compensation

Aims of employee compensation

• Attract capable employees to the

organization.
• Motivate them toward superior
performance.
• Retainment of their services over an
extended period of time.
There are certain factors that have been extracted as most
significant ones that affect the compensation policy

• Supply and demand of labour

• Labor unions
• Ability to pay
• Cost of living
• Government
 Compensation an overview
• Direct- Wages, Salaries, Commissions,
Bonuses
• Indirect- Insurance plans, Social Assistance,
Educational Assistance, Paid Absences
• The Job- Interesting Duties, Challenge,
Responsibility, opportunity for recognition,
feeling of advancement, achievement
opportunity
• The Environment- Sound policies, Competent
supervision, Appropriate status symbol,
Comfortable working conditions, flexi-time, Job
sharing, Cafeteria compensation
 WAGES
• Minimum Wages These are the wages that ensure
more than just adequate sustenance, these ensure
certain medical & other essential requirements of
individuals catered to ensure:-

– 2700 calorie of food intake per member per day.

– 18 yards of cloth per member and for an unit of four
members i.e. 18 x 4 = 72 yards cloth per annum.
– To ensure land, shelter equivalent of what is provided
by industrial housing scheme.
– Amenities catered to by wages 20% of minimum
wage.
• LIVING WAGES : Ensure more than
adequate sustenance to the extent that
certain greater needs like social needs,
sanitations, health aspects, and
protections from misfortunes.
• FAIR WAGES
These are fixed on the basis of: -

– 1. Productivity of Labour

– 2. Prevailing level of wages

– 3. Industry Policy to wages & income distribution in

the country.

– 4. Contribution of industry to the economy

Employing organization desires two things:
– 1. Attract & keep personnel in the
organization.

– 2. Motivate them to higher level of

compensation.
• Equity only exists when a person
perceives that the ratio of outcomes to
inputs is in equilibrium with respect of self
and in relation to others.
Gross over Moderated Equity
reward Over reward

Moderated Equity Moderated

Over reward under reward

Equity Moderated Gross under

under reward reward
• Wage and salary: Wages represent hourly rates
of pay, and salary refers to the monthly rate of
pay, irrespective of the number of hours put in
by an employee.
• Incentives: payments by results’,
• Fringe Benefits: These include such employee
benefits as provident fund, gratuity, medical
care, hospitalization, accident relief, health and
group insurance, canteen, uniform, recreation
and the like.
• Perquisites: These are allowed to executives
and include company car, club membership,
paid holidays, furnished house, stock opinion
schemes and the like. Perquisites are offered to
retain competent executives.
• Non-monetary benefits: These include
challenging job responsibilities, recognition of
merit, growth prospects, competent supervision,
comfortable working conditions, job sharing, and
flextime.
Pay for performance
 determinants of Effective PFP
systems?

• Worker value outcomes (Money and Prices)

• Outcome is valued relatively to other rewards.
• Desired performance must be measurable.
• Worker must be able to control rate a output.
• Worker must be capable of increasing output.
• Worker must believe that capability to increase exists.
• Worker must believe that increased output will result
in receiving a reward.
• Size of reward to sufficient to stimulate increased
effort.
problems in PFP programmes?

• Poor perceived connection between performance and pay.

• The level of performance pay is too low relative to basic pay.
The cost of more highly motivating programmes may be
prohibitive.
• Lack of objective, countable results for most jobs, requiring
the use of performance rating.
• Faulty performance appraisals systems, with poor cooperation
from managers, leniency bias in the appraisal and the systems
change.
• Union resistance to such systems and to change in general.
• Poor connection between PFP outcomes and corporate
performance measures.
 Selection of PFP system
• Who should be included in PFP system?

• How will performance be measured?

• Which incentives will be used?

 Who should be included in PFP
system?
In general all groups should be included in
a PFP system; with one critical condition
i.e. The PFP system should be developed
with specific groups and conditions in
mind. Many companies have different PFP
systems for various classes of employees.
 How will performance be
measured
Performance can measured on the basis
of different organizational policies.
 Which incentive will be used

• Use a bonus system in which merit pay is not tied to

basic salary.

• Take performance appraisal seriously. Hold raters

accountable for the appraisal and provide training.

• Focus on key organizational factors that affect the pay

system. Information systems and job design must be
compatible with the performance measurement system.
• Include group and team performance in
evaluation. Evaluate team performance
wherever appropriate and base part of individual
part of merit pay on the team evaluation.

• Consider special awards separately from and

annual merit allocation that recognizes.
 PAY INCENTIVES
(i) Individual incentive schemes
(ii) Group incentive programs
(iii) Other incentive schemes.
• Fringe Benefits: These include such employee
benefits as provident fund, gratuity, medical
care, hospitalization, accident relief, health and
group insurance, canteen, uniform, recreation
and the like.
• Perquisites: These are allowed to executives
and include company car, club membership,
paid holidays, furnished house, stock opinion
schemes and the like. Perquisites are offered to
retain competent executives.
• Non-monetary benefits: These include
challenging job responsibilities, recognition of
merit, growth prospects, competent supervision,
comfortable working conditions, job sharing, and
flextime.
• Rewards: People join organizations expecting
rewards. Firms distribute money and other
benefits in exchange for the employee’s
availability, competencies and behaviours.
 The Rewards are classified into
two:
• Direct Compensation: - It includes the basic
salary or wage that the individual is entitled for
his job; this include overtime work, holiday
premium, bonuses based on performance etc.
• Indirect Compensation: It includes protection
programmes; pay for time not worked, services
and perquisites. But these are maintenance
factors rather than reward.