Compensation

Compensation Management
If you pick the right people and give them the opportunity to spread their wings - and put compensation and rewards as a carrier behind it you almost dont have to manage them. Jack Welch

Overview
The total of all rewards provided to employees in return for their services. It is the package of quantifiable rewards an employee receives for his or her labors. It includes three components:
Base compensation Pay incentives Indirect compensation/Benefits

 Base compensation is the fixed pay an employee receives on a regular basis, either in the form of a salary or as an hourly wage. Pay incentive is a program designed to reward employees for good performance.(bonus, profit sharing) Benefits includes health insurance ,medical care , Pf,gratuity,uniform,recreation,etc. A special category of benefit is called perquisites or perks.

Components of Remuneration
Environment

Remuneration
Financial Non Financial

Incentives Hourly and monthly rates wages Salaries Individual Plans Group Plans

Fringe Benefits

Prerequisites Company Car Club Membership Paid Holidays Furnished House Stock Option
Scheme etc.

Job Context Challenging Job Responsibilities Recognition Growth Prospects Supervision Working Conditions Job Sharing etc.

PF Gratuity Medical Care Accident Relief Health & Group Insurance etc.

Direct

Indirect

Factors influencing compensation

External Factors
Labour market Going rate system Cost of living Labour unions Labour laws Society The economy

Internal Factors
Business strategy Job evaluation Performance appraisal

Objectives of compensation planning

Equity: (fairness)
Internal equity: The perceived fairness of the pay structure within a firm.(more difficult jobs are paid more) External equity: The perceived fairness in pay relative to what other employers are paying for the same type of labor. Individual equity: The perceived fairness of individual pay decisions.

Consequence of Pay Dissatisfaction

Performance Desire for More Pay Strikes Grievances Absenteeism
Search For Higher Paying Jobs

Turnover Psychological Withdrawal Visits to the Doctor Visits to the Doctor

Pay Dissatisfaction

Lower Attractiveness of Jobs

Job Dissatisfaction
Absenteeism

Motivation & Performance Model

Feedback to Employees

Employee Sets Expectations and Goals

Performance is Rewarded

Rewards Are Given

Employee considers equity of Performance Rewards

Employee Sets New Goals And Expectations Based on Prior Experiences

The Wage Determination Process

Job Analysis Wage Legislation

Wage Structure Job Description & Specification Job Evaluation Wage Surveys Rules of Administration

Performance Standards

Differential Employee Appraisal

Wage Payments

Job evaluation
A job is rated in order to determine its value relative to all other jobs in the organisation which are subject to evaluation The relative job value is then converted into money value to translate the job classes into rate ranges.

Methods of job evaluation

Non-quantitative methods: here a job is compared
as a whole with other jobs.

Ranking or job comparison Grading or job classification

Quantitative methods: Key factors of the jobs are

selected and measured

Point rating Factor comparison

Point method
Determine the job to be evaluated.(benchmark jobs) Select the factors. (measurable) Define the factors Determine the degrees Determine relative values of job factors Assign point values to degrees Find point value of the job Assign money values.

Example:
Factors: skill, effort, responsibility & job conditions
Factors Skill Effort Sub Factors Education, Experience & Training Physical & MEntal

Degrees
Education:
Graduation 4 Inermediate 3 School 2 Read & Write 1

Factors Skill Education Training

No. of Points 148 40 20

1s t Degree 10 22 5

2nd Degree 20 44 10

3rd Degree 30 66 15

4h degree 40 88 20

Experience 88

Assigned Money Value

Point Range
100-150 150-200 200-250

Daily Wage Rate

Rs. 15-25 Rs. 25 -35 Rs. 35-45

Job Grade
1 2 3

 Wage & salary surveys: It ensures external equity. Determine pay grades: (Job evaluation) Price each pay grade or Rate ranges: (Wage curve)

Plotting a Wage Curve

Wage Curve 10 Wage Rates ( In Rs.) 9 8 7 6 5 0 100 200 300 Points For Jobs 400 500

From above fig (example):

Grade I = 50-100points = Rs. 2,000- Rs. 5,500 Grade II = 100- 150 points =Rs. 2,800- Rs. 6,500 Grade III = 150 points-200 points = Rs. 5,800- Rs. 7,500

Broadbanding
It means collapsing salary grades and ranges into just a few wide levels or bands, each of which contains a relatively wide range of jobs and salary levels.

Wage policy in India

Minimum wage
It is the wage which provides not only for bare sustenance of life, but also for preservation of efficiency of worker. Need based minimum wage-

Fair wage
Equal to the rate prevailing in the same trade and in the neighborhood, or equal to the predominant rate for similar work through out the country.

Living wage
Higher than fair wage, provides for bare essential plus frugal comforts.

State Regulation of Wages

Employer Collective Bargaining Legislation
Minimum Wages Act Payment of Wages Act Adjudication Machinery

Wage Boards Pay Commissions

Types of Fringe Benefits

Payment for Time Not Worked Hrs of Work Paid Holidays Shift Premium Holiday Pay Paid Vacation Welfare Recreational Facilities Canteens Consumer Societies Credit Societies Housing Legal Aid Employee Counseling Welfare Orgns. Old Age & Retirement Benefits

Employee Security Retrenchment Compensation Lay off Compensation

Safety & Health

Safety Measures Workmens Compensation Health Benefits

Provident Fund Deposit Linked Insurance Gratuity Medical Benefits Pension

Holiday Homes
Educational Facilities Transportation Educational Facilities Parties & Picnics

Miscellaneous