Agenda What is compensation? Different parts of compensation Extrinsic compensation and Intrinsic Compensation Purpose of compensation Its Importance Factors affecting compensation Constituents of Compensation Law governing and affecting pay structure A Hierarchical Focus on Compensation Compensation professional’s Goal Compensation department main goal
Objectives Able to define compensation Understand different types of Extrinsic compensation Why it is importance from different perspective Mandatory laws to be take care in compensation Factors to be consider for Compensation Pay Model Compensation professional’s Goal Understand main goal of compensation department
What is Compensation & Benefits ? Compensation is payment to an employee in return for their contribution to the organization, that is, for doing their job. The most common forms of compensation are wages, salaries and tips. Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job.
Different Part of Compensation & Benefits
Defining the compensation context
Extrinsic Compensation Core Compensation Salary (Monthly) Wages (Hourly, Daily or Weekly) Adjustment of core Compensation Consumer Price Index Seniority Pay Merit Pay Incentive Pay Person focused pay
Purpose of Compensation For Employer Brand image (employer of choice) for attracting candidates Motivating employees for higher productivity and performance Retaining talent Consistency in compensation Provoking healthy internal competition For Employee Work-life Balance Recognition as tool to self esteem Planning for better quality of life
Its Importance High Compensation-Low Commitment High Compensation-High Commitment Hired Guns Professionals High Compensation-High Commitment Low Compensation-Low Commitment Low Compensation- High Commitment Workers as commodity Family oriented organization
Its Importance Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness Effectiveness in terms of: Attracting & Retaining Talent Motivating talent for better performance Cost effectiveness
Factors affecting compensation Mental Requirement Physical requirements Skill requirements, Responsibility level Working conditions (risk, time, hazards) Organizational Affordability Man power planning Sales – salary ratio Market Rate for Talent Economic Conditions
Constituents of Compensation Fringe Benefits Fringe benefits include such benefits which are provided to the employees either having long-term impact like provident fund, gratuity, pension; or occurrence of certain events like medical benefits, accident relief, health and life insurance; or facilitation in performance of job like uniforms, Canteens, recreation, etc. Perquisites: These are normally provided to managerial personnel either to facilitate their job performance or to retain them in the organization. Such perquisites include company car, club membership, free residential accommodation, paid holiday trips, stock options, etc.
Inputs in Compensation structure
Law Governing and Affecting Pay Structure Minimum Wages Act, 1948 Payment of Wages Act, 1936 Payment of Bonus Act, 1965 Income Tax Act, 1961 Equal Remuneration Act, 1976 Acts on social securities (PF, Bonus, Gratuity, Employee Compensation)
A Hierarchical Focus on Compensation Business Goals Compensation activities serveCEO Business Objectives Business Strategy Compensation strategy is periodically reevaluated and the Compensation planHR Head Compensation periodically developed Strategy Org.Structure Non-Financial Rewards Compensation PlanC & B/S M Performance Job Evaluation Market Surveys Management Unit Inputs Pay levels / Compensation structures Manager, along with Contribution team is responsible forEmployee /outputs carrying out Total compensation related remuneration activities Performance linked Pay Individual Pay Internal Equity External Equity
Compensation Professional’s Goal How HR professional fit into the corporate hierarchy. (Line employees and Staff employees)