TABLE OF CONTENTS

Chapters Page no.

 REVIEW OF LITERATURE 2

 INTRODUCTION 4

 Components of Compensation 4

 Classification of compensation 5

 Explanation to given Statement 7

 Organisational examples in support of given statement 8

 CONCLUSION 11

 RECOMMENDATIONS 12

 REFRENCES 13

 BIBLIOGRAPHY 14

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 REVIEW OF LITERATURE

“The best compensation policy is not based upon the organizational affiliation among the
stake holders and the administration, but also taking into consideration the difference of
opinion which give birth to conflicts in other constricting relationships which exist in the
organization. In the article the finest compensation plan is revised taking into the
consideration the two most important factors which are (1) equity and risky debt, and (2)
equity and convertible debt. Future, the benefits of making parallel administration
compensation with the stake holders welfare are discussed, that this action will reduce the
cost of debt”. (John., John 1993)

“The study shows that the control and the ownership of the firm play a vital role in
determining the compensation plan for the executives of the organization. The study displays
that when a firm is externally controlled by the shareholders than the company is more
efficient in compensating its CEOs and the top-management rather than the firm which are
internally controlled by the administration. One major reason for this cause is that the
segregation of compensation plans and the performance of the firm, on the other hand
externally controlled companies have learned the art of inclusion of the compensation of the
top management and the performance of the firm in terms of the profit.” (Mejia, Tosi, Hinkin
1987)

“This paper discusses the compensation structure of skilled workers in a hierarchical firm.
Promotion depending upon the compensating the employee is a systematic process. The
appraisal process takes a long period of time and do not serve its purpose as the workers use
their shrewdness techniques showing that they are among the skilled workers. On the other
hand, the manager can also show unacceptable behaviour, sometimes by not providing the
incentives that the employee really deserves. Usually the managers appraise the the educated
workers despite of the fact that two workers are working on the some level and even though
the uneducated worker is more skilful the promotion is given to the educated and less skilful

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person. The paper discusses the action plan of providing promotion plan that are efficient and
effective at the same time.” (Bernhardt 1995)

“There are many studies conducted in the field of compensating the employees of the
business but a little is known by the strategic compensation system and that is aligned with
the company’s strategy. Previously all research conducted on this topic are limited to only the
American companies and there are still many things that are unclear about the topic. It was
found out that the pay structures are connected with the divisional strategic orientation, and
there are missing gaps in the previous studies conducted. More over, it was found out that the
position that the employees hold in the company hierarchy is one of the most important
variables affecting the compensation system. The position of employee in the company
affects the reward structure, and the consequences of the performance on the strategically
formed goals.” (Boyd, Salamin 2001)

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 INTRODUCTION

Compensation is a basic approach that provides monetary value to employees in exchange for
duties performed. It may achieve several purposes that helps in recruitment, job performance,
and job satisfaction. Compensation management, popularly known as wage and salary
administration, remuneration management, or reward management, is mainly concerned with
structuring and implementing whole compensation package. The traditional concept of wage
and salary administration focussed on only calculation of wage and salary structures in
organizational set up. However, with the passage of time different forms of compensation,
entered the business scenario which necessitated to take wage and salary administration in
more systematic and comprehensive way with a suitable change in its nomenclature. Beach
has defined wage and salary administration as follows:

"Wage and salary administration refers to the establishment and implementation of sound
policies and practices of employee compensation. It includes such areas as job evaluation,
surveys of wages and salaries, analysis of relevant organizational problems, development
and maintenance of wage structure, establishing rules for administering wages. Wage
payments, incentives, profit sharing, wage changes and adjustments, supplementary
payments, control of compensation costs and other related items"

Components of Compensation

Compensation refers to direct and indirect benefits received by an employee for providing
services to employer in an organisation.

"Compensation includes direct cash payments, indirect payments in the form of employee
benefits and incentives to motivate employees to strive for higher levels of productivity”

Cascio

So based upon above explanation, we may classify its various components as follows:

 Wage and Salary:

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 Wage and salary are the most basic form of compensation that are required
irrespective of the size and form of organization. Wage refers to remuneration paid to
workers particularly on hourly basis. Salary refers to as remuneration paid to white-
collar employees that comprises managerial personnel too. Wages and salary are paid
on the basis of fixed period of time and normally are not related with productivity of
an employee at a given time.

 Incentives:

Incentives are the basically an add up to employees payment besides the payment of
wages and salaries. Usually these are linked with productivity, in terms of higher
production or cost saving or both. These incentives may be given on individual basis
or a group as a whole

 Fringe Benefits:

Fringe benefits comprises of benefits that have long-term impact like provident fund,
gratuity, pension; or are gives on happening of some events like medical benefits,
accident relief, health and life insurance; or some other facilities like uniforms,
Canteens, recreation, etc.

 Perquisites:

These are basically provided to managerial personnel either to push up their job
performance or to retain them in the organization. Such perquisites include company
car, club membership, free residential accommodation, paid holiday trips, stock
options, etc.

Classification of Compensation

Compensation can be classified into two categories:

 Financial Compensation

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 Non-financial Compensation

Financial Compensation: Financial compensation is most popular and important

compensation that is given in form of money. It is the most important motivational
factor that satisfies employees basic needs like food, clothing, etc. It is further
categorised in two parts:

 Direct Compensation – Direct compensation means compensating employees by

paying them money in following forms:

 Wages- Wages means remuneration paid in cash for the work performed by an
employee.

 Bonus- Bonus means extra cash paid to an employee for exceeding his
performance or on completion of specified project or target.

 Other financial incentives that are directly given to employees in form of cash

 Indirect Compensation – Indirect compensation means compensating employees in

form of indirect cash benefits that are mentioned below:

 Travelling allowance- Travelling allowance means reimbursement of expenses

incurred by an employee on travelling for company’s work.

 House Rent allowance- HRA is paid to employee when he stayed in rented

accommodation.

 Medical expenses- Medical expenses means reimbursement of expenses

incurred by an employee on his ill health.

 Accident relief- It refers to reimbursement of expenses on happening of some

uncertain event.

 Health and life insurance- It is given by the company to secure the health and
life of employee.

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 Non-Financial Compensation: Non-financial compensation refers to
compensating employee not in form of money but in some other forms that stimulate
employees morale and also improved his performance. It can be in following form:

 Job security

 Recognition

 Participation

 Pride in job

 Delegation of responsibility

 Other incentives

Explanation to given statement

“If employees undervalue the cost of benefits, why should a company not drop benefits and
simply add more direct compensation”

Yes we totally agree to this statement as if employees undervalue the cost of benefits, then
the company must drop those benefits and simply add more direct compensation. It will be
more clear by going through following reasons.

 Higher output: By providing good incentives to his/her employees, the employer is

able to encourage them to work more and better. This leads to higher output.

 Greater profits: It is quite obvious, higher output results in higher profits for the
business. This happens in two ways. First, the cost per unit tends to go down and
second, the enterprise is able to keep the selling price low which automatically.

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 No problem of idle time: In an organization where no proper incentives are available
for the workers, the tendency of employees will be to remain idle for some time or
much time. When suitable incentives are available, the workers become time
conscious and begin to see every minute in terms of money so problem of idle time
gets solved to much extent.

 Supervision does not pose any problem: When suitable incentives are available, the
workers become duty conscious and comply with their responsibilities and duties. The
need for close supervision does not arise.

 Efficient workers are able to earn more: Those workers who are highly efficient and
capable are able to earn more by way of high wages, performance bonus, higher
commission and so on.

 Possible to identify inefficient and dull workers: In the absence of incentive schemes,
some workers are able to earn only their normal wage, it should mean that they are
basically dull. So proper incentive plan will identify dull and highly efficient workers.
The employer, therefore, has to decide whether to retain them in his organisation or
subject them to some training.

 Rate of labour turnover is bound to be low: If adequate and sufficient incentives are
available to the workers, they will not have a feeling of low morale and
dissatisfaction. Such workers will make greater work commitment and therefore may
not leave the organization for large time or forever. The rate of labour turnover, as a
result, tends to be low.

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  Reduction in complaints and grievances: As the organization makes available suitable
and appropriate incentives to the workers, they may not have anything to complain
about. This leads to reduction in complaints and grievances and better work culture in
an organisation.

Organisational examples in support of given statement

Following are some organisational examples in support of the given statement that we have
already discussed. All examples are based on entry level employees.

1) HP Company compensate their entry level employees by paying them between1.8

lakhs to 3.3 lakhs per annum in form of salary whereas other benefits paid to then are
less.

2) Oracles compensate their entry level employees by paying them between 1.8 lakhs to
4 lakhs per annum in form of direct compensation excluding bonus.

3) In contrast HCL pay-outs in form of direct compensation ranges between 2 lakhs to

2.5 lakhs per annum in form of salary.

4) Mind Tree consulting provides direct compensation between 3.1 lakhs to 3.3 lakhs per
annum whereas bonus is paid separately.

5) Infosys flows their direct compensation ranging between 2.8 lakhs to 2.9 lakhs per
annum in form of salary.

6) Wipro’s direct compensation system offers 2.5 lakhs to 2.8 lakhs per annum to its
entry level employees and bonus is paid on occasions.

7) In contrast TCS pays direct compensation between 2.8 lakhs to 3.3 lakhs per annum to
its employees, whereas bonus is paid separately.

8) LIC (Life Insurance Corporation) offers direct compensation between 1.5 lakhs to 2
lakhs per annum to its employees.

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9) ICICI prudential offers merely 0.9 lakhs to 2 lakhs per annum to its employees where
its other benefits are negligible.

10) New York Life Insurance compensate its employees by paying them between
0.6 lakhs to 2.6 lakhs per annum in form of salary.

11) Met Life Insurance pay-outs ranges between 0.5 lakhs to 1.25 lakhs per annum in
form of salary.

12) Birla Insurance pays salary to its employees that ranges between 0.5 lakhs to 1.5 lakhs
per annum.

13) HCL technologies compensate its employees by paying salary between 1.5 lakhs to
2.8 lakhs per annum.

14) Convergys pay-outs in form of salary ranges from 1.8 lakhs to 2.8 lakhs per annum
whereas bonus is paid extra.

15) IBM Daksha pays direct compensation in form of salary between 1.5 lakhs to
2.5 lakhs per annum and 10% bonus is paid annually.

16) WNS pays salary to its employees between 1.8 lakhs to 2.6 lakhs per annum whereas
bonus is paid as performance annually.

17) TCS compensates its employees salary that ranges between 1.5 lakhs to 2.5 lakhs per
annum excluding bonus.

18) Reliance Communication flows its pay-outs in form of salary ranging between
0.6 lakhs to 2.4 lakhs per annum whereas bonus is paid on occasions.

19) Tata Communication compensate its employees between 0.5 lakhs to 2.5 lakhs per
annum including bonus.

20) Hutch pays direct compensation in form of salary between 0.75 lakhs to 2.4 lakhs per
annum to its employees where bonus is paid 10% annually.

21) Idea Cellular pays salaries to its employees ranging between 0.5 lakhs to 2.10 lakhs
per annum excluding bonus.

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22) Axis Bank outflows their cash in form of salary that ranges between 0.6 lakhs to 1.5
lakhs per annum and bonus is paid on occasions.

23) Citi Bank pays salaries to its employees that ranges between 0.9 lakhs to 1.7 lakhs per
annum.

24) HDFC bank pays direct compensation as salary between 1.5 lakhs to 2 lakhs
per annum to its employees and bonus is paid some percentage annually.

25) ABN Amro compensates its employees in form of salary ranging between 1
lakhs to 2 lakhs per annum.

26) Standard Chartered pays salary to its employees between 1 Lakhs to 1.5 lakhs
per annum at entry level.

27) Kotak Mahindra Bank pays salary between1 lakhs to 2 lakhs per annum to its
employees and bonus is paid 10 per cent annually.

28) Bajaj Capital pay direct compensation in form of salary to its employees
between 1 lakhs to 1.25 lakhs per annum.

29) ITC hotels compensate its employees between 1.5 lakhs to 2 lakhs per annum and
bonus is paid annually as per performance.

30) Leela Hotels pays salary between 1.5 lakhs to 2.5 lakhs per annum to its employees
and bonus is paid after 6 months.

31) Hyatt regency pay- out its salaries between 1.8 lakhs to 2.4 lakhs per annum where
bonus is paid lucrative.

32) ITC hotels has its own policy that compensate its employees in form of salary
between 1.9 lakhs to 3 lakhs per annum and bonus is paid annually.

33) Shipping Corporation of India Ltd pays its employees between 2.8 lakhs to 2.9 lakhs
per annum and bonus is paid annually.

34) Bharti communications pays salaries to its employees between 0.6 lakhs to 2 lakhs
per annum excluding bonus.

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 35) DLF limited offers its own packages between 1.5 lakhs to 2.4 lakhs per annum to its
employees.

CONCLUSION

From the above discussion we may conclude that where employees don’t feel any worth of
extra benefits that are given to them , the company must drop down those benefits and add
more money to their compensation as it gives satisfaction and many benefits like more
output, higher productivity , less absenteeism , high motivation and much more. The
companies giving more direct compensation and less indirect compensation are growing
more these days as they have more power to retain good, powerful and strong employees in
their organisation.

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 RECOMMENDATIONS

As per the discussion we strongly recommend that if employees don’t give weightage to
perquisites and extra benefits, even then company should not drop down all these benefits as
somewhere it also demotivate employees. No doubt that employees always want more direct
compensation in form of cash but at the same time they also need some perquisites and extra
benefits or we can say indirect compensation like travel allowance, HRA, insurance, medical
facilities as it add more benefits to their current living scenario. And somewhere it also act as
status symbol now a days as gifts and allowances attract more employees and improves their
social status too in society.

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 REFRENCES

 http://www.citehr.com/attachments/38505-basics-compensation-management-basics-
compensation-management.pdf?time=1302803162 [15 April 2011]

 http://www.scribd.com/doc/36971580/Literature-Review-Compensation-of-the-Top-
Management-and-Its-Strategic-and-Ethical-Perspective-Articles-Only [15 April 2011]

 http://payroll.naukrihub.com/compensation/indian-industry/insurance-sector/entry-
level-compensation.html [16 April 2011]

 http://education.exeter.ac.uk/dll/studyskills/harvard_referencing.htm [16 April 2011]

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 BIBLIOGRAPHY

 http://www.joelarose.com/articles/compensation_systems_successful_firms.html

 http://www.businessweek.com/smallbiz/tips/archives/2006/04/key_compensation_co
mponents.html

 http://en.wikipedia.org/wiki/Workers'_compensation

 http://www.google.co.in/search?
q=compensation&hl=en&prmd=ivnsb&tbm=isch&tbo=u&source=univ&sa=X&ei=1
5itTbHiA4nxrQfJ-6yICg&ved=0CGQQsAQ&biw=1291&bih=508

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 http://www.adobeindia.com/work/compensation_benefits.html

 http://www.intel.com/jobs/india/bencomp/compensation.htm

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