Compensation a Concept

8/2/2019 Compensation a Concept

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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:

Compensation a Concept

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