Definition - Types: Direct & Indirect - Factors affecting compensation-Objectives

1. COMPENSA
TION
OBJECTIVES &
TYPES

2. INTRODUCTION
“Payment given to an employee for his/her services or work performed
and in the form of wage/salary”.
“Establishment and implementation of sound policies, programmes
and practices of employee compensation”
Both remuneration and compensation are not interchangeable.
Compensation as referring to monetary payments while
Remuneration refers to both monetary and non-monetary
payments.

3. OBJCTIVES OF
COMPENSATION1. To attract competent
and qualified persons
towards organization by
offering fair wage and
incentive.
2. To retain present
employees by paying
competitive remuneration.
3. To establish fair and
equitable remuneration so
as to avoid pay disparities.
4. To improve production,
productivity and
profitability of the
organization.
5. To minimise un-necessary
expenditure and to control cost
through a device of internal check
and establishment of standard.
6. To improve and maintain good
human relation between employer
and employee through a process
of payment of bonus, profit
sharing and other fringes
benefits.
7. To enhance the name and fame
of the company through a proper
system of wage payment.
8. To ensure prompt and regular
payment of wage and salary to all
the employees.

4. FACTORS INFLUENCING
COMPENSATION
Ability of the organization to pay
Supply and Demand of labor
Prevailing Market Rate
The Cost of Living
Strength of labor union
The living wage
Government regulations
Productivity of Employees
Skill Levels Available in the Market
Uniqueness of the job

5. DESCRIPTION ON TYPES OF
COMPENSATION
Direct financial compensation - The pay that a worker
receives as wages, salaries, commissions and bonuses.
Indirect financial compensation - All financial rewards
that are not included in direct compensation (i.e. benefits).

7. COMPONENTS OF SALARY
“Remuneration paid to the employees appointed on
monthly or annual basis in return for the service
rendered”
Employee Salary = Basic pay + Grade pay + Dearness
Allowance (DA) + House Rent Allowance (HRA) + City
Compensatory Allowance (CCA)
DA: Allowance which is given to the employee against the price

8. FRINGE BENEFITS
It is a general term used to describe any of a
variety of non-wage or supplemental benefits
that employees receive in addition to their
regular wages.
These include such employee benefits as
provident fund, gratuity, medical care,
hospitalization, accident relief, paid holidays,

9. PERQUISITES
Called as perks
They are the special benefits made
available only to the top executives of an
organisation.
These may include company car,
furnished house, stock option scheme,
club membership, paid holidays etc.

10. WAGES
Remuneration paid to the workers
appointed on hourly, daily or
weekly basis in return for the
service rendered.
TYPES:
Fair wage
Minimum wage
Living wage

11. MINIMUM WAGE
It is that wage which is sufficient to
meet the basic need of a worker and his
family.
This minimum wage has to be paid to
the worker irrespective of the capacity
of the industry to pay.
Minimum wage must provide some
measures of education, medical
requirements and amenities”.

12. FAIR WAGE
According to committee on fair wage “fair wage is the
wage which is above the minimum wage but, below the
living wage”.
It is fixed between the minimum wage and capacity to
pay by the industry.
The lower limit of the fair wage is the minimum wage;
the upper limit is set by the capacity of the industry to
pay.
Factors determining Fair Wage:
(a)The productivity of labour
(b) The prevailing rates of wage in the same or
neighboring localities.

13. LIVING WAGE
It is the wage that provides some of the comforts of
life.
For the well-being of the worker.
According to Fair Wage Committee “the living wage
should enable the male earner to provide for himself
and his family not merely the bare essentials of food,
clothing and shelter but also a measure of frugal (using
only as much money or food as is necessary) comfort
including
education for children,
protection against ill health,
requirements of essential social needs and
measure of insurance against mis-fortunes including

14. TYPES OF DIRECT
COMPENSATION
Salary
Wage
Incentive
Bonus
Commission
Overtime pay
Vacation pay
Performance-related payments

15. INDIRECT COMPENSATION
Restaurant coupons
• Movie tickets
• Recognition of birthdays
• Free lunches, snacks, or
beverages
• Employee discounts
• Tuition Reimbursement
• Flex time • Personalized
items (shirts, jackets, brief
cases, planners, mugs, hats)
Loan assistance
Paid sabbaticals (Leave
For Education)
Healthcare benefits
Additional life insurance
Free cell phone or other
technology products