What is Compensation
• Compensation is the process of directly
and indirectly rewarding employees on a
current or deferred basis, for their
performance of assigned tasks.
• Compensation is a systematic approach
to providing monetary value to
employees in exchange for their work
• Direct Compensation
• Wages and Salary
• Incentives or payments by resultsIndividuals incentives schemes group
• Fringe benefits – provident fund, gratuity,
medical care, hospitalization, accident
relief, health and group insurance,
canteen, uniform , recreation etc.,
• Perquisites – allowed to executives and
company car, club membership, paid
holidays, furnished house, stock option
• Indirect Compensation
It refers to non-monetary benefits offered
and provided to employees in lieu of the
services provided by them to the
organization. They include Leave Policy,
Overtime Policy, Car policy,
Hospitalization, Insurance, Leave travel
Assistance Limits, Retirement Benefits,
Goals of Compensation
Acquire qualified personnel
Retain current employees
Reward desired behaviour
How is Compensation used?
• Recruit and retain qualified employees.
• Increase or maintain morale/satisfaction.
• Reward and encourage peak
• Achieve internal and external equity.
• Reduce turnover and encourage
• Modify (through negotiations) practices
Main Issues In Compensation
• How much should companies pay to attract,
retain, and motivate employees?
• Should they pay salaries or variable
• Should they provide benefits, and if so, to
• What's an appropriate discrepancy between
the pay for high and low performers?
Forms of Equity
Methods to solve Equity
Job Analysis and
and Incentive Pay
Mechanisms, and Employees’
• Once job analysis has been done
organizations need to decide upon the
• Pay structure refers to the process of
setting up the pay for a job in an
• The process deals with internal and
external analysis to estimate the
compensation package for a job profile.
• Organizations have to bridge the gap
between the industry standards and
their salary packages. They cannot
provide compensation packages that
are either less than the industry
standards or are very higher then the
• For the purpose they undertake the
salary survey. The Salary survey is the
research done to analyze the industry
standards to set up the compensation
strategy for the organization.
Objectives of Salary Survey
•To gather information regarding the industry standards
To know more about the market rate i.e. compensation
offered by the competitors
To design a fair compensation system
To design and implement most competitive reward
To benchmark the compensation strategies
• Job analysis is a systematic approach
to defining the job role, description,
• This is necessary to set a rationale pay
structure for specific position.
• The process of determining how much a
job should be paid, balancing two goals
– Internal Equity: Paying different jobs
differently, based on what the job entails
– External Competitiveness: Paying
satisfactory performers what the market is
• Broad banding
– Consolidating salary grades and ranges into
just a few wide levels or “bands,” each of
which contains a relatively wide range of
jobs and salary levels.
– Pro and Cons
• More flexibility in assigning workers to different
job grades.Provides support for flatter hierarchies
• Promotes skills learning and mobility.
• Lack of permanence in job responsibilities can be
unsettling to new employees
• Employee Stock Ownership Plans
• Employee Stock Ownership Plan (ESOP)
is an employee benefit plan. The scheme
provides employees the ownership of
stocks in the company.
• It is one of the profit sharing plans.
Employers have the benefit to use the