaction is very important for employees as They will care about the quality of their work. They will create and deliver superior value to the customer. They are more committed to the organization. Their work is more productive.

Linking employee satisfaction to compensation is being practiced since long time in most of the organization. Compensation designs based on this link usually measure performance from a relatively objective side, such as sales or revenues, stock price, productivity gains and soon. Employee satisfaction has to be measured and evaluated before a new compensation plan can be implemented. Usually, an outside survey firm is hired to perform the annual survey for employees. The results of this survey is shared through out the company. Thus, the top management will get to know how employees fell about the compensation. Employee satisfaction towards compensation is the most important discourse for any company, because it is directly related to the performance that can be achieved by employees. The more an employee is satisfied and happy with their compensation, the better they perform. In turn, this will influence the company performance too. Thus companies should strive to bring in a fair compensation plan so as to increase employee satisfaction. Employee satisfaction with respect to compensation and reward depends on the level of intrinsic and extrinsic results and how the employee views those results.

Q3. What is pay structure? Explain why it is necessary to develop a proper pay structure. Mention the factors to be determined and steps for developing pay structure?
Ans3. Pay structure is the grouping of pay grades or pay bands. The process of developing the pay structure deals with internal and external analysis to assess the compensation package for the specific job profile. Pay structure helps in analyzing the employees role, value and status in the organization. It also helps in the assessment of incentives. If the organization is paying very less to employees, then it may lose valuable employees. If the organization is paying high, then it may be unwisely spending company resources. The main goal of developing a pay structure is to manage and demonstrate an organisations compensation philosophy and to reflect and support the advancement of the companys culture. An effect pay structure also helps to attract and retain the efficient employees. An organisations pay structure is a visible demonstration of its compensation philosophy and plan. Pay structure is a tool, which is developed logically and communicated effectively to make the employees more motivated towards the job. The following three factors have to be determined while developing a pay structure: The proper data for establishing the relative value of a particular job to the organization. The proper pay range for a job with the defined value to the organization. The value of each job position within the specified pay range.

Once the above factors are determined, pay structure can be developed through the following steps: 1. Group the jobs with those that have a similar value needed to group the jobs e in the organization. 2. Measure these groups to find out the number of pay ranges needed to group the jobs on the basis of their value to the organization. 3. Create a salary range that has a minimum point, a mid-point and a maximum point for amounts allotted within the range and determine the pay for each job grouping. An organisations compensation philosophy and pay strategy determines the approach that should be taken to allocate pay across job ranges. Factors to be considered are: Number of years of experience. Number of reporting staff members. Performance evaluation results. Hazardous working conditions. Undesirable shifts. Education and degrees. Professional certifications.

Management opinions.

Q4. Explain the component of wages. Explain employee participation in wages fixation?
Ans4. Components of wages are as follows: 1. Basic wage: it can be defined as payment for labour or services to an employee, especially payment on an hourly, daily, or weekly basis. The wages of an employee are fixed depending on the following: A basic rate of wages in addition to special allowance A basic rate of wages which may include either cost of living allowance or cash value of concessions for supplies of essential products. A rate that includes basic rate, cost of living allowance and cash value of concessions. 2. Dearness allowance: The dearness allowance is a part of the total compensation employees receive for having performed their job. It is a part of the original salary. The percentage is reevaluated and may be changed every six months. 3. Bonus: It is an extra pay given to employees in appreciation to their performance. The advantage of bonus is that in case of low paid workers, such sharing increases their earnings and therefore, helps in bridging the gap between the actual wage and the need-bases wage. 4. Fringe benefits: The term fringe benefit refers to the extra benefits provided to employees, apart from the compensation paid in the form of wages or salary. Employee participation in wage fixation: It is essential to involve employees in many phses of a reward system. For example, a wide variety of employees should serve on job evaluation committees. If a point plan is adopted, we can involve employees in identifying the compensable factors to be used and prioritizing these factors. Employees are also likely to have good insight into which competitor firms should be included in a wage survey. Employee involvement can be done using different methods. At the least, a survey can be done to understand their preferences. Groups of employees can help in combing these preferences into a system. These groups usually help in involving employees in the decision-making with respect to a reward system. The decision to involve employees in designing or administering a compensation system should not be made without deliberation. However, this approach works well only when the organization has already established an overall philosophy of participative management, as well as a reasonable atmosphere of organizational trust. Participation takes considerable time, so of time and are lesser than expected, a more traditional, top down approach will serve the purpose.

Q5. Describe cost-to-company and list its component?

Ans5. cost-to-company is the amount that you cost your company . That is it is the amount that the company directly or indirectly spend on you because of employing you. Component of CTC: The following are the components of CTC: 1. 2. 3. 4. 5. 6. 7. 8. 9. Basic Dearness Allowance House rent allowance Medical Allowance Special Allowance Vehicle Allowance Incentive Leave travelling allowance Mobile phone allowance

CTC include the salary directly paid to the employee, the benefit directly attributable to the employee such as companys contribution to the provident fund , pension fund , medical insurance premium , life insurance premium ,cost of loan offered to the employees ,telephone expenses for mobile phone connection and landline connection and so on. It is important to note that even a lower CTC might mean a higher take home pay than an offer with higher CTC, if the other component are arranged differently. Similarly , you must not infer that with increase in salary ,you pay as percentage of salary will increase/decrease .you have to assess each offer separately . Most company usually talk in term of CTC as the figure look mare impressive . However they are often misleading . you should carefully look at their offer and calculate yourself how much you take home pay will be .After all , all deduction are based on fixed percentage and you can easily arrive at the right figure . Even the company will guide you on this. Sometimes , even a lower take home pay may be beneficial if the other payment are made against bill .This will ultimately lower your tax liability . hence you should look at both CTC as well as take home pay while negotiating. You also have to look at certain other criteria like work timing , number of holiday and so on.These factor must not be ignored even though you cant put a money value to these factor .This help the organization ascertain the HR cost and the employee understand what they are being offer as they can benchmark your CTC with other comparable organization Q6 What is meant by strategy ? write a brief note on strategic compensation planning? Ans.6 A strategy is an elaborate systematic plan of action . A business strategy is a set of decision concerning policies and practice associated with an organization system . It is the choice and scope of an organization over the long term , which achieve advantage for the organization through its composition

of resources with in a challenging environment . Organization need to formulate their strategies in each functional area , so that it can meet the need of market and can fulfill the stakeholder s explanation. To have an effective compensation program , organization emphasize on developing a compensation policy. They duly form a compensation committee which resolve issue such as the degree of difference in the pat structure across the hierarchical level ,function , degree of market compatibility and difference in the ratio of base pay and variable . The objective of a compensation committee: 1. Retaining and attracting the potential employee at all level of responsibilities , who perform their best to achieve the goals and objective of the organisation. 2. Ensuring good relation with the employee. 3. Ensuring flexibility on the basis of individual performances contribution to the achievement of organization goals . 4. Co-coordinating with all board of director , law and regulation . The designated compensation committee , after going through all these aspects , adopt compensation policies , which become the primary guidelines for compensating design . The HR department is responsibilities for the development and maintenance of the compensation policies . This include job analysis , job evaluation , and determine of pay grades, establish pay ranges , developing compensation administration policies , obtaining the approval of top management , communicating the final compensation plan to all across section of employee and monitoring the compensation programes. The HR department is also responsible for assignment of job according pay grade . Compensation policies and philosophies , however , should not ignore the organization business and operation strategy . Some of the compensation strategy statement , for any hypothetical organization can be listed as Follow: 1. To follow attraction and retention of high quality professional employees. 2. To reward employees based on their support of organization specific mission , strategies and operating plan. 3. To reward employee based on their experience and performance. 4. To achieve and maintain consistency , equity and fairness in evaluating and compensating employee consistent with the organizations vision.