Compensation

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  • 1. Human Resource Management By Mahendra Srivastava
  • 2. COMPENSATION
    • Everyone likes to be paid. Whatever else does, money still can be turned into terms most people want. Of course the psychological dimensions of the compensation a person receives are important too.
  • 3.
    • Compensation is frequently directly tied to the labor market.
    • When certain workers are in short supply, offering higher compensation may increase the number of persons hired.
    • When the economy is slower, more people are happy to have a pay cheque.
  • 4.
    • At the peak of the last hiring boom “pay envy” presented a significant problem.
    • Stock options, performance pay and signing bonuses created ambiguities in systems and caused problems.
    • Current employees hired without signing bonuses like those given to new employees were envious
  • 5.
    • Employees with master’s degrees making less than new IT hires with no degrees were envious.
    • Some managers who made less than new hires they supervised were envious too. Employees doing the same job may have had salary differences of USD 20,000 or more.
  • 6.
    • New hires were paid top dollars just for agreeing to come to work, while current employees had their experience and loyalty rewarded by getting more work instead of more money.
    • In one survey, more than 50 per cent workers indicated that they believed that they were paid too little, while only 23 per cent expressed satisfaction with their pay.
  • 7.
    • One factor driving the confusion was that wages went up rapidly for those in high demand, but not everyone was in high demand. Also, paying people based on their individual performance often created “winners” and “losers”.
  • 8.
    • All this attention to compensation meant that even people who did not worry about the topic before are tuning into it now.
    • Employees often had no choice but to turn to new and different compensation approaches in order to compete for employees.
  • 9.
    • Many HR professionals and managers now admit these approaches have caused problems.
    • Pay envy dampens morale and team-work, causes turnover and creates a “cast system” in the company.
  • 10.
    • One former Apple Vice President recounts how a new hire came in at USD 115,000 plus a USD 30,000 hiring bonus right out of college, but star performers in the company made about USD 80,000 at the time. “If you bring in someone at a big salary and then turn out to be a good hire it can be a catastrophic,” he notes.
    • This illustrates that life is never fair in a tight labour market, especially when compensation is skewed. Neither is it fair when the economy sliding down.
  • 11.
    • In year 2001-02, the catered lunches, signing bonuses, free laptops and cell phones, and other generous perks designed to entice and keep many employees during the high times went away. Some workers who liked the amenities willingly gave up such indulgences if it meant their businesses stayed alive and they continued to have pay cheques.
  • 12.
    • Many forms of creative compensation, tossed in to attract or keep employees during the “boom time”, seemed frivolous in the weakened economy amid stock market uncertainties. “There is now a very clear distinction between ‘nice’ and ‘necessary’ when it comes to perks. We went a little too far,” a partner with a big accounting firm noted. Less number of jobs reduced the need for signing bonuses and other recruiting perks necessary a few years ago.
  • 13.
    • All these changes illustrate that compensation practices must change. But compensation continues to be important, visible and often a concern in HR management.
    • The scenario is no different in India.
  • 14. Remuneration
    • Remuneration is the compensation an employee receives in return for his or her contribution to the organization.
    • 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 depends upon the remuneration he or she receives.
  • 15.
    • For the employer too, employee remuneration is significant because of its contribution to the cost of production.
    • Besides, many battles (in the forms of strikes and lockouts) are fought between the employers and the employees on issues relating to wages or bonus.
  • 16.
    • For HRM too, employee remuneration is a major function. The HR specialist has a difficult task of fixing wages and wage differentials acceptable to employees and their leaders. Since employee remuneration is such an important subject, considerable space is devoted in books and periodicals for detailed discussion of wage-related and salary-related problems.
  • 17. COMPONENTS OF REMUNERATION
    • An average employee in the organized sector is entitled to several benefits-both financial as well as non- financial. Typical remuneration of an employee comprises- wages and salary, incentives, fringe benefits, perquisites, and non-monetary benefits.
  • 18. Wages and Salary
    • Hourly rates of pay
    • Monthly rate of pay
    • Subject to annual increments
    • Differ from employee to employee
    • Depend upon nature of job
    • Seniority, and
    • Merit
  • 19. Incentives
    • Paid in addition to wages and salaries
    • Depend upon productivity
    • Sales
    • Profit
    • Cost reduction efforts
    • Individual incentive schemes------specific employee performance.
    • Group incentive programmes
  • 20. Fringe Benefits
    • Provident fund
    • Gratuity
    • Medical care
    • Hospitalization
    • Accident relief
    • Health and group insurance
    • Canteen
    • Uniform
    • Recreation and the like
  • 21. Perquisites
    • Company car
    • Club membership
    • Paid holidays
    • Furnished house
    • Stock option scheme and the like
    • Often given to retain competent executives
  • 22. Non-monetary Benefits
    • Challenging job responsibilities
    • Recognition of merit
    • Growth prospects
    • Competent supervision
    • Comfortable working conditions
    • Job sharing and flexi time
  • 23.
    • Thank you