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FORMS OF COMPONENTS Above components could be grouped into 2 forms: Statutory components of compensation. (Components that are essential as per the legislations) Obligatory components of compensation. (bind the employee with the company)
Break up of components of compensation Compensation package = Basic + DA + HRA + CCA (City compensatory allowance) + Conveyance + Additional Perks & Fringe.
BASIC It matchesjob worth with the human skill, knowledge and experience to perform the job and is a stable wage/salary part of the compensation paid over a period of time, which could be weekly or monthly, and must be paid by the employer to meet the basic needs of the employees. FIXATION OF BASIC PAY: It is fixed as per the job evaluation points for a particular group of jobs and by comparing its worth with other job prices for similar jobs in other organizations to cover equity concept.
DEARNESS ALLOWANCE (da) It takes care of the price inflation that affects the purchasing power of the employees. It is a regular and continuing part of the compensation package that gets changed according to the price increase. FIXATION OF da: For the employees of PSU’s, Governments through the Wage Board and/or the Pay Commissions fix this component periodically based on the CPI (Consumer Price Index) to satisfy the real values of wage or salary.
HRA (House rent allowance) Takes care of the cost of living and provides extra money to meet the housing accommodation expenses so that the employee can maintain his/her status. FIXATION OF HRA: The wage board or pay commission fixes HRA in the government sector, and in the private sector it is fixed by the employers depending upon the wage/salary policy and the capacity to pay.
CCA (CITY COMPENSATORY ALLOWANCE) In the same region, the rental rates may vary according to the ranking of the city such as urban, metro, or class A, B, C etc. To meet the expense of cost of living in different grades of the city, employer includes CCA in compensation package.
Annual bonus Bonus is the most expected component of compensation, especially when an employee stays with the organization for more than a year and expects recognition of his/her continuous efforts throughout the year to let the organization earn and grow.
FORMS OF ANNUAL BONUS Customary bonus: Commitment of org defined in their policy, such as ex-gratia payment (One-time extra payment in addition to normal pay, made out of gratitude or courtesy or in recognition of a special contribution), attendance bonus, productivity bonus etc which cannot be claimed as a right but depends on the company’s policy and plans. Profit based bonus: Payment of the share of profit or extra earning achieved through the efforts of the employees.
Allowances Project allowance is offered to the employees sent to implement any project outside the works and to motivate him/her to be away from the family. Shift allowance is to encourage an employee to work in shifts such as employees of call centres or outsourcing agencies. Washing allowance helps the employees to maintain neatness and cleanliness without losing their real earnings.
Conveyance allowance Conveyance allowance is paid to the employee to compensate the expenses incurred by the employees on travelling.