Transcript
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Compensation
A Concept
By DR DP Sahoo
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"If you pick the right
people and give them
the opportunity to
spread their wings -
and put compensationand rewards as a
carrier behind it - you
almost don't have to
manage them." -Jack
Welch
Compensation (meaning) - Compensation is a
systematic approach to providing monetary
value to employees in exchange for work
performed.
Compensation may be used to:
Recruit and retain qualified employees.
Increase or maintain morale/satisfaction.
Reward and encourage peak performance.
Achieve internal and external equity.
Reduce turnover and encourage company loyalty.Modify (through negotiations) practices of unions.
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Objectives of Compensation systems:
1. Adequacy:
2. Equitable
3. Balanced
4. Cost efficient
5. Secure & consistency
6. Incentive provider
7. Acceptability ( to Employees & Management)
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Compensation
Goals
Compensation
Strategy
Hire
employees
Retain
employees
Motivate
employees
Compensation
System design
concept
External
Equity
internal
Equity
Employee
Equity
Considerations
And Activities
Salary &
Benefits
Bench
marking
Internal
Benefits
Bench
marking*
*In the form of : Job Analysis, Job Evaluation, Job Description.** Merit Pay, Bonus Pay, Incentive Pay, Fringe benefits, Performance linked pay etc.
Relative
worth of the
employee**
Decisions
Pay Level
Pay Structure
Benefit Level
Benefit Structure
Job ContentJob Structure
Mix of Pay
Adjustments
Org Strategy Economy Legislation UnionsInternal Labour
Market
External Labour
MarketConstraints
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Compensation is the remunerationreceived by an employee inreturn for his/her contribution to theorganization.It is an organized practice that involvesbalancing thework-employee relation by providingmonetary andnon-monetary benefits to employees.
Compensation is an integral part of humanresource managementwhich helps in motivating the employeesand improving organizationaleffectiveness.
Money being themost criticalincentive, atworks,compensation isimportant both foremployees andemployers.
What is compensation?
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A good compensation package motivates theemployees to increase the organizational productivity.
Compensation helps in running an organizationeffectively and accomplishing its goals.
Salary is just a part of the compensation system,the employees have other psychological and self-actualization needs to fulfill. Thus, compensationserves the purpose.
The most competitive compensation will help the
organization to attract and sustain the best talent.The compensation package should be as per industrystandards.
Need for compensation Management
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Types of Compensation
Compensation provided to employees can be
direct in the form of monetary benefits and/or
indirect in the form of non-monetary benefits
known as perks, time off, etc.
Direct compensation refers to monetary
benefits offered and provided to employees in
return of the services they provide to the
organization. The monetary benefits includebasic salary, house rent allowance,
conveyance, leave travel allowance, medical
reimbursements, special allowances, bonus,
Pf/Gratuity, etc.
They are given at
a regular interval
at a definite
time.
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Direct compensation
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Basic Salary
Basic Salary is the amount received by
the employee in lieu of the work done
by him/her for a certain period say a
day, a week, a month, etc
HRA: Organizations either provide
accommodations to its employees who are
from different state or country or they provide
house rent allowances to its employees. This is
done to provide them social security and
motivate them to work.
Conveyance
Organizations provide for cab
facilities to their employees.
Leave Travel Allowance
The employees are given allowances to
visit any place they wish with their
families. The allowances are scaled as per
the position of employee in the
organization.
Medical Reimbursement
The employees are provided with medi-claims
for them and their family members. These
medi-claims include health-insurances and
treatment bills reimbursements.
Bonus
Bonus is paid to the
employees during festive
seasons to motivate them and
provide them the social
security.Special Allowance
Special allowance such as overtime, mobile allowances,
meals, commissions, travel expenses, reduced interest
loans; insurance, club memberships, etc are provided to
employees to provide them social security and motivate
them which improve the organizational productivity.
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Indirect Compensations
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A sound compensation policy
1. Organizations encourages clear-cut plan to determine
different pay level on the basis of :a. Skill levels,
b. efforts & responsibilities,
c. working condition,
d. Length of service,
e. Qualifications.f. Past performance,
g. Length of service in the organization etc.
2. Equate salaries in the industry, market trend etc.
3. Pay for job performed not for person involved.
4. Distinguish people from Job.5. Equitable measures to avoid individual difference.
6. Introduction of wages grievance mechanism.
7. Transparency and communication with employees and
the associations on the factors determining the wages structure.
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Therefore a fair compensation system is a must for every business organization. The fair
compensation system will help in the following:
1.If an ideal compensation system is designed, it will have positive impact on the efficiencyand results produced by workmen.
2.Such system will encourage the normal worker to perform better and achieve the standards
fixed.
3.this system will encourage the process of job evaluation. It will also help in setting up an
ideal job evaluation, which will have transparency, and the standards fixing would be more
realistic and achievable.
4.Such a system would be well defined and uniform. It will be apply to all the levels of theorganization as a general system.
5.The system would be simple and flexible so that every worker/recipient would be able to
compute his own compensation receivable.
6.Such system would be easy to implement, so that it would not penalize the workers for the
reasons beyond their control and would not result in exploitation of workers.
7.It will raise the morale, efficiency and cooperation among the workers. It, being just and fairwould provide satisfaction to the workers.
8.Such system would help management in complying with the various labor acts.
9.Such system would also bring about amicable settlement of disputes between the
workmen union and management.
10.The system would embody itself the principle of equal work equal wages. Encouragement
for those who perform better and opportunities for those who wish to excel.
Advantages of Fair Compensation System:
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Difference between Compensation & Rewards
Forms of Control Theoretical Terms
Coercive / Threat Punishment
Remuneration Compensation
Motivate , Encourage,
Recognize
Reards
Why Rewards?
The impact of the law of diminishing returns from the additional
earnings (on the marginal income).
Non- financial rewards strengthen the Psychological contacts
between Employer & Employee.
Explain the concept
the help of Maslowsmodel of need
hierarchy
& Vrooms
expectancy
theory
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Rewards in terms of Maslows theory
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Work Motivation Model By Smith & Cranny
Work motivation is the
result of interaction of
three main variables
i.e. Efforts, Satisfactions
& Rewards.
Rewards
Performance
Effort or intention Satisfaction
Performance will lead to rewards is a pre conditions.
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Impact of rewards systems:
-Rewards motivates learning skills
-Rewards motivates for knowledge
-Rewards motivates for new initiatives
-Rewards motivates thinking out of the box-Rewards motivates for higher performance.
-Rewards motivates for cost compression.
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Identify and put into service an attractive pay package which is capable ofretaining the existing talent within the entity.
Bench mark salaries with competitors to guarantee that the compensation and
benefit package offered is equivalent to those existent in the market.
Researching and scrutinising the general factors like the government policies,
change in the tax structure, market conditions, etc to ensure that thecompensation package is capable of providing an expected standard of living to
the employees
Pains must be taken to make modifications to the existing pay and
compensation structure every annum after taking into account the employee
performance, company policies, Government regulations, Labour laws,
statutory laws like the Income Tax amendments, competitive rates, etc.
He should modify the pay structure on the basis of the employee performance
appraisals to bring a heterogeneous structure as a move to retain key movers
and shakers.
The following are some of the tasks of a Compensation and
Benefits manager:
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A compensation and benefits manager is responsible for the identification,
implementation and modifications to the employee benefit schemes like healthand life insurance of the employees and their family members, pension schemes,
medical reimbursement programs, etc taking into account the actual cost that
might be incurred by the employee. Other compensation measures like bonuses,
profit sharing, etc must move in line with the changes in the pay structure and
other external and internal factors. The manager must conduct surveys to discover the expectations of the
employees regarding the various compensation schemes, compare them with the
current policies and propose modifications on the basis of the surveys and their
impact on the cost to the company.
He is to provide cost analysis to the management to aid them in bargaining to
the proposals put forth by the labour unions.
The compensation and the benefits manager is to provide the payroll related
data after taking into consideration the proposed modifications for budgeting.
With the number of mergers and acquisitions being on the rise, the integration
of the schemes of the two companies into a viable solution supported by the
employees of both the companies requires the knowledge and skill of the expert.
The following are some of the tasks of a Compensation and
Benefits manager:
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