Compensation is what employees receive in exchange for their contribution to the organization.
Compensation in other terms also called as ‘Employee Remuneration’
Remuneration occupies an important place in the life of an employee. His or her standard of living, status in the society, motivation, loyalty, and productivity depend upon the remuneration he or she receives. For the employer too, employee remuneration is significant because of its contribution to the cost of production.
Objectives of compensation planning Attract talent Retain talent Ensure equity Reward appropriately(loyalty, commitment, experience, risk raking and other desired behaviours) Control costs Comply with legal rules Ease of operation
FACTORS INFLUENCING EMPLOYEE COMPENSATION
FACTORS INFLUENCING EMPLOYEE COMPENSATION EXTERNAL FACTORS Labour Market Cost of living Labour unions Labour laws Society The Economy Compensation Survey
FACTORS INFLUENCING EMPLOYEE COMPENSATION INTERNAL FACTORS Compensation policies The Organizational ability to pay Job analysis and job description The Employee
Labour market: A labour market is defined as a pool of all potential workers who compete for jobs.
It also includes the employers who compete for workers.
Labor markets are based on the supply and demand of labor in a country or a specific location that are able and willing to work.
A low wage may be fixed when the supply of labour exceeds the demand for it.
Labour economics seeks to understand the functioning and dynamics of the market for labour. Labour markets function through interaction of workers and employers.
Labour economics looks at the suppliers of labour services (workers), and demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment and income.
FACTORS INFLUENCING EMPLOYEE COMPENSATION Cost of living: DA (Dearness allowance) 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. 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.
FACTORS INFLUENCING EMPLOYEE COMPENSATION
Labour Unions: The presence or absence of labour organization often determine the quantum of wages paid to employees.
The benefit of belonging to a labor union is that wages are always the union's top priority. Union leaders work hard to ensure members receive sufficient wages for the work performed.
LABOUR LAWS Government makes and enacts laws regarding welfare aspects of workers, their security and their prosperity. Workers Compensation Act,1923 The Payment Of Wages Act, 1936 The Minimum Wages Act, 1948 Employees’ State Insurance Act, 1948 Employees’ Provident Fund Act, 1952 The Payment To Bonus Act, 1965 Maternity Benefit Act, 1971 The Equal Remuneration Act, 1976
Compensation survey Collection of salary and market data. It includes average salaries, inflation indicators, cost of living indicators and salary budget averages.
Culpepper Salary Budget & Planning Survey Results from the 2010-2011 Culpepper Salary Budget & Planning Survey reveal that salary budgets for 2011 are projected to continue rising after hitting historic lows in 2009. Despite a weak job market, most companies report improved confidence with their cash compensation budgets. Projected budgets for 2011, including salary increases, promotional increases, and variable incentives are all higher than 2010. Furthermore, the number of companies reporting salary freezes has significantly declined, and salary reductions have nearly disappeared.
This year’s report includes data from 933 participating organizations for 90 countries and 21 international geographic regions. Topics include salary budgeting & planning practices, base salary increases, salary structure increases, promotional increases, and budgets for variable cash incentives.
Key Survey Findings and Trends Most Companies Aim to Match or Lead Market Pay Rates: Nearly 70 percent of companies have a base salary philosophy with an objective to either match or lead the market and pay salaries at or above current market levels. Annual Salary Reviews Most Common: Most organizations review base salaries annually on a common focal date. Salary Increases Rise: Average global base salary increases across all jobs and locations are projected to jump from 2.59% in 2010 to 3.14% in 2011. Salary Freezes Continue to Thaw: The number of companies freezing salaries is projected to decline sharply from 14 percent in 2010 to 4 percent in 2011. Very Few Companies Cutting Salaries: Only 0.2% (two tenths of one percent) of companies plan to cut salaries in 2011. U.S. Salary Increases: Base salary increases in the United States are projected to rise from 2.38% in 2010 to 2.91% in 2011.
Canada Salary Increases: Base salary increases in Canada are projected to rise from 2.26% in 2010 to 2.95% in 2011. Global Regions with the Highest Salary Increases: Base salary increases in South Asia, South America, Africa, and the former Soviet Republics (i.e., Commonwealth of Independent States) are higher and more volatile than other regions of the world. Global Regions with the Lowest Salary Increases: Base salary increases in Northern America (i.e., United States and Canada), the Eurozone (€), and member states of European Free Trade Association (EFTA) are lower and less volatile than other regions of the world. Technology, Life Science, and Energy Sectors Lead the Way: Base salary increases in technology, life science, and energy sectors are projected to outpace other sectors in 2011. Salary Range Structure Increases: Average global salary range structure increases across all jobs and locations are projected to rise from 1.41% in 2010 to 2.10% in 2011.
INTERNAL FACTORS INFLUENCING EMPLOYEE COMPENSATION Compensation Policies: Provides general guidelines for making compensation decisions. Pay leaders The market rate Pay followers The organization’s ability to pay
INTERNAL FACTORS INFLUENCING EMPLOYEE COMPENSATION Job analysis and job description: more difficult and challenging a job, the higher the wages.
INTERNAL FACTORS INFLUENCING EMPLOYEE COMPENSATION The employee: Performance, seniority, experience, potential and even luck determine his or her remuneration.
“For everything you have missed, you have gained something else; and for everything you gain, you lose something else.” -Ralph Waldo Emerson