This document discusses compensation and the factors that influence it. Compensation includes both financial compensation like wages and salaries as well as non-financial compensation like benefits and recognition programs. It is determined based on both internal factors like ability to pay, job requirements, and employee performance as well as external factors like cost of living, labor market conditions, government regulations, and technological changes. The goal of compensation is to attract, motivate, and retain qualified employees in a fair and competitive way.

1. ANNUAL COMPENSATION

2. INTRODUCTION TO COMPENSATION
 Compensation is the Human Resource Management
function that deals with every type of reward individual
receive in exchange for performing organizational task.
 Employees trade their labor and loyalty for financial and
non-financial compensation.
 It provides tangible rewards for their services as well as
source of recognition and livelihood.

3. FINANCIAL
NON-FINANCIAL
COMPENSATION

4. FINANCIAL COMPENSATION
DIRECT FINANCIAL
COMPENSATION
INDIRECT FINANCIAL
COMPENSATION
 Employee’s wages.
 Salary.
 Incentives.
 Bonus.
 Commission
 Kinds of insurance.
 Services like child care or
elder care.
 Vacation.

5. NON-FINANCIAL COMPENSATION
 Employee recognition program.
 Rewarding jobs.
 Organizational support.
 Work environment.
 Flexible work hours to accommodate personal needs.

6. PURPOSE O WAGES AND SALARY:
According to Beach, wage and salary administration have
four major purposes:
1. To recruit persons for the firm.
2. To control overall costs.
3. To satisfy workers, to reduce the incidence of quitting
grievances and friction over pay.
4. To motivate people to perform better.

7. OBJECTIVES
For Employee: Employees are paid according to the
requirements of their jobs. The highly skilled work is paid
more compensation than low skilled work.
 To establish a fair and equitable remuneration offering
similar pay for similar work.
 Chances for favouritism are minimised.
 Job sequence and lines of promotion are established
wherever they are applicable.
 To improve motivation and morale of employees and to
improve union management relations.

8. For Employer: To project a good image of the company
and to comply with the legal needs relating to wages and
salaries.
 To control labour and administrative costs in line with the
ability of the organisation to pay.
 To retain the present employees by keeping wage levels in
tune with competing units.
 In dealing with trade union, they can explain the basis of
their wage programme because it is based on systematic
analysis of job and wage facts.
 To attract qualified and competent personnel.
 To project a good image of the company.
 To raise the morale of the workers.

9. Factors Influencing Employee
Compensation
2. Organization Strategy
3.The employee
4.Job evaluation
5.Job Requirements
EXTERNAL FACTORS
1. Productivity
2.Cost of living
3.Labour laws
4.Labour union
5.Economy
6.Technological changes
7.Psychological and Social factors
8.Demand and Supply Labour
9. Government
INTERNAL FACTORS
1.Ability to pay

10. INTERNAL FACTORS
 Ability to pay: Generally, a firm which is prosperous and
successful has the ability to pay more than the competitive
rate. This way it can attract a superior caliber of personnel.
 The Employee: Numerous employees related factors also
influence his or her compensation. These include the
following;
Performance, Experience, Seniority and Potential.
 Job requirements: Wages are also influenced by the
requirement of a job such as physical and mental
requirements. Jobs, which demand more skill,
responsibility, efforts and are of hazardous in nature, will
carry high wage tag with them.

11.  Job evaluation: It establishes a consistent and systematic
relationship among base compensation rates for all jobs.
In other words, it establishes the satisfactory wage
differentials.
 Organisation’s strategy: The organisation’s strategy
regarding wages also influences employee compensation.
For example, an organisation which wants rapid growth
will set higher wages than competitors. On the other hand,
organisations that want smooth going and just maintain
the current earning will pay average or below average.

12. EXTERNAL FACTORS
 Demand and Supply of labour: The conditions of labour
market, i.e. demand and supply of labour influence the
fixation of compensation. In case the supply exceeds the
demand then wages may be fixed at lower levels.
 Labour unions: Labour unions influence wages by
controlling the supply of labour. Often there are strikes by
labour unions for higher wages.
 Government: Government influence compensation
through various legislations, policies regarding wages,
wage differentials and dearness allowance, etc.
Government has enacted a number of labour legislations,
which have a bearing on employee compensation.

13.  Prevailing Market Rates:Going rate of pay or comparable
rates also influence the employee compensation.
Prevailing market rates are those, which are paid by
different organizations in an industry every organization
tries to conform to the wage rates being paid by the
industry, community and the adjoining organizations.
 Cost of living: The present cost of living also influences
the wage rates considerably. This matters during the
periods of rising process. It immediately calls for wages
adjustments based on increase in the cost of living index.
 Economy: The state of economy also influences the wage
and salary fixation. Wage rates will be different in a stable
economy than in a depressed economy. In case of
depressed economy there is increase in supply of labour
and fixation of lower wage rates.

14.  Technological changes: Technological changes also
influence the fixation of wage levels. Due to the
advancement in the technology, there may be shortage of
skilled manpower in that area. So, the organization will
provide high wages for skilled personnel.
 Productivity: It refers to output per man-hour. Increase in
productivity depends upon the contributions of all the
resources, i.e. men, machines, materials, methods and
management. Improvement in technology, better
management, latest machines and equipment, efficient
methods of production, etc. can raise the productivity.

15.  Psychological and social factors: Both the psychological
and social factors have a great influence on employee’s
perception regarding their job and success in life. An
organisation cannot ignore these factors. Psychological
needs of employees should be taken into consideration
before fixing wages as security. Sociologically and
ethically, people feel that “equal work should carry equal
wages”.

16. CASE STUDY
 The Cost of Living Adjustment (COLA) is an annual adjustment in
wages to account for a change in purchasing power as measured
by the Consumer Price Index. The Consumer Price Index is an
inflationary indicator calculated monthly by the U.S. Department
of Labor that measures the change in the cost of a fixed basket of
products and services, including housing, electricity, food, and
transportation.
(Moscow is the most expensive city in the world, according to a
survey compiled by Mercer Human Resource Consulting. The
survey ranked 144 cities around the world in terms of costs of
such things as housing, transportation and food. Moscow moved
up three spots in the latest survey and surpassed perennial cost
leader Tokyo.)
 To set the COLA rates, the Office of Personnel Management
(OPM) surveys the prices of over 300 items, including goods and
services, housing, transportation, and miscellaneous expenses.
OPM conducts these surveys in each of the COLA areas and in
the Washington, DC, area.

17. THANK YOU!!
R.KEJAL