This document summarizes topics covered in a compensation management module, including management strategy, reward policies, pay reviews, and other compensation processes. It discusses developing a reward strategy to motivate employees and attract talent. It also outlines monetary and non-monetary reward policies, procedures for conducting pay reviews, job grading, pay rate fixation, controlling payroll costs, and evaluating reward programs. Different types of direct and indirect compensation such as base pay, commissions, bonuses, stock options, and allowances are also defined.

1. II JAI SRIGURUDEV II
Sri Adichunchanagiri Shikshana Trust
SJB INSTITUTE OF TECHNOLOGY
BGS Health & Education City
Dr. Vishnuvardhana Road, Kengeri, Bengaluru - 560 060.
Department of MBA
Compensation Management and Reward System
20MBAHR306
Prepared by
Dr. Harshitha S
Assistant Professor
MBA Department
SJBIT

2. Topics Covered in Week 4
Module 3
Management’s Strategy, Reward Policy, Pay Reviews
Reward Management Processes, Reward Management Procedures
Planning and Implementing Pay Reviews, Procedures for Grading Jobs and
Pay, Rates Fixation, Controlling Payroll Costs, Evaluation of Reward
Processes
Boardroom Pay; Divergent Systems and Institutions for Wage Fixation in
Practice in India, Management Strategy; Fringe Benefits
Internal Audit of Compensation and Benefits; Different types of Direct and
Indirect compensation include: Base Pay / Base pay;
Commissions; Overtime Pay; Bonuses, Profit Sharing, Merit Pay; Stock
Options; Travel/Meal/Housing Allowance;

3. Module 3
Management’s Strategy
Reward strategy involves designing and implementing reward
policies and practices support your organisation’s objectives,
delivering a motivated and effective workforce.
Motivated staff will go that extra mile to contribute towards
organisational success and better results. A successful
environment will inevitably attract new talent, make existing
employees feel rewarded, and help retain your key people.

4. A good reward strategy will consider more than just pay, so it is
important to do more than scour the local press to find out what
the market is paying.

5. Reward Policy
Employees besides wanting a good salary, friendly environment,
growth opportunity also want to be appreciated for the outstanding
work performed by them.
Reward and recognition play a major role in attracting and
retaining talent within the organization. It not only acts as a morale
booster but also promotes 3 P's i.e. Productivity, positivity, and
promotion. Such kind of programme builds up motivation in the
workplace.

6. A good reward and recognition programme should be.
Significant: Rewards must be based on values, goals, and
priority.
Flexible: Reward programme must be flexible. It must be as
per the demand of time and place.
Personal touch: Whatever is the kind of reward formal or
informal, it is necessary to have a personal touch.
Timely: An employee should be rewarded on time else
credibility is eroded with the passage of time.
Genuine: The appreciation must be genuine.

7. Monetary Reward Policies
The obvious and natural choice of any reward system is the
provision of monetary incentives. This means that pay hikes,
bonuses, and allowances that are monetary in nature play a
key role in motivating employees. These extrinsic rewards
cater to the basic needs of employees to sustain themselves
and their families.
Non-Monetary Reward Policies
A reward system that incentivizes the intrinsic needs of
employees is an ideal system. combination of external
rewards and non-monetary rewards like recognition, awards,
and publicity for the employee’s good work is the key to
actualizing performance.

8. Pay Reviews
Pay Review helps to increase salary and pay bonus or
variables in transparent way by liking pay directly to the
performance of employees.
A salary review is the evaluation process that managers
conduct to determine if employees’ salaries fairly and
accurately reflect their work performances. Salary reviews
offer employees the chance to receive compensation that
matches their work performance.

9. Reward Management Processes
Reward management is the term used to reward and motivate
employees to work finding quality employees, observing their work,
motivating them, and analyzing the entire process.
It's a system that helps ensure that rewards are fair and consistent
among all employees according to the work they contribute. The
goal of reward management is to motivate employees so that
employers can retain them in hopes of meeting the objectives and
goals of the company.

11. Reward Management Procedures
Reward management consists of analysing and controlling
employee remuneration, compensation and all of the
other benefits for the employees. Reward management aims to
create and efficiently operate a reward structure for an
organisation. Reward structure usually consists of pay policy and
practices, salary and payroll administration, total reward,
minimum wage, executive pay and team reward

13. Planning and Implementing Pay Reviews
6 key considerations which helps to plan the pay review
1.Agree the review principles. ...
2.Formalise your project team. ...
3.Communicate at the earliest opportunity. ...
4.Be guided by your data. ...
5.Manage timelines, build contingencies. ...
6.System familiarity.

14. Procedures for Grading Jobs and Pay
Grade pay is the exact monetary compensation a person earns at a
job that uses a pay grade system. This type of payment system is
structured and preset, and it does not involve salary negotiation. Pay
grade systems have multiple steps or levels, each of which has
transparent requirements.
Vertical pay grade: Vertical pay grade is a compensation structure in
which salary and step increases relate a person's job title, years of
experience and responsibilities.
Horizontal pay grade: Horizontal pay grade bases salary and
earnings off of experience and length of service. Increases in step or
level may also relate to degrees or certifications a person earns.

15. Rates Fixation
Under Section 5 of Minimum Wages Act, 1948 there are basically two
method of fixation/revision of Minimum Wages (1) Committee Method
(2) Notification Method. Revision of Minimum Wages should not exceed
an interval of 5 years. Section 3 empowers appropriate Government to fix
the minimum rates of wages in the scheduled employments.
Minimum rate of the wages fixed or revised consists of the following :
* A basic rate of wages and a special allowance, viz., cost of living
allowance;
* A basic rate of wages with or without cost of living allowance and cash
value of concessions for supplies of essential commodities;
* An all inclusive rate, i.e. basic rate, cost of living allowance and cash
value of concessions.

16. Controlling Payroll Costs
Cutting labor costs is significant for increasing profit margins and the
survival of businesses. Companies can reduce payroll costs by
merely decreasing the wages and firing the employees. But this can
have adverse effects in terms of poor morale, cold customer
relations, and maybe reduction in sales. And it can also lead to
unexpected consequences. So, communication with those who’re
going to be affected is vital prior to and during the process.

17. Evaluation of Reward Processes
Organizations need to constantly evaluate whether their reward processes are
serving the purpose for which they were instituted.
Despite high salary and perks, if the attrition rate is high, then organizations
must check whether the reward systems in place are effective to guard against
attrition.
These satisfaction surveys and assessments done in a confidential manner can
be effective sources of evaluation of the reward processes. The key aspect here
is that blind surveys must be carried out which means that the identity of the
employees must not be revealed or know to anyone except for the HR
personnel.

18. Boardroom Pay
A boardroom is a room where a group of people conducts meetings,
typically those elected by shareholders to manage a company.
In the investment banking industry, the boardroom can also refer to a
room used in a stock brokerage office to host clients and members of
the public. They meet here with registered representatives (RR) to
discuss investments, obtain stock quotes, and place trades.
The salaries and bonuses given to the directors of a company inside
boardroom is Boardroom Pay.

19. Divergent Systems and Institutions for Wage Fixation in Practice in
India
Wage Boards:
Government of India sets up tripartite Wage Boards on industry wise basis
to fix and revise pay. These Boards are set up on adhoc basis on the
demand of trade unions and employers as there is no law providing for
their establishment.
A Wage Board consists of an impartial chairman, two independent
members, and 2 or 3 representatives of workers and employers each. The
recommendations of Wage Boards are first submitted to the government.
The Government may accept modify or reject the recommendations. Once
accepted, the parties are requested to enforce the recommendations.

20. While determining wages, Wage Boards take
into account the following factors:
(i) Various wage legislation
(ii) Level of income and its distribution
(iii) Place of the industry in the economy
(iv) Needs of industry in a developing economy
(v) Requirements of social justice
(vi) Need to provide incentive for improving
productivity

21. Pay Commissions:
Wages and allowances of Central and State Government
employees are determined through pay commissions. The disputes
arising out of pay commissions awards and their implementation
are decided by commissions of inquiry, adjudication by tribunals
and the Joint Consultative Machinery.
State Regulation of Wages:
India aims at rapid economic growth, industrial peace, price
stability, equitable distribution of income and progressively rising
standard of living for the working class.
In order to realise these objectives, the Government of India
regulates wage rates through the following methods of the
Minimum Wages Act is to prevent exploitation of labour through
payment of unduly low wages.

22. Fringe Benefits
Fringe benefits are benefits which are provided by the employer to an
employee over and above the normal salary and wages, which may be in
the form of cash-support or assistance in daily needs of life or financial
support for retirement age or any other form with the objective to retain
the high-quality people within the organization.

23. Fringe benefit, any nonwage payment or benefit (e.g., pension plans,
profit-sharing programs, vacation pay, and company-paid life, health,
and unemployment insurance programs) granted to employees by
employers. It may be required by law, granted unilaterally by
employers, or obtained through collective bargaining.
Employers’ payments for fringe benefits are included in employee-
compensation costs and therefore are not usually liable to corporate
income tax. If the cost of fringe benefits were paid directly as wages,
workers would pay personal income tax on this amount and therefore
have less to spend on such benefits as they might elect to furnish for
themselves. Thus, with the same amount of money, employers can
obtain more benefits for employees and can also take advantage of
lower group rates for insurance.

24. Benefits that are offered today include:
 Life, disability, and health insurance bundles
 Tuition reimbursement or education assistance
 Fitness center access or discounts
 Employee meals and cafeteria plans
 Dependent care assistance
 Retirement plan contributions
 Health savings plans (HSAs) or flexible savings accounts
(FSAs)
 Profit-sharing or stock options

25. Internal Audit of Compensation and Benefits
During workers' compensation audit, the company's payroll will get
verified. Audits look at your payroll because your workers' comp
premium is partly based on the amount of compensation paid to
your employees over a policy term. The amount paid includes
money and benefits your workers have received.
“Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an
organization’s operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate
and improve the effectiveness of risk management, control, and
governance processes.”

26. 6 benefits of internal auditing
•Strong internal controls. Evaluating your
enterprise's control environment is your
internal auditor's number-one task. ...
•Efficiency. ...
•Security. ...
•Integrity. ...
•Reduced risk. ...
•Improved compliance.

27. Base Pay / Base pay
Base pay is the initial salary paid to an employee, not including
any benefits, bonuses, or raises. It is the rate of compensation an
employee receives in exchange for services. An employee's base
pay can be expressed as an hourly rate or weekly, monthly, or
annual salary.

28. Commissions
A commission is a service charge assessed by a broker or investment
advisor for providing investment advice or handling purchases and
sales of securities for a client.
There are important differences between commissions and fees, at
least in the way these words are used to describe professional advisors
in the financial services industry. A commission-based advisor
or broker makes money by selling investment products such as mutual
funds and annuities and conducting transactions with the client's
money.

29. Overtime Pay;
Overtime is the amount of time someone works beyond normal
working hours; these may be determined or mentioned under
various Acts which are applicable for the functioning of that
organization. Below given are Acts that have different provisions
for overtime payment and their contravention.

30. Bonuses
• A bonus is a financial compensation that is above and beyond
the normal payment expectations of its recipient.
• Bonuses may be awarded by a company as an incentive or to
reward good performance.
• Typical incentive bonuses a company can give employees
include signing, referral, and retention bonuses.
• Companies have various ways they can award employee
bonuses, including cash, stock, and stock options

31. Profit Sharing

32. Profit sharing refers to various incentive plans introduced
by businesses that provide direct or indirect payments
to employees that depend on company's profitability in
addition to employees' regular salary and bonuses.
A profit-sharing plan is a retirement plan that gives
employees a share in the profits of a company. Under this
type of plan, also known as a deferred profit-sharing
plan (DPSP), an employee receives a percentage of a
company’s profits based on its quarterly or annual earnings.

33. Merit Pay
Merit pay is the type of compensation a company uses to
reward higher-performing employees with ongoing additional
pay. Merit pay is sometimes called incentive pay or pay-for-
performance, and it involves giving employees base pay
increases or bonuses based on their performance. Merit pay
may take the place of simple pay raises, compensation
increases based on employee seniority or general cost-of-living
adjustments.

34. Stock Options
A stock option is a contract between two parties that gives
the buyer the right to buy or sell underlying stocks. ... The
terms "stock", "shares", and "equity" are used
interchangeably. at a predetermined price and within a
specified time period.

35. Travel/Meal/Housing Allowance
The allowance includes expenses an employee incurs for food and
other daily costs while travelling. Allowance to meet conveyance
expense incurred while performing duties of an office or
employment of profit.

36. DAILY ALLOWANCE: An employee shall be eligible for daily
allowance if journeys are undertaken for official purposes such
as:
a) Tour.
b) Appearing in departmental examination, interview or selection
test conducted by the Company.
c) Recall from leave.
d) Participation in training programmes, seminars and
conferences as nominated participant/faculty.
e) Participation in sports/cultural events representing Company.
f) Appearing in court as jury, assessor, witness (only for
Company’s work), Departmental or Vigilance enquiry.
g) Receiving National Awards.
h) Employees of the Company appearing as accused in
Departmental / Vigilance enquiries

37. Housing Allowance
House Rent Allowance ( HRA) is an added benefit that is offered
by an employer to its employees. If you are staying in a rented
house and getting House Rent Allowance as a part of your salary,
you can claim for full/partial HRA exemption as per the Section
10 of IT Act.

38. Thank you