Concept of compensation, exploring & defining compensation context

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Concept of Compensation, Exploring & Defining Compensation Context (Strategic Compensation, Total Compensation, Extrinsic Compensation, Intrinsic Compensation, Components of Compensation, Factors Influencing Compensation, Wage and Salary, Incentives, Fringe Benefits, Perquisites, Govt. Regulations for Compensation in India, Minimum Wage, Fair Wage, Living Wage, Calculation of Minimum Wages)




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Concept of compensation, exploring & defining compensation context

  1. 1. Concept of Compensation, Exploring & Defining Compensation Context Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt) Professor Al-Qurmoshi Institute of Business Management Hyderabad
  2. 2. Concept of Compensation
  3. 3. Compensation  Compensation - money and other benefits received for providing services  Cascio defined compensation as “Direct cash payments, indirect payments (employee benefits) and incentives to motivate employees to strive for higher levels of productivity”
  4. 4. Strategic Compensation  Strategic compensation is determining & providing compensation packages to employees, those are aligned with the business goals and objectives  Organizations have to take special measures regarding compensation to retain the valuable employees
  5. 5. Exploring and Defining Compensation Context
  6. 6. Total Compensation Core compensation • Hourly wage Annual salary Adjustments to core compensation • Cost-of living Seniority Merit Incentive Person-focused Total Compensation Extrinsic Compensation Intrinsic Compensation Legally Required Employee Benefits • Social Security Act •Workers compensation laws Family & Medical leave Act Discretionary Employee Benefits Health insurance Disability insurance Life insurance Retirement plans Paid time-off Accommodation and enhancement Job characteristics • Skill variety •Task identity Task significance Autonomy Feedback
  7. 7. Extrinsic Compensation  Core Compensation 1) Salaries (Monthly) 2) Wages (Hourly, Daily, or Weekly)  Cost-of-Leaving Adjustment (COLAs) 1) Consumer Price Index (CPI) 2) Seniority Pay 3) Merit Pay 4) Incentive Pay 5) Person-focused Pay (Pay-for-Knowledge and Skill- Based Pay) 8
  8. 8. Extrinsic Compensation (Contd.)  Employee Benefits:  Legally Required Benefits 1) Social Security 2) Workers Compensation & Sick leave 3) Family & Medical Leave  Discretionary Benefits: 1) Health Insurance 2) Life Insurance 3) Retirement Benefits 4) Paid time-off. 9
  9. 9. Components of Compensation  Wage and Salary  Incentives  Fringe Benefits  Perquisites
  10. 10. Wage and Salary  Wage - remuneration to workers, hourly-rated payment  Salary - remuneration paid to white-collar employees & managerial personnel  Wages and salary - paid on the basis of fixed time period, not associated with productivity of an employee
  11. 11. Incentives  Incentive - Any reward or benefit given to an employee over and above the wage or salary with a view to motivate him to excel in his work  Incentives include both monetary as well as non- monetary rewards  A scheme of incentive is a plan to motivate an individual or a group performers
  12. 12. Benefits
  13. 13. Fringe Benefits  Fringe benefits - Provident fund, gratuity, pension - Medical benefits, accident relief, health and life insurance - Facilitation in performance of job, like uniforms, Canteens & recreation
  14. 14. Perquisites  Perquisites - provided to managerial personnel either to facilitate their job performance or to retain them in the organization  Perquisites include company car, club membership, free residential accommodation, paid holiday trips and stock options
  15. 15. Factors Influencing Compensation Market Forces Work Value Organisation Policy Individual Performance
  16. 16. Three Pay Policies Pay Policy Attract Retain Motivate Control Costs Lead + + ? ? Match = = ? = Lag - ? ? +
  17. 17. Govt. Regulation for Compensation in India  Minimum Wages Act, 1948  Payment of Wages Act, 1936  Adjudication of Wage Disputes  Wage boards  Pay Commissions  Payment of Bonus Act, 1965
  18. 18. Compensation Structures Job Evaluation Rate Ranges Pay Grades Issues Involved in Setting Compensation Structures Wage and Salary Surveys
  19. 19. Concept of Different Wages  Minimum Wage  Fair Wage  Living Wage (Highest in Value)
  20. 20. Concept of Minimum Wage  Minimum Wage - For sustenance of life and preservation of efficiency of workers and to provide some measure of education, medical requirements and amenities.
  21. 21. Concept of Living Wage  Living Wage – In addition to providing food, clothing and shelter for worker and family, education for children, protection against ill- health, essential social needs and insurance against misfortunes and old age.
  22. 22. Concept of Fair Wage  Fair Wage -above minimum wage but below living wage; fair wage to be paid based on capacity of industry to pay.
  23. 23. Calculation of Minimum Wages  Worker’s family – 3 members, earnings of women, children & adolescents disregarded  Minimum food requirements - 2,700 calories/adult.  Clothing requirements - 18 yards per annum/person.  Housing - minimum rent charged by Govt for houses under subsidized housing scheme  Fuel, lighting and other miscellaneous items - 20 % total minimum wage.

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