All forms of pay or rewards going to employees and
arising from their employment. Gary Dessler
Two main components of compensation are :
1. Direct Financial Payments: Pay in form of wages
salaries, incentives, commission and bonuses.
2. Indirect Financial Payments: Pay in form employer
paid insurance, vacations, etc.
Competency/skill based : Pay where the company
pays for the employee’s range, depth, and types of
skills and knowledge, rather than for the job title
he or she holds.
Competencies: Demonstrable characteristics of a
person, including knowledge, skills, and behaviors,
that enable performance.
Four main elements of such programs are:
1. A system for defining specific skills.
2. A training system that lets employees seek
and acquire skills.
3. A formal competency testing system
4. A work design that lets employees move
among jobs to permit work assignment
Financial Incentives: Financial rewards paid to workers
whose production exceeds some predetermined
standards. Frederick Taylor
It is also called payment by results, and is paid in
addition to wages and salaries depending upon the
productivity, sales, profit, or cost reduction efforts.
Type of incentive Schemes:
1. Individual incentive Schemes
2. Group incentive Schemes
Motivation to the workers
Enhancement in employees earnings
Reduction in total and unit cost of production
Better utilization of equipments
Reduced scrap, lost time, absenteeism.
The co-operation of workers in the implementation
of an incentive plans.
The scheme must be based on scientific work
measurement (realistic, necessary equipments,
motivate for performance)
Incentive plan should cover indirect workers also.
Like : supervisor, foremen, helpers, canteen staffs,
store keeper, clerical staffs, etc.
Proper planning for incentive schemes, or will
Includes any benefits that the employees
receive in addition to direct remuneration.
The synonyms used are fringes, services
programmes, employees benefits and hidden
These include employee benefits such as
They help build up a good corporate image. they
have wider dimensions than immediate gains to the
An organization with fringe benefits enhances
employees morale, is cost effective and introduces
changes with resistance.
It must be provided for genuine interest rather than
Must satisfy a real need.
Must be cost effective.
As Broad based as possible.
Administration should be preceded by sound planning
Wishes through union must be considered.
Employees education to make use of fringe benefits.
Broad banding: Consolidating salary grades and
ranges into just a few wide levels or brands each of
which contains a relatively wide range of jobs and
salary levels. E.g. U.S. government pay plan
consists of 18 main grades (GS-1 to GS-2).
Comparable Worth: The concept by which women
who are usually paid less than men can claim that
men in comparable rather than in strictly equal jobs
are paid more.