2. Benefits of Proper
Compensation
Compensation policy aims to
attract talented employees and
motivate them to put their
efforts and commitment to
work that increase job
satisfaction work performance
2
Benefits of Proper Compensation Administration
1 2 3 4 5
Attracts talent Motivates
Employees
Rewards
Performance
Reduces
Turnover
Manages
Compensation
Budget
3. Consequences of Pay Dissatisfaction
3
grievances
Desire for
more pay
Pay
dissatisfaction
performance
strikes
Search for
new job
Lower
attractiveness of
job
absenteeism
turnover
Job
dissatisfaction
absenteeism
Psychological
withdrawal
Poor health
Visits to the
doctors
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289
4. 1. Minimum Wage – The
minimum amount of
remuneration that an employer
is required to pay wage earners
for the work performed during a
given period
*The lowest remuneration that
employers can legally pay their
employees , assuming there is
no other benefit of the job.
*lower wage per hour that a
worker may be paid as
mandated by federal law.
Concepts of Wages
Fair Wage
Living Wage
Team based Pay
Remunerating Professionals
Contract Employees
Expatriates and Executives
4
5. Components of Remuneration
5
Remuneration
Financial Non Financial
Wages and
Salary
Hourly wages
and monthly
rates salary
Incentives
Individual
plans
Group plans
Fringe
benefits
CPF
Gratuity
Medical etc.
Perquisites
Company car
Club
membership
Furnished
house
Stock option
schemes etc.
Job content
Challenging job
responsibilities
Supervision
Growth
prospects
Working
conditions
Etc.
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286
6. Theories of Remuneration
6
Employee set
expectations and goals
Performance is
rewarded
Employee consider
equity of reward and
performance
Feedback to employee
Employee sets new goals and expectations based on
experience
8. Theories of Remuneration
8
Equity Theory
• Adam’s equity theory emphasizes to have equity in pay structure of
employee
• If employee feel that their efforts are well rewarded they will put more
efforts and will be satisfied with their job
• In case of inequity feeling they will be de moralized and dissatisfied
resulting into low productivity
Individual
equity
Internal equity
External
equity
Perception of
fairness
Motivation
Commitment
Performance
9. Theories of Remuneration
9
Agency Theory
• In the organizations employer and employees are two main stakeholders
• Employer act as principals and employees assume the role of agent
• The remuneration of employee is agency cost
• Principal tries to agency cost and agent expect to have more agency cost
• The principal (Employer) should try to choose remunerating schemes that align its own
interest with expectation of agents (employees)
• Behavior oriented (merit based pay)
• Outcome oriented (profit sharing, commission)
11. Factors Influencing
Remuneration
11
Business Strategy Market Position Remuneration Strategy Blend of Remuneration
Invest to grow Merging or grow
rapidly
Encourage innovation and
entrepreneurship
High salary and
incentives for
performance. Modest
benefits
Manage earning
Protect Markets
Normal growth to
maturity
Reward management
skills
Average incentives
with average Salary on
unit and individual
performance. Standard
benefits
Harvest earnings
invest somewhere else
Maturity or decline Focus on cost control Below average salary
with few incentives
that too tied with cost
control efforts.
Standard benefits
13. Challenges of Remuneration
13
Remuneration
Salary Reviews
Monetary and non
monetary rewards
Skill based pay
Comparable worth
Below market or
above market pay
Eliticism or
Egalitarianism
Employee
participation
Pay Secrecy
14. Skill Based and Job Based Pay
14
Factors Skill based Job based
Pay structure Based on ability to perform Based on job performance
Employer’s focus Employee carriers wages,
Employee linked to skills
Job carries wages.
Employee linked to job
Employee focus Skill acquisition for more
pay
Job promotion for better
pay
Procedures required Skills assessment, Value
skills
Job content assessment,
Value jobs
Advantages Flexibility, Reduced
workforce
Pay based on value of job
and work performed
Disadvantages Cost controls Inflexibility
Compensation Benchmarking Process :
1. Planning Phase
2. Analyze Phase
3. Integration Phase
4. Action Phase
15. Elements of Employee Rewards in
India:
15
1. Base/ Basic Pay
◇ 2. Individual Performance
related pay
◇ 3. Bonus
◇ 4. Incentives
◇ 5. Commissions
◇ 6. Service related pay
◇ 7. Skill based pay
◇ 8. Competence related pay
◇ 9. Career Development pay
◇ 10. Allowances
◇ 11. Employee Benefits
◇ 12. Total remuneration
◇ 13. Non financial reward
◇ 14. Employee stock options