Compensation Classified into three categories:Base or primary compensation: Refers to basic pay in the form of wages and salaries.Supplementary compensation: Consists of fringe benefits such as housing, medical aid, paid leave, retirement benefits etc.Incentive compensation: Refers to monetary compensation paid to motivate employees.
Base & Supplementary compensation It means wages and salaries It means fringe benefits paid to employees. paid in addition to wage Wage and salaries are paid and salaries. in cash. Fringe benefits are paid in Wage and salaries are paid kind. to compensate employees Fringe benefits are paid to for their services. retain employees and to Wage and salaries are increase their efficiency. determined on the basis of Fringe benefits depend job evaluation and other mainly on the company’s relevant factors. policies and needs.
Issue in Compensation Management1. Internal equity versus External equity.2. Fixed pay versus Variable pay3. Performance versus Membership.4. Job versus individual pay.5. Elitism versus Egalitarianism.6. Below market versus Above market Compensation.7. Monetary versus Non- monetary rewards.8. Open versus secret pay.9. Centralization versus decentralization of pay decisions.
Components of Compensation Basic pay: Basic pay is generally determined through job evaluation which is the process of systematically ascertaining the relative worth of a job. Allowances: Dearness Allowance (DA): Percentage of basic pay acc. To organization. House Rent Allowance: Percentage of BP of 30 per cent in case of govt. employees. City Compensatory Allowance: This allowances is paid generally in metros and other big cities where cost of living is high.
Transport Allowance/Conveyance Allowance: A fixed sum is paid every month to cover a part of travelling charges.Incentives: It is performance based remuneration. Bonus, profit-sharing, commission on sales etc are exmaples.Fringe benefits/Perquisities: Particularly to managers. PF, gratuity, LTC, encashment of earned leaves, company house, company car, medical aid, interest free loan, stock options etc.
Program What it is Who gets itBase Pay Regular pay; your "annual All employees salary"Variable Pay Annual "bonus" depending on All non-incentive plan employees company, group and individual are eligible; actual pay will vary performance criteria based on performance of the individual and his/her unitCommission and Incentive Pay For sales employees, portion of Sales employees and executives total compensation varies on on incentive and commission specific sales goals and programs objectivesStock Options Recipients are granted the Program is very limited and "option" to buy stock at a locked focuses on retention by awarding in price options to key employees in critical job categoriesAwards and Recognition Various individual and group All employees are eligible awards designed to recognize depending on the nature of the very specific and extraordinary award and any relevant accomplishments restrictions
Objectives To establish a fair and equitable remuneration. To attract competent personnel. To retain the present employees. To improve productivity. To control costs. To establish job sequences and lines of promotion wherever applicable. To improve union management relations. To improve public image of the company.
Essential of a Sound Wage and Salary Structure Internal equity. External competitiveness. Built-in incentive. Link with productivity. Increments.
Factors affecting Compensation Demand for and supply of labour. Ability to pay. Labour unions. Cost of living. Prevailing wage rates. Job requirements. Productivity. State regulation.
Methods of Wage Payment Time wage system. Piece wage system. Balance or debt system.
Time Wage systemWages are paid on the basis of time spent on the job irrespective of the amount of work done.Advantages: Simples and oldest method. Earnings of workers are regular and fixed. The plan is economical as no detailed records. Avoids wasteful handling. Earnings are not dependent on the amount of work. A sense of equality. It is an objective method. The employer can calculate the wage bill in advance.
Disadvantages:No incentive for better performance.Guaranteed remuneration makes workers indifferent.Calculation of labour cost per unit is difficult.Costs of supervision are high.
Piece wage system Remuneration is based on the amount of work done or output of a worker. One unit of output is considered as one piece and a specific rate of wage is paid per piece.Advantages: Direct relation b/w effort and reward. Fair to all. Increased in productivity results. Distinguish b/w efficient and inefficient. Ambitious and efficient workers are provided with ample opportunities.
Disadvantages:Difficult to fix piece wage rates.Earnings of workers are not stable.Detailed of production have to be kept so that the clerical work is increased.This method leads to industrial disputes.Trade union dislike piece wage system.Jealousy b/w efficient and inefficient workers.Piece may not be of good quality.
Balance or debt system This method is a combination of time and wage systems. If the wages calculated at piece rate exceed the time rate, the worker gets the credit. On the other hand, if time wages exceed piece wages, the worker is paid time wage and the deficit is carried forward as debt to be reconserved in future.This method applicable mostly on Dock Worker - a laborer who loads and unloads vessels in a port.
Supplementary compensation Concept Criteria: Need and importance: Types: Factors influencing:
Executive Compensation Straight salary. Bonus based on company’s profits or commission. Stock options involving issue of the company’s shares at a special price. Fringe benefits or perquisites such as free furnished housing, servants, free telephone, discount coupons, expense account, membership of professional association etc.
Executive compensation depends on some factors: Complexity of the job. Capacity to pay. Education and experience. Performance. Economic environment. Legislation.
Concept of Job Evaluation “the process of analysis and assessment of jobs to ascertain reliably their relative worth using theassessment as the basis for a balanced wage structure.” British Institute of Management.
Difference b/w Job Evaluation & Performance Appraisal It is the assessment of It is the assessment of various jobs to find out performance of different their relative worth. employees the same job. It takes into consideration It takes into consideration the requirements of the performance of different jobs. different individuals. Its purpose is to identify Its purpose is to identify the basis for fixing wages, the basis for decisions salary for various jobs. concerning pay raise, promotion, training and transfer, etc.
It rates the job holder It rates the job and not and the not the job. the jobholder. It is done before an Its is done after an employee joins. employee joins and performs the job.
Objectives To determine equitable wage differentials between different job s in the organization; To eliminate wage inequities; To develop a consistent wage policy; To establish a rational basis for incentive and bonus schemes; To enable management to control the payroll costs. To minimize wage discrimination on the basis of age, sex, caste, region, religion, etc.
Process of Job Evaluation Gaining acceptance. Constituting job evaluation committee. Selecting jobs to be evaluated. Describing the jobs. Selecting the method of evaluation. Weighting job factors. Skill-mental and manual. Experience. Efforts and initiatives. Working conditions.
Responsibilities to be undertaken.Supervision required. Assigning money values. Periodic reviews.
Advantages of job evaluation It is logical and objective technique of ranking jobs. It helps to improve industrial relations. By reducing employee doubts. It helps in fitting new jobs at their appropriate places. It provides a clear and objectives basis. It involves detailed analysis of a job. It reveals job which require loss or more skilled workers than those already performing these jobs.
Disadvantages of job evaluation It is not fully objective and scientific. It fails to consider several factors which influence the value of a given job from workers’ point of view. It makes the wage and salary structure inflexible by freezing wage differentials between jobs. It is not well suited to determining the relative worth of managerial jobs. It is time-consuming and expensive process. Some of the methods of ob evaluation are difficult to understand.
Methods of Job Evaluation Non-quantitative methodsRanking or job comparisonGrading or job classification Quantitative methodsPoint ratingFactor comparison
Ranking Method Job description: Pair comparisons: Ranking along a number line:
Advantages of ranking method:It is simplest and the oldest method.It is very economical and less time consuming.It involves less paper work.