This document discusses compensation management and outlines its objectives, direct and indirect components, importance, and factors that influence compensation. Compensation is a systematic approach to providing monetary and non-monetary value to employees in exchange for work. The objectives of compensation include recruiting and retaining qualified employees, increasing or maintaining morale, determining basic wages and salaries, and rewarding job performance. Compensation consists of direct components like base pay, bonuses, and benefits, as well as indirect components like insurance, leaves, and retirement programs. Both internal factors like an organization's compensation policy and external factors like cost of living and the economy influence compensation.

1. Compensation Management

2. Compensation is a systematic approach to providing monetary & non monetary value to
employees in exchange for work performed.
Objectives
• To recruit & retain Qualified Employees.
• To increase or Maintain morale.
• To determine basic Wage & salary.
• To reward for job Performance.
Direct Components
1. Base Pay
2. Bonus
3. Long term incentives
4. Perks or perquisites
Indirect Components
1. Insurance (health, eye).
2. Leaves (sick,
3. holiday/personal)
4. Clothes
5. Company parties
6. Phones/laptop
7. Retirement programs

4. Non Monetary
1. Enhance dignity & satisfaction from work performed.
2. Promote social relationship with co-workers.
3. Allocate sufficient resources to perform work assignments.
4. Offer supportive leadership & management.
5. Enhance physiological health, intellectual growth.
Ex: Company-paid car, Company-paid housing and stock opportunities
IMPORTANCE
1. Job description
2. Job analysis
3. Job evaluation
4. Pay structure
5. Salary surveys
External Factors
1. Demand & supply of labour
2. Cost of living
3. Society
4. Labour unions
5. The economy
Internal Factors
1. Compensation Policy
2. The org. ability to pay
3. Job analysis & description
4. Employee

5. Allowances can be defined as the amount of something that is allowed, especially within a set of
rules and regulations or for a specified purpose.
Various allowances are paid in addition to basic pay.
Some of these allowances are as follows −
1. Dearness Allowance −
 To protect real income of an employee against price rise.
 Dearness allowance (DA) is paid as a percentage of basic pay.
2. House Rent Allowance −
 Companies who do not provide living accommodation to their employees pay house rent
allowance (HRA) to employees.
 This allowance is calculated as a percentage of salary.
3. City Compensatory Allowance −
• This allowance is paid basically to employees in metros and other big cities where cost of
living is comparatively more.
• City compensatory allowance (CCA) is normally a fixed amount per month, like 30 per cent of
basic pay in case of government employees.
4. Transport Allowance/Conveyance Allowance −
• Some companies pay transport allowance (TA) that accommodates travel from the employee’s
house to the office.
• A fixed amount is paid every month to cover a part of traveling expenses.

6. Employee salary = Basic pay + Grade pay + Dearness Allowance (DA) + House Rent Allowance
(HRA) + City Compensatory Allowance (CCA).
• Basic pay: The primary component of employee salary which is bases for calculation of other
components in the employee salary.
• Grade pay: An amount which is fixed by the government on the range of employee in government
hierarchy. (for example; Group A officers have high grade pay than Group B officers.)
Incentives and Performance Based Pay
• Incentive compensation is performance-related remuneration paid with a view to encourage
employees to work hard and do better.
• Both individual incentives and group incentives are applicable in most cases.
• Ex: Bonus, gain-sharing, commissions on sales are some examples of incentive compensation.
Fringe Benefits/Perquisites
• Fringe benefits include employee benefits like medical care, hospitalization, accident relief, health
and group insurance, canteen, uniform, recreation and the likes.
Compensation is a primary motivation for most employees.
What are regulations affecting compensation?: FLSA