1. Wage: A remuneration paid to an employee by an employer for a fixed task based amount. (task bond
2. Salary: Salary is a fix amount of money paid to an employee by an employer in return to his/her
work performed. (hours bond but not increasable in routine)
3. Compensation: It is a total amount of money, mostly awarded to some one as recompense for loss or
4. Adequate Compensation Results:
a. Achieve its objectives
b. Obtain productive workforce
c. Maintain productive workforce
d. Retain a productive workforce
5. Objectives of Compensation Mgmt:
a. Salient Aspects:
i. Internal Equity (IE) Ensures that more demanding positions or better qualified
people within the org are paid more
ii. External Equity (EE) Ensures that jobs are fairly compensated in comparison with
similar job in the labour market
b. Objectives Sought through Effective Compensation Mgmt:
i. Acquire Qualified Personnel
ii. Retain Current Employees
iii. Ensure Equity
iv. Reward Desired Behaviour
v. Control Costs
vi. Comply with Legal Regulations
vii. Facilitate Understanding
viii. Further Administrative Efficiency
c. Phases of Compensation Mgmt:
i. Phase – I Job Analysis: To evaluate every job using job analysis information to
ensure internal equity.
ii. Phase – II Job Evaluation: To determine the relative worth of the jobs in
accordance to their characteristics.
1. Job Ranking: Rank the job according to its importance in comparison to other
jobs in the firm through job analysis information.
2. Job Grading: Classification of the job through its relative value by matching
standard description with each job description
3. Factor Comparison: Compensable/critical factors are the job elements
common to all the jobs being evaluated. Each factor (responsibility, skill,
mental effort, physical effort & working condition) is compared.
4. Point System: This system evaluates the compensable / critical factors for each
job, but Point System.
a. Determine the Critical Factors
b. Determine the Level of Factors
c. Allocate the Points to Sub Factors
d. Allocate the Points to Levels
e. Develop the Point Manual
f. Apply the Point System
iii. Phase –III Wage & Salary Surveys: To determine external equity based on the rates
paid in the labour market.
iv. Phase –IV Price Jobs: To determine the rate of pay based on internal & external
6. Sources of Compensation Data: Wage & Salary survey data are the benchmarks against which
analysts compare compensation levels. These have some inherent limitations The sources of the data
includes:a. US Dept of Labour: It periodically conducts the survey of major metropolitan (urban) labour
market. Some time these surveys go out of data due to fast changing labour market.
b. State Unemployment Officers: They also compile the information for the employers. If
compiled frequently can be useful to compensation analysts.
c. Employer Association It surveys the member firms in the market.
d. Professional Association: This association & above, the employer association may be the
source for highly specialized jobs.
e. Self Conducted Surveys: It is conducted by an affected individual or an individual org.
7. Challenges Affecting Compensation:
a. Strategic Objectives: These may bring paradigm shift by adopting enhanced compensation
policies other than prevailing rates
b. Prevailing Wages Rates: Current market may force some jobs to be paid more than their
c. Union Power: The union being the representative of workforce may be able to obtain more
compensation rate than their relative worth of the job
d. Government Constraints: It sets various bondages such as minimum wages, overtime pay,
equal pay & other compensation related pockets
e. Comparable Worth & Equal Pay: It eliminates income gap between men & women
historically caused due to discrimination , working on low wages & leaving workforce due to
women bond issues/obligations
f. Compensation Strategies & Adjustments: Under this aspect orgs have to evolve the
compensation strategies & policies to cause or facilitate the wages & salaries adjustments
(one of the reasons that may be the unionised & non unionized)
g. International Compensation Challenges: Compensation analysts must weigh the balance
between the equity & competitiveness in the light of globalization of business as it refers to
the employees on foreign assignments