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Mba ii hrm u-3.4 compensation administration


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Compensation Administration

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Mba ii hrm u-3.4 compensation administration

  1. 1. Course: MBA SEM 2 Subject: Human Resource Management Unit: 3 Compensation Administration
  2. 2. Nature of Compensation Compensation offered by an organisation can come both directly through base pay and variable pay and indirectly through benefits.  Base Pay  Variable Pay  Benefits Compensation Administration
  3. 3. Cont…. Objectives of Compensation Planning The most important objective of any pay system is fairness or equity. The term equity has three dimensions (Cascio). 1. Internal equity 2. External equity 3. Individual equity
  4. 4. Some of the important objectives that are sought to be achieved through effective compensation management are listed below. (Dessler, Fisher, Gomez) 1. Attract talent 2. Retain talent 3. Ensure equity 4. New and desired behaviour 5. Control costs 6. Comply with legal rules 7. Ease of operation
  5. 5. Cont…. Components of Pay Structure in India The pay structure of a company depends on several factors such as labour market conditions, company's paying capacity and legal provisions: Wages  Basic Wages  Dearness Allowance (DA)
  6. 6. List of Allowances in the Organised Sector in India • Attendance Night shift Tiffin • Books Overtime Transport • Car Paternity Telephone • Card (Credit card) Pension Uniform • City Compensatory Provident Fund • Club Membership Relocation • Computer Servant • Deputation • Driver • Education • ESIS • Family • Group Insurance • Leave Travel • Lunch • Medical
  7. 7. Cont…. Wage and Salary Administration Employee compensation may be classified into two types:  Base compensation  Supplementary compensation
  8. 8. Cont…. Objectives  To establish a fair and equitable remuneration offering similar pay for similar work.  To attract qualified and competent personnel.  To retain the present employees by keeping wage levels in tune with competing units.  To control labour and administrative costs in line with the ability of the organisation to pay.  To improve motivation and morale of employees and to improve union-management relations.  To project a good image of the company and to comply with legal needs relating to wages and salaries.
  9. 9. Principles of Wage and Salary Administration 1. Wage and salary plans should be sufficiently flexible. 2. Job evaluation must be done scientifically. 3. Wage and salary administration plans must always be consistent with overall organisational plans and programmes. 4. Wage and salary administration plans and programmes should be responsive to the changing local and national conditions.
  10. 10. Factors Influencing Compensation Levels 1. Job needs 2. Ability to pay 3. Cost of living 4. Prevailing wage rates 5. Unions 6. Productivity 7. State regulation 8. Demand and supply of labour
  11. 11. Wage Policy A wage bill is an important part of the production cost. For any reason whatsoever, if the wage bill increases beyond the paying capacity of an employer, the very survival of the firm becomes difficult. Wage Policy in India  Minimum wage  Fair wage  Living wage
  12. 12. Cont…. State Regulation of Wages The Government has adopted various methods to regulate wages in India such as prescribing minimum rates of wages, regulating payment of wages, settlement of wage-related disputes through adjudication process, setting up of wage boards, etc.
  13. 13. Institutions Involved in Fixation of Wages Employer Collective Bargaining Legislation Minimum Wages Act Wage Boards Payment of Wages Act Pay Commissions Adjudication Machinery
  14. 14. Bonus  An important component of employees' earnings, besides salary, is bonus.  The Payment of Bonus Act, 1965, it secured the character of a legal right.  The dictionary meaning of 'bonus' is an extra payment to the workers beyond the normal wage.  It is argued that bonus is a deferred wage payment which aims at bridging the gap between the actual wage and the need based wage.
  15. 15. Cont…. Wage Differentials Wage differentials Reasons Interpersonal differentials Differentials in gender, skills, age, knowledge, experience Inter-occupational differentials Varying requirements of skill, knowledge, demand-supply situation Inter-area differentials Cost of living, ability of employers to pay, demand and supply situation Inter-firm differentials Ability of employer to pay, employees’ bargaining power, degree of unionisation, skill needs, etc. Reasons for Wage Differentials
  16. 16. Choices in Designing a Compensation System 1. Internal and external pay 2. Fixed vs. variable pay 3. Performance vs. membership 4. Job vs. individual pay 5. Below market vs. above market compensation 6. Open vs. secret pay
  17. 17. Cont…. Executive Compensation Organisations decide executive compensation packages, consisting of basic pay, allowances, perquisites, stock options, etc., based on a number of factors. The United States Compensation institutes' Phoenix plan uses 28 compensable factors:
  18. 18. Cont…. Phoenix Plan – Compensable Factors  Job related experience  Training time required  Frequency of review of work  Utilisation of independent choice  Frequency of reference to guidelines  Frequency of work transferred through supervisor  Analytical complexity  Time spent in processing information  Supervisors reporting to position level  Travel outside work location  Salary grade to which this position reports  Salary grade of positions supervised  Management responsibility  Revenue size  Asset size  Employment size  Budget size  Payroll size  Time spent in planning  Contact with suppliers/customers  Impact on departmental budget  Directing of others.  Training of staff/physical stress experienced  Time spent working under deadlines  Time spent in hazardous conditions
  19. 19. Bibliography • • •Human Resource and Personnel Management- K. Aswathappa, Tata McGraw Hill