The document discusses the history and purpose of compensation. It outlines the main forms of compensation including wages, salary, and benefits. The purpose of compensation is to ensure equity, efficiency, attract talent, reward performance, and motivate/retain staff. Compensation strategy is aligned with business strategy and contingent on legal/market factors. Components of compensation include basic pay, allowances, paid time off, insurance, and retirement benefits. Different compensation models are traditional, cafeteria, and combined models. Compensation structure in India has evolved over time. Executive compensation principles include shareholder alignment, short/long term incentives, and global consistency through cash, fixed pay, variable pay, and equity. Challenges in executive compensation include balancing different

2. HISTORY OF COMPENSATION
• Barter Exchange System

3. • WAGES
Payment for labour or services to a worker,
especially remuneration on an hourly, daily, weekly
basis or by the piece. Wages are generally four
types;
1. Subsistence wages
2. Minimum wages
3. Fair wages
4. Living wages
• SALARY
Regular wages received by an employee from
an employer on a weekly, biweekly or monthly
basis. It includes employee benefits such as health
and life insurance, savings plans, social security.

4. • COMPENSATION
Direct and indirect monetary and non
monetary rewards given to employees on the basis of
the value of the job, their personal contributions and
their performance
• EMPLOYEE BENEFITS
Any rewards received by an employee in
addition to direct monetary remuneration as a result
of being an employee of a company.

5. PURPOSE OF COMPENSATION
Ensures equity
Efficient
administration
Attract talent
Reward
valued
behaviour
Motivate
and retain
staff
Contribution
based
remuneration

6. COMPENSATION STRATEGY
• BUSINESS STRATEGY: The direction in which organization is going in
relation to its environment in order to achieve its objectives.
• COMPENSATION STRATEGY: The intentions of the organization on
reward policies, processes and practices required to ensure that it has the
skilled, competent and well motivated workforce it needs to achieve its
business goals.
• CONTIGENT FACTORS: Legal requirements or government policies,
strength of Trade union, labour market condition and capacity to pay.

7. COMPONENTS OF COMPENSATION
AND BENEFITS

8. The Components Of Compensation And Benefits Includes
Basic Pay
House Rent
Allowance
(HRA)
Travelling
Allowance
Variable
Pay
Paid Time
Off
Medical
Insurance
Fringe
Benefits
Retirement
Benefits

9. Basic pay
The basic pay is the basic salary withdrawn by an employee in an organization. It depends on the
company’s policies and the laws of the company. It is that part of the salary that is taxed.
House Rent Allowance (HRA)
Few companies provide their employees with accommodation or home rent allowances. This is in
addition to the paid salary. It is generally calculated based on the basic salary obtained by an
employee.
Travelling Allowance
Organizations provide travel allowances when an employee needs to travel. It may or may not be
included in the basic salary.
Variable Pay
When an employee hits a target or does overtime for the organization's growth and success. Variable
pay is given in incentives, bonuses, or commissions.

10. Paid Time Off
It is an essential component of employee benefits where employees can still receive a salary when
they take leave or vacation.
Medical Insurance
It includes health insurance, family health insurance, hospital cover etc. A few companies also cover
the death of an employee and provide financial assistance to the family members of the deceased
employee.
Fringe Benefits
It is a non-monetary benefit and covers educational assistance, childcare, flexible healthcare
expenditures etc. It may include benefits such as a company car, gym membership, entertainment
allowances, discounted travel tickets, and also family vacation packages, etc.
Retirement Benefits
A retirement plan as part of the employee benefits package its a monthly payment made to employee
who is retired from work.

11. COMPENSATION MODELS
Traditional
Company has fixed salary structure with bands based on the employee grade.An employee gas no
choice on it.
Cafeteria
Employee has a flexibility to choose his/her salary components from the basket of components
offered by the company
Combined
A combination of Traditional & Cafeteria models of compensation

12. COMPENSSATION STRUCTURE IN INDIA
Traditional Flexible Rationalized Evolved
Basic Salary Basic Salary Basic Salary Basic Salary
TA/DA Flex Plan Special Allowance Special Allowance
Personal Pay
Special Allowance
LTA LTA LTA
Medical Medical Medical
Education Allowance Allowances
Bonus/Ex-gratia
Housing Loan Housing Loan Housing
Hard Furnishing Hard Furnishing
Conveyance/Driver Conveyance Conveyance
Retirement Benefits Retirement Benefits Retirement Benefits Retirement Benefits

13. EXECUTIVE COMPENSATION
• Additional principles for designing executive compensation includes
Shareholder alignment
Short term
Long term
Global consistency
Executive compensation is a mix of
Cash
Fixed Compensation
Variable Compensation
Equity
Restricted Stock Unit
Performance Stock Unit

14. Executive Compensation-Challenges
• Arriving at the right mix of the various components like
• Cash
• Fixed compensation
• Variable compensation and
• Equity
• Restricted stock unit
• Performance stock unit compensation is a concern
• Benchmarking executive compensation is a challenge
• Expatriates vs Local executives in senior roles
• Executive compensation in a multinational organization