COMPENSATION MANAGEMENT

&
INCENTIVES AND PERFORMANCE
BASED PAY

By,
Abhishek Pradhan
Monika Sodhi
Ramya
Snegaa
Praveen Nanadagobal
Shrutika nardekar
Group - 2, Sec - B

Compensation Management
Components of compensation
Wage & Salary
1. Wages hourly rate
2. Salary monthly rate
3. Annual increments
4. DA forms a part.
. Incentives
1. Payment by results
2. Addition to wages/salary.
3. Individual/group incentive schemes.
. Allowances
1. HRA
2. Conveyance
3. Leave travel allowance.

 Claims
1. Telephone/mobile allowance
2. Medical allowance
3. Subject to a limit.
. Gratuity
1. Paid at the time of employees exit after serving for more than 5 years.
. Taxes
1. Levied according to the laws.
2. Employer deducts from salary.
3. Remits it to tax departments.
. Fringe Benefits
1. PF , insurance , canteen , uniform , recreation.
. Perquisites
1. Allowed to executives.
2. Company car , club membership , paid holidays.
. Non-monetary benefits
1. Challenging jobs, recognition of merit, growth prospects.

Theories of Compensation
Reinforcement theory:
1. Behaviour having a rewarding experience will repeat itself.
2. High performance not following a reward will affect future performance.
. Expectancy theory:
1. Link between rewards & performance.
2. Remuneration systems impact motivational levels.
. Equity theory:
Internal
Equity
External
Equity

Motivation

Perception
of fairness

Individual
Equity

. Agency theory:
1. Stakeholders employers & employees.
2. Agency cost conflicting goals.

Commitmen
t
Performanc
e

Factors influencing employee compensation

1. External
. Labour market
o. Demand & supply
o. Going rate of pay
o. Productivity of labour
. Cost of living
. Labour unions
. Labour laws
. Economy
2. Internal
. Business strategy
. Job evaluation & performance appraisal
. Employee

Devising a compensation plan

Job Description

Job Evaluation

Job Hierarchy
Pay Survey

Pricing Jobs

Challenges of compensation

Skill based pay

Pay reviews

Paid on
capabilities.
Depth of
knowledge.
Motivate
employees.

Pay shouldnt
remain constant.
Fixed date
reviews.
Anniversary date
reviews.

Pay secrecy

Comparable
worth

To avoid
comparisons.

Equal pay for

equal work.
Equity between
men & women,

Challenges of compensation

Employee
participation

Eliticism vs.
Egalitarianism

Involve employees
in the plan.
Job evaluation
committees.
Employee surveys.

Egalitarian Same
remuneration plans
for most employees.
Offers flexibility

Below market
vs. above
market

Comparable
worth

Firms ability to
attract talent.
Cost component.

Equal pay for equal

work.
Equity between men
& women,

Wage Policy
Minimum Wage
o Not only for bare sustenance but for preservation of efficiency of the worker.
o Provide for education , medical requirements.
o Determined by an agreement between management & workers.
o Factors needs of workers , nature of jobs.
o Minimum wages act , 1948.
Fair Wage
o Equal to prevailing wage rate in the country.
o Equal to prevailing wage rate for similar type of work.
o Factors industry and bargaining power of employees.
Living Wage
o One which enables wage earner access to bare essentials but also frugal
comfort.
o Education for children , protection against ill health.
o Factors economic conditions of the country.