The document outlines the significance of compensation and reward management in HRM, focusing on designing effective pay and benefits programs to attract, retain, and motivate employees. It discusses components of salary, financial and non-financial incentives, and employee separation processes, including retirement and golden handshake strategies. Furthermore, it emphasizes the importance of maintaining internal and external equity in compensation to enhance employee satisfaction, motivation, and organizational performance.

1. Unit 4:
Compensation and Reward
Management

2. • Concept & Objectives
• Importance of Compensation Management
• Process of Compensation Plan
• Wage/Salary differentials
• Components of Salary
• Incentives and Benefits- Need
• Financial and Nonfinancial Incentives
• Employee Separation- VRS
• Retirement
• Golden Handshake
• Termination
• Suspension.

3. Compensation and Reward
Management
• Compensation and reward management is a crucial
aspect of human resource management (HRM) that
deals with designing, implementing, and maintaining
fair and effective pay and benefits programs for
employees.
• It encompasses both direct financial rewards (wages,
salaries, bonuses) and indirect non-financial rewards
(benefits, recognition, opportunities).

4. Objectives:
• Attract and retain top talent:
• Motivate employees:
• Improve employee satisfaction:
• External Competitiveness :

5. Importance of Compensation
Management:
• Employee Satisfaction and Loyalty :
• Retention:
• Motivation and Performance:
• Competitiveness:
• Legal Compliance:

6. Process of Compensation Plan:
• Job analysis and evaluation:
• Market research:
• Salary structure development:
• Compensation policy formulation:
• Communication and implementation:

7. Wage/Salary Differentials:
Differences in wages or salaries among employees based
on factors such as skills, experience, and responsibilities.
• Internal equity: Similar jobs within the organization
receive comparable pay based on their relative worth.
• External equity: Pay aligns with industry standards for
similar positions in the local job market.
• Individual equity: Pay reflects individual performance,
experience, and qualifications.
• Cost of living differentials: Pay adjustments based on
geographic differences in living expenses.

9. Components of Salary
• Basic Salary:
• House Rent Allowance (HRA):
• Dearness Allowance (DA):
• Conveyance Allowance:
• Medical Allowance:
• Special Allowances:
• Performance Bonus:
• Provident Fund (PF):
• Gratuity: .
• Insurance:
• Retirement Benefits:

11. Incentives and Benefits
• Incentives refer to rewards or stimuli designed to
motivate employees and drive desired behaviors,
performance, or outcomes within an organization.
• These rewards are typically tied to individual or group
achievements and are aimed at recognizing and
reinforcing positive contributions.
• Incentives can take various forms, including financial
and nonfinancial rewards.

12. Financial Incentives:
• Bonuses: Performance-based rewards tied
to specific goals or achievements.
• Commissions: Sales-based incentives linked
to individual or team sales performance.
• Profit-sharing: Sharing a portion of
company profits with employees.
• Stock options: Granting employees the
right to purchase company stock at a
predetermined price.

13. Non-financial Incentives:
• Recognition and awards: Publicly recognizing and
appreciating employee contributions.
• Training and development opportunities: Investing in
employee growth and skill development.
• Flexible work arrangements: Offering options like
remote work, flexible hours, or compressed
workweeks.
• Employee wellness programs: Supporting employee
physical and mental well-being.

14. Benefits:
• Employee benefits are non-wage compensations
provided by employers in addition to employees'
salaries.
• These benefits contribute to the overall compensation
package and aim to enhance the well-being, job
satisfaction, and work-life balance of employees.
• Benefits can be classified into both Mandatory and
Discretionary categories.

15. • Mandatory Benefits:
• Health Insurance:
• Retirement Plans:
• Social Security Contributions:
• Discretionary Benefits:
• Paid Time Off (PTO): Vacation days, sick leave, and
holidays.
• Parental leave:
• Life Insurance:
• Dental and Vision Insurance:
• Wellness Programs: physical and mental well-
being, such as gym memberships or wellness

16. Importance of Incentives and Benefits:
• Employee Motivation:
• Talent Attraction and Retention:
• Job Satisfaction:
• Organizational Performance:
• Employee Well-being:

17. Employee Separation & Golden Handshake

18. Employee separation
• Employee separation refers to the process of an employee
leaving an organization, either voluntarily or involuntarily.
• It encompasses various scenarios such as resignation,
retirement, termination, or layoffs.
• Managing employee separation effectively is crucial for
both the departing employee and the organization to
ensure a smooth transition and maintain a positive work
environment.

19. Resignation:
When an employee voluntarily decides to leave the
organization, they typically submit a resignation letter.
The organization may conduct an exit interview to
understand the reasons for the departure and gather
feedback on the employee's experience.
Retirement:
Employees reaching the age of retirement may choose
to retire from their positions.
Organizations often have specific procedures for
handling retirements, including pension or retirement

20. Termination:
In cases where an employee's performance or
conduct is not meeting expectations, termination
may occur.
Employers should follow legal and ethical
procedures, providing clear reasons for
termination and ensuring due process.
Layoffs:
Organizations may implement layoffs due to
restructuring, downsizing, or financial challenges.
This involves terminating employees based on
business needs rather than individual

21. Notice Period:
In many cases, there is a notice period during which the
departing employee continues to work or is paid in lieu
of notice.
The notice period allows the organization to find a
replacement or redistribute the workload.
Voluntary Retirement Scheme (VRS) :
It is a program offered by organizations to encourage
employees to voluntarily retire before their official
retirement age.
Employees who opt for VRS typically receive certain
financial incentives or benefits as an encouragement to

23. Golden Handshake
Financial incentive offered by employers to employees during
voluntary separation.
Importance of Golden Handshake in corporate scenarios:
During times of organizational restructuring, downsizing, or mergers,
Golden Handshakes are crucial to encourage employees to leave the
company voluntarily, often with more favorable terms than standard
severance packages.

24. Purpose of Golden Handshake
 To facilitate a smoother workforce transition during
organizational changes.
 To maintain a positive corporate image and
employee morale.
where Golden Handshakes are commonly used:
 Mergers and acquisitions.
 Corporate downsizing or restructuring.

25. Key Features of Golden Handshake
 Lump-sum payment:
one-time financial incentive provided to employees.
 Extended benefits:
additional perks, such as continued health benefits or
outplacement services.
 Tax implications:
tax considerations for employees receiving Golden
Handshakes.

26. Advantages for Employers
Maintaining a positive corporate image:
Golden Handshakes can contribute to a company's reputation by
showing a commitment to fair treatment of employees.
Smoother workforce transition during organizational changes:
By incentivizing voluntary departures, companies can potentially
avoid the negative impacts of mass layoffs and maintain a more
positive working atmosphere.

27. Advantages for Employees
Financial security during transition periods:
Golden Handshakes provide employees with a financial
cushion during the transitional phase between jobs.
Enhanced severance benefits compared to standard
packages:
Employees receive more favorable terms compared to
standard severance packages.

28. Considerations for Implementing Golden Handshakes
Legal considerations
Communication.

29. Video Resources
• https://
www.youtube.com/watch?v=igh6Z-64JGE
• What do you mean by compensations? What are the types of reward given under
compensations?
• What are the components of direct and indirect compensations?
• Write an note on Compensation philosophy
• Explain different objectives of compensation philosophy
• What are different factors affecting on compensation plan? Explain internal factors in
detail.
• What are different components of pay structure. Explain any TWO