Compensation management refers to all forms of financial and non-financial rewards provided to employees in exchange for their services. It aims to attract, retain and motivate personnel while optimizing costs. The compensation management process involves analyzing factors like the organization's strategy, jobs, and market rates to design an appropriate compensation plan. Compensation includes wages/salaries, incentives, fringe benefits, and perquisites. Incentives can be individual or group-based, variable pay linked to productivity. Fringe benefits include statutory benefits like paid leave as well as voluntary benefits like transport and childcare. An effective compensation plan with the right mix of monetary and non-monetary rewards can motivate high performance.

2.  Compensation management concept
 Fringe benefits
 Incentives

3.  It refers to wide range of financial and non-financial
rewards to employees for their services rendered to the
organization.
Compensation
Financial Non- Financial
wages salaries Family Picnic
Dinner/lunch
with boss
Company car
Employee benefits
Paid vacations
Insurance
Maternity leave Free travel facilities
Retirement benefits
HRA

4.  Attracting and retaining personnel
 Motivating personnel
 Optimizing cost of personnel
 Consistency in compensation

5. Organization’s strategy
Evaluation and review
Analysis of contingent factor
Job analysis and evaluation
Compensation policy
Design and implementation of compensation plan
Compensation Management Process

6. Components
of
Compensation
Wage
and
salary
Incentives
Fringe
Benefits
Perquisites

7.  Workers or blue
collared employees
 It is usually paid
on hourly or daily
basis.
 White collared
employees including
managerial
personnel
 monthly basis.
Wages Salary

8.  Additional payment
 Linked with
productivity
 Individual or group
basis
 Variable pay
 Additional benefits
given irrespective
of performance
 Having long term
effect
◦ Provident fund
◦ Gratuity
◦ Pension
◦ Medical allowance
Incentives Fringe benefits

9. Components
of
Compensation
Wage
and
salary
Incentives
Fringe
Benefits
Perquisites
 Provided to managerial
personnel
 To facilitate job
performance or to
retain them
 It includes
◦ Car
◦ Club membership
◦ Free residential
accommodation

10. Dimensions
Pay for work
and
performance
Disability
income
continuation
Deferred
income
Health,
accident,
liability
protection
Pay for
time not
worked
Loss of
job
Spouse(family)
continuation
Income
equivalent
payments
Monetary Dimensions of Compensation

11.  Enhance dignity and satisfaction from work
performed
 Leads to self worth and pride in making a
contribution
 Allocate sufficient resourced to perform work
assignments
 Provide necessary information and skills
 Maintain job related interest and satisfaction
 Offer supportive leadership and management
 Skills and interests in coaching and counseling
 Praise for the job well done
 Constructive feedback
 Flexible policies, rules and regulations

12.  Enhance physiological health, intellectual growth and
emotional maturity
 Safe working environment
 Minimization of noxious fumes
 Avoidance of extreme heat, cold, humidity conditions
 Elimination of disease related material
 Design jobs that require adequate attention and effort
 Problems related to monotonous jobs, boredom
 Flexibility in job requirements
 Rotating work assignments
 Opportunity to schedule workdays and workweeks
 Grant sufficient control over the job to meet personal
demands
 Opportunity to participate in decision making process
 Scheduling work activities
 2 part time employees to share one full time job
 Casual dress day

13. Internal and external factor
responsible for compensation

15. Nature of HR market
Cost of living
Trade union
Legal framework
demand & supply, productivity,
prevailing markets rates
Allowance given to maintain social
Status according to place
Union bargains with management
Weapons-strikes, gheroes etc.
Guidelines given by laws about
Eg. wages act 1936

16. Demand and supply
Productivity
Prevailing market rate of
wages
Demand for skill up prices will also
Productivity constant
Efficient employees paid higher
Compare wages with other
companies' to retain and gain talent

17. Nature of HR market
Cost of living
Trade union
Legal framework
demand & supply, productivity,
prevailing markets rates
Allowance given to maintain social
Status according to place
Union bargains with management
Weapons-strikes, Gheroes etc.
Guidelines given by laws about
Eg. wages act 1936

18. Organizational strategy
and attitude
Ability to pay
Nature of jobs
Nature of personnel
compensation depends
upon earning
Difficult job higher compensation
Job evaluation is done
It determine the organizational
attitude and hence its remuneration
Employee related factors
Performance, seniority, special skills

19.  They are supplementary compensation over
and above base compensation and consists
of incentives and variable payments
according to individual or group output.
 They are tangible benefits either in the form
of cash or other kinds
 Eg: housing, traveling allowance, facility of
refreshment and lunch etc

20.  Statutory Benefits
◦ Mandatory and provided by all the
organizations
◦ E.g.: paid holiday leaves
 Voluntary Benefits
◦ Determined by the individual
organizations on their own
◦ E.g.: transportation facilities, child care,

21.  Payment for time not worked
◦ Eg: payment for weekly-off day, Gazetted
holiday, Personal leave
 Retirement Benefits
◦ Provident Fund Scheme
◦ Pension Scheme
◦ Gratuity
 Compensation benefits
◦ Injuries during the course of employment
◦ Death during the course of employment

22.  Insurance Benefits
◦ Eg: medical benefit, disability benefit,
maternity benefit etc
 Health and Safety provisions
According to Factories Act, 1948:
◦ Health
◦ Safety
◦ Welfare
◦ Working hours
 Recreational and other Benefits
◦ Eg: Telco in Jamshedpur provide excellent
townships

23. 1. Indian industries have recognized the
importance and are also providing such
benefits but progress in this area has not
been very encouraging.
◦ Reason- industrial development started late
here in comparison to developed nations i.e
only after 1947 and most of the industries are
still not in position to offer a great benefits
due to low profits

24. INCENTIVE PLANS-Incentive wages
relate earnings to productivity and
may use bonuses, premiums or a
variety of rates to compensate for
superior performance.

25. Incentives
Positive &
Negative
Individual &
Collective

26. Types of incentive plan
For White
collared
employee
Salary Commission Combination
For blue
collared
employee
Group
incentive
Individual
incentive

27. Wage and Incentive plan for
blue collared employees
Piece wage Time wage
Wage incentive
plan
Group
incentive
Co-
partnership
ESOP
Profit
sharing
Cafeteria
compensation
Individual
incentive
Based on
time
Halsey
plan
Rowan
plan
Based on
productivity
Gantt
plan

28. It is the right given to employee to
purchase a fixed number of shares
of company stock at a specified price
for a limited period of time.
It gives the employees an ownership
of the company due to which he can
participate in the company’s affaires

29.  It offers an option to purchase a certain of
stock in the future at a stated price or in the
present at a price lower than the market
price.
 Makes the employee a part owner of company
 Mutuality of interest is created between the
individual and the company
 Stocks are held in an employee stock
ownership trust until the employee chooses
to withdraw from the plan or wants to leave
the company

30.  Esos i.e. employee stock option scheme, is a
voluntary scheme on the part of the company to
encourage employees participation in the company
 Suitable percentage of reservation can be made by
the issue of the employees of the company
 Under existing guidelines- 5% of the new issue may
be reserved for the esos subject in a maximum
limit of 200 shares per employee who agree to
participate the esos
 Membership of the esos should be restricted only
to the permanent employees of the company

31. 1. Profit sharing means a system to distribute
a portion of the profits of the organization
to employees.
2. It is an agreement by which employees
receive a fixed portion of profit.

32. 1. Agreement between employers and
employees for sharing of profit
2. Bonus paid to employees in addition to
their wages and profit as an incentive for
higher performance
3. Workers share only profits not the losses
4. Criteria for distribution of profits is
decided well in advance-based on the
position of an employee in an organization

33. 1. Industry basis- profits of a number of industrial units
in the same industry may be group together to
determine the share for the laborers.
2. Unit basis- simplest way of giving a labourer a share in
the profits of individual undertaking in which he is
employed
3. Department basis- workers in a particular department
share in the profits made by that department.
4. Locality basis- industrial units in particular locality may
pool their profits to determine labour’s remuneration
by profit sharing.
5. Individual basis- a worker receives a proportion of the
profit which may have been earned by a business
through the effort of that individual worker.

34. Gainsharing is a system that includes:
(1) A financial measurement and feedback system
to monitor company performance against an
agreed benchmark and distribute gains in the
form of bonuses when appropriate, and
(2) A focused involvement system to eliminate
barriers to improved company performance.

35. 1. Purpose- In gain sharing the purpose is to drive performance of an
organization by promoting awareness, alignment, teamwork,
communication and involvement whereas in profit sharing the
purpose is to share the financial success of the total organization
and encourage employee identity with company success.
2. Application- In gain sharing The plan commonly applies to a single
facility, site, or stand-alone organization whereas in profit
sharing The plan typically applies organization-wide
3. Measurement – in gain sharing Payout is based on operational
measures (productivity, quality, spending, service) whereas in
profit sharing Payout is based on a broad financial measure of the
organization’s profitability.

36. 4. Funding- in gain sharing Gains and resulting
payouts are self-funded based on savings
generated by improved performance whereas in
profit sharing Payouts are funded through
company profits
5. Employee eligibility- in gain sharing Typically all
employees at a site are eligible for plan payments
whereas in profit sharing Some employee groups
may be excluded, such as hourly or union
employees

37.  Principle
◦ “choose your own reward”
 Employees are allowed to select their own
incentives schemes from a variety of
possibilities this arrangement is known as
“smorgas Board”
 This program requires more information
to be provided to employees by
management.
 Help employees to make correct decision.

38.  HALSEY-WEIR PREMIUM PLAN
Bonus =(1/2) time saved x hourly rate
 ROWAN PREMIUM PLAN
Bonus =Saved time x Actual time taken x Rate per
hour
Standard time
 BEDEAUX POINT METHOD
Value of time saved =(S-T) x R
Bs
where,
S =Standard time R =Rate of wages
T =Actual time Bs= Bedeaux point

39.  A smart compensation plan
with right mix of monetary
and non-monetary
compensation can motivate
the employees to stretch
their limits and perform
beyond expectation
 leading to higher productivity
and profits
 Good communication and
uniformity of procedure is the
key to success of such plans

40. Compensation management by
Soffia Dube