Basics of compensation


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Basics of compensation

  1. 1. Compensation‘ Compensation’ in other terms alsocalled as ‘Employee Remuneration’.Remuneration is the compensation; an employeereceives in return for his or her contribution to theorganization. Remuneration occupies an importantplace in the life of an employee. His or her standardof living, status in the society, motivation, loyalty,and productivity depend upon the remuneration heor she receives. For the employer too, employeeremuneration is significant because of itscontribution to the cost of production.
  2. 2. Aims of Employee Compensation Attract capable employees to theorganization. Motivate them toward superior performance. Retainment of their services over anextended period of time.
  3. 3. Aims of Employee Compensation1. Attract capable employees to the organization:-Every organization looks for retaining capable employee with the organization.Infact, retaining an employee is the most difficult function of HR Department.So for retaining an efficient employee with the organization, he has to beprovided with better compensation. That compensation that he is going tobe provided should include better salary perks, increments, promotions etc.So, a better compensation package is going to attract the efficient employeewho is very useful to an organization.2. Motivate them toward superior performance:-For any employee, money is the main motivator. If every employee of anorganization is provided with better compensation, every body will bemotivated to exhibit superior performance. The better the pay, the better theperformance. The compensation that is going to be provided to theemployees should include better salary, perks, increments, bonus etc. Eventhough the remaining components like promotion are going to motivate theemployees, but the basic motivator is better compensation.3. Retainment of their services over an extended period of time: -Retainment of the services of an employee with an organization is the mostdifficult job of HR. So, the retainment of the employee’s service over a longperiod of time is possible only by providing them with better compensation.
  4. 4. Factors affecting compensation policy Supply and demand Cost of living Government Labor unions
  5. 5. Components of Compensation
  6. 6. Components of Compensation Conti. Direct- Wages, Salaries, Commissions, Bonuses Indirect- Insurance plans, Social Assistance,Educational Assistance, Paid Absences The Job- Interesting Duties, Challenge,Responsibility, opportunity for recognition, feeling ofadvancement, achievement opportunity The Environment- Sound policies, Competentsupervision, Congenial coworkers, Appropriatestatus symbol, Comfortable working conditions, flexi-time, Job sharing, Cafeteria compensation
  7. 7. Factors Involved in Determining Salary Kinds and Levels of Required Skills.The single most important factor influencing an individual’s rate ofpay is the kind of work performed. Some professions require ahigh level of education which made the job a highly paid job. Supply and Demand of Labor.Any job is worth what the marketplace will bear. Individuals withcertain skills may be in varying degrees of demand. Sometimesthe demands vary across specific locations. At other times, theyare national in scope. Those who have the particular knowledge,skills, and credentials that are in high demand—a currentexample is information technology professionals—can requestand will usually receive premium wages. Geographic LocationLevels of employment/unemployment do not affect all regions of thenation equally. Certain areas where the cost of living is high havehistorically paid higher wages.
  8. 8. Factors Involved in Determining Salary Profitability of the OrganizationEmployees working for a highly profitable business have a greaterchance of receiving higher wages than those working for a lessprofitable enterprise. Employee Tenure and Performance.Traditionally, an employee’s pay increases with years of service. Awidely held view is that, through experience, employees becomemore effective problem solvers and are more dependable. However,as the global economy increasingly demands ongoing businesschange and higher levels of productivity, employers have looked athow pay and reward systems can improve an organization’sperformance. For many employers, the goal now is to integrate theorganization’s compensation and reward philosophy with its strategicinitiatives regarding customers, profitability, and the development ofa strong, competitive work force focused on the success of theorganization.
  9. 9. Factors Involved in Determining Salary Employment StabilityWe all want the security of knowing that we will have our job as longas we want it. The idea of not having a regular job to pay debtsand day-to-day living costs is distressing. Employees who feelthat a job is secure are often willing to accept less than theywould be paid in a potentially unstable environment. Compensation PhilosophySome employers are committed to a philosophy of paying theiremployees above industry or area standards in order to attractand retain the very best pool of skilled workers available. Otherspay at the 50th percentile; still others pay as little as they can.Size of the Organization. Large organizations can often pay at ahigher wage rate than smaller ones.
  10. 10. WAGESMinimum WagesThese are the wages that ensure more than just adequatesustenance, these ensure certain medical & other essentialrequirements of individuals catered to ensure:- 1. 3 extra compensation unit to a family of a simple earningmember. 2. 2700 calorie of food intake per member per day. 3. 18 yards of cloth per member and for an unit of four membersi.e. 18 x 4 = 72 yards cloth per annum. 4. To ensure land, shelter equivalent of what is provided byindustrial housing scheme. 5. Amenities catered to by wages 20% of minimum wage.
  11. 11. WAGESLIVING WAGES Ensure more than adequate sustenance to the extent that certaingreater needs like social needs, sanitations, health aspects, andprotections from misfortunes.FAIR WAGESThese are fixed on the basis of: - 1. Productivity of Labour 2. Prevailing level of wages 3. Industry Policy to wages & income distribution in the country. 4. Contribution of industry to the economyThe upper limit is fixed on the basis of the above factors and ensuresminimum wages.
  12. 12. Wage PolicyWage policy deals with remuneration of work rendered byemployees in any organization. Wages are that compensationgiven to employees done for work in return. Wages are given tothe worker (blue color) who are the shop floor employees andsalaries are given to executive cadre (white color) according toPublic Policy, a good wage policy should look into the following: 1. An equitable distribution of return between capital & labour. 2. To establish justified wage differentials 3. Equal pay for equal work 4. To base wages on need basis