compensation

1. 1
Published by Lecturesheet.iiuc28a9.com
It is all about People
“Take our 20 best people and virtually overnight
we become a mediocre company.”
- Bill Gates, Microsoft
“Take my assets, leave my people, and in five
years I will have it all back.”
- Alfred Sloan, General Motors

2. 2
Human Resource Management
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We will cover the following:
– Remuneration & its Components
– Compensation Administration Process
– Wage & salary Administration
– Different types of Incentives and Incentives Plan
– International Compensation.

3. 3
Building Blocks of Direct
Compensation
1. The Foundation:
A Compensation
Philosophy
2.The Basics: Elements
of Base Pay
Administration
3. The Glue: Pay for
Performance Programs
4. The Future: Effective
Compensation
Management

4. 4
The Organizational Reward System
¨ Results from employment with the organization
¨ Includes all forms of financial returns and tangible services &
benefits employees receive as part of employment relationship:
Intrinsic Extrinsic
Achievement Formal Recognition
Feelings of accomplishment Fringe Benefits
Informal Recognition Incentive Payments
Job Satisfaction Pay
Personal growth Promotion
Status Social Relationships
Work Environment

5. 5
Remuneration & Its Components
Definition: Remuneration' is a general term covering the
monetary and related entitlements of employees - paid by
employers in return for the work of employees.
Components:
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6. 6
Compensation Administration Process

7. 7
Job Analysis
It contains two parts: Job Description & Job
Specification. This can help to know about
the duties and responsibilities will be
covered by the specific job and also the
quality of the people engaged in that job.
This is necessary to set a rationale pay
structure for a specific position.

8. 8
Job Evaluation
Job Evaluation: The systematic determination of the
relative worth of jobs within an organization.
Methods of Job Evaluation
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9. 9
Developing Pay Surveys
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10. 10
Pay Structures
¨Common Pay Structures
– Hourly and salaried
– Office, plant, technical, professional, managerial
– Clerical, information technology, professional,
supervisory, management, and executive
¨Factors that affect Remuneration/Pay Structure:
– External:
• Labor market
• Cost of Living
• Society
• The economy
• Geographic Location
– Internal Factor:
• Business Strategy
• Job Evaluation & Performance Appraisal
• The employee
• Kind of business

11. 11
Wage & Salary
¨ Wages: Wages are compensation. This includes
basic wages, allowances, bonuses etc. On the
employers’ points of view, wages form that part of
cost of production which is attributed as
compensation paid to labor. Wages are paid in the
form of time rate or piece rate to the workers, who
are directly involved in the production or
commercial activities.
¨ Salary: This is compensation paid to the indirect
labor in the form of cash. Indirect labor involves
supervisors, managers and supporting staff like
office assistants, clerks, etc. Salaries are paid in
the form of time rate, mostly on monthly basis.

12. 12
Wage & Salary
¨ On the basis of the employee needs and ability of the
organization, there are various kinds of wages. Wages are
generally four types:
– Subsistence wages
– Minimum Wages
– Fair Wages
– Living Wages
¨ Subsistence wages: This is level of wage below the
minimum level which can lead inhuman life to the
employees.
¨ Minimum Wages: This is a wage level fixed by
government which is considered adequate, taking into
account the cost of living. All the organizations are bound
to follow this direction so that no employee is paid a wage
less than the minimum wage fixed by government
irrespective of grade, class or nature of work.

13. 13
Wage & Salary
¨ Fair Wages: This is fixed by employer. This level
of wage varies from industry to industry. The
main criteria are the capacity of payment. Fair
wage is a wage above the minimum wage but
below the living wage.
¨ Living Wages: Living wage is one which should
enable the earner to provide for himself and his
family not only the bare essentials of food,
clothing and shelter, but a measure of frugal
comfort, including education for his children,
protection against ill health, requirement of
essential social needs and a measure of insurance
against the more important misfortune including
old age.

14. 14
Incentive Compensation
Incentives can be added to the basic pay structure to
provide rewards for performance. It may be 3
types:
1. Individual Incentives include
– merit pay plans (annual increase, based on
performance)
– piecework plans (pay based on number of units
produced typically in a specified time period.)
– time-savings bonuses and commissions
2. Group Incentives : Incentives can be offered to groups,
rather than individuals, when employees' tasks are
interdependent and require cooperation.
3. Plant-wide Incentives: Direct employee efforts
toward organizational goals (such as cost reduction)

15. 15
4. The Future: Effective
Compensation Management
¨ S = Strategically-based
¨ M = Market-driven
¨ A = Analyze Thoroughly
¨ R = Reward Results
¨ T = Transformation

16. 16
Compensation & Benefits Package
¨ Base Salary - the fixed amount to be paid
¨ Incentives - additional variable pay based on performance
against objectives
¨ Protectives - programs which insure employees against loss
¨ Capital Accumulation – programs that provide the opportunity
to establish a personal estate (equity /stock plan)
¨ Retirement Income - plans that defer income for services
rendered to a later payment date
¨ Perquisites - company paid allowances beyond direct
pay(Housing,Car, Leave travel, etc.)
¨ Paid Time Off - vacations, holidays, maternity leave, etc

17. 17
The C&B Cycle
Operationalizing C&B
Corporation’s Strategy on C&B
COMPENSATION POLICY/DESIGN
• Policies Designed/Reviewed
•Compensation Structure/Design Issues
•Annual/Cyclical actions (TIR/Bonus/SPP)
•Employee Communication strategy
IMPERATIVES
•Top Management Inputs
•Market Drivers
•HR Strategy
Benefits
Administration
Tracking C&B Info
- GEMS, HRIS
Gauging employee
satisfaction
Employee getting
the C&B package
HR OPERATIONS Payroll

18. 18
Fixed Cash
¨ Base Salary
¨ Housing Assistance/HRA
¨ Conveyance Allowance (Q/R/S)
¨ Leave Travel Allowance
¨ Medical Allowance

19. 19
Benefits
¨ Company Housing
¨ Company Car (grades T & above)
¨ Furnishing program
¨ Housing Loan
¨ Personal loans
¨ Car Loan
¨ Tuition Refund Plan
¨ Professional Body Membership
¨ Retrials or Parachute Payments
– Provident Fund
– Gratuity
– Superannuation (for certain grades)

20. 20
Variable Pay
¨ Individual Performance Award/Annual Bonus
¨ Sales Incentive Plans
¨ Golden Handcuffs

21. 21
EMPLOYEE COMMUNICATION - taking C&B to the people
¨ During all C&B actions (e.g., Annual Salary Increase
letters , SPP roll-out)
¨ Through the HR web-site
¨ Through online addressal of employee queries
– payroll & benefits related (HR Ops)
– policy related (Regional HR/Compensation Unit)
– through supervisors (queries of the type - “how does my salary
increase stack-up vis-à-vis my peers ?”)