compensation and its components

1. TUMKUR UNIVERSITY
DEPARTMENT OF STUDIES AND RESEARCH IN BUSINESS ADMINISTRATION
SUBJECT : HUMAN CAPITAL MANAGEMENT
TOPIC : COMPENSATION, COMPONENTS
PRESENTED BY :
NANJEGOWDA N S
1st YEAR MBA , TUMKLUR UNIVERSITY
PRESENTED TO :
Ms. CHETANA
LECTURER , DEPT. OF MBA
TUMKUR UNIVERSITY

2. CONTENTS
• INTRODUCTION
• PRINCIPLES OF COMPENSATION
• OBJECTIVES OF COMPENSATION
• TYPES OF COMPENSTION
• COMPONENTS OF COMPENSATION

3. INTRODUCTION TO COMPENSATION
• Human resource is the most vital resource for any organization .
• It is responsible for each and every decision taken, each and every work done and each and every result.
• Employees should be managed properly and motivated by providing best remuneration and compensations per industry standards.
• The good compensation will also serve the need for attracting and retaining the best employees.
• Compensation is systematic approach to providing monetary value to employees in exchange for work performed compensation may achieve
several purposes assisting in recruitment and job satisfaction.
• Compensation is the process of compensation management is to establish and maintain an equitable wage and salary structure and an
equitable cost structure. It involves job evaluation ,wage and salary survey, profit sharing and control of pay costs.
• According to Thomas. J. Bergmann(1988) compensation consists of four distinct components.
Compensation = Wage or salary + Employees benefits + Nonrecurring financial rewards + Non-pecuniary rewards.
• Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted
according the business needs, goals, and available resources.

4. PRINCIPLES OF COMPENSATION
 To be legal :
It must get approval from the govt. or top management in the organization .
 To be adequate:
compensation must be sufficient so that needs of the employees are fulfilled substantially.
 To be motivational:
compensation must increase the level of motivation and job satisfaction of the employees.
 To be equitable :
compensation policy should be declared in such a way so that discrimination can be observed.
 To provide security :
Employees must have guarantee of getting wages or compensation regularly without any break.
 To be cost benefit effective :
The organization must make a balance between cost for giving compensation and benefits to be accrued from the employees.

5. OBJECTIVES OF COMPENSATION
EFFECTIVE
COMPENSATION
Acquire
personnel
Retain
employees
Ensure equity
Control
costs
Legal
compliance
Administrative
efficiency

6. TYPES OF COMPENSATION

7. A typical compensation of an employee comprises of following components.
1. Financial compensation,
2. Non-financial compensation
Financial compensation : Financial compensation refers to financial benefits offered and provided to employee in return of the service they
provide to the organization.
a) Basic Wage/salary: Basic wages/policies refer to the wage structured based on which other elements of the compensation may be structured. It
is normally a fixed amount which is subject to changes based on annual increments or subject to the periodical pay hikes.
b) Dearness allowance: The payment of dearness allowance facilitates employees and workers to face the price increase or inflation of prices of
goods and services consumed by him. The onslaught of price increase has a major bearing on the living conditions of the labour.
c) Incentives: Incentives are paid in addition to wages and salaries and are also called ‘payment by results’ Incentives depend upon productivity,
sales, profit, or cost reduction efforts.
There are,
(a) Individual incentive schemes
Individual incentives are applicable to specific employee performance. Where a given task demands group efforts for completion, incentives
ae paid
to the group as a whole.
(b) Group incentive programmes
The amount is later divided among group members on an equitable basis.
COMPONENTS OF COMPENSATION

8. d) Bonus : The bonus can be paid in different ways .it can be fixed percentage on the basic wage paid annually or in proportion to the profitability.
The government also prescribes a minimum statutory bonus for all employees and workers.
there is also a bonus plan which compensates the managers and employees the managers and employees based on the sales revenue or profit margin
achieved. Bonus plans can also be based on piece wages but depends upon the productivity of labour.
Non-financial compensation : These benefits give psychological satisfaction to employees even when financial benefit is not available ,such benefits are ,
a) Recognition of merit through certificate . Etc.
b) Offering challenging job responsibilities.
c) Promoting growth prospects.
d) Comfortable working conditions.
e) Competent supervision and ,
f) Job sharing and flexi-time.
 Commission
Commission to managers and employees may be based on the sales revenue or profits of the company. It is always a fixed percentage on the target achieved.
For taxation purposes, commission is again a taxable component of compensation.
 Fringe benefits
Fringe benefits constitute indirect compensation as they are usually extended as a cost of employment and not directly related to performance of concerned
employee.
Fringe benefits are supplements to regular wages received by the workers at a cost of employers. They include benefits such as paid vacation ,pension, health, and
insurance plans, etc..