Components of compensation means components of remuneration to employees. An average employees in the organized sector is usually entitled to various benefits. Compensation is a payment made in cash to the employee in return of the contribution that he/she makes in the organization. 1. Base Pay Structure (Fixed component); 2. Variable Pay Programs; 3. Benefits; 4. Rewards & Recognition

1. COMPONENTS OF COMPENSATION
PRESENTED BY RAHUL ROY(BWU/MBA/19/026)

2. INTRODUCTION
Components of compensation means components of remuneration
to employees. An average employees in the organized sector is
usually entitled to various benefits. Compensation is a payment
made in cash to the employee in return of the contribution that
he/she makes in the organization.
1. Base Pay Structure (Fixed component);
2. Variable Pay Programs;
3. Benefits;
4. Rewards & Recognition

3. Base Pay Structure
Salaries and wage are the periodic assured payments made to the
employees. Base Pay is the fixed component and generally consists of
the following:
i) Basic Component:
Normally 40 percent of the base pay is basic and rest of the base pay
falls under various other, categories. This breakage is governed by the
tax laws of the land.
ii. HRA (House Rent Allowance):
Calculated as a percentage of basic. HRA limits are fixed by the
government and are uniformly applicable.

4. Base Pay Structure
iii. DA (Dearness Allowance):
It is calculated as a percentage of basic. The payment of dearness
allowance facilitates employees and workers to face the price increase
or inflation of prices of goods and services.
iv. Leave Travel Allowance:
Leave Travel allowance or LTA is paid by certain companies. However
again proofs of travel expenses must be collected by the company
from the employees.

5. Variable Pay Programs
Variable pay programs are generally classified differently for sales and non-
sales.
i. Variable Pay Plans for Sales:
Variable pay plans for sales represents a pay-mix that may be a 70-30 or 60-
40 or 50-50 plan. Here the 30, 40 or 50 represents the variable portion of the
pay and is linked to the targets. Targets could be product-based, territory-
based, revenue-based, and profitability-based or based on new business
creation.
ii. Variable Pay Plans for Non-Sales:
Such pay plans are for those employees who either are those who need
incentives to propel their work or are those whose performance can be
improved by giving them incentives like insurance plans, credit cards, mutual
funds etc. Generally the variable portion in non-sales is lesser than in case
of sales.

6. Benefits
The benefits could be the one that are legally-mandated ones or the
ones that are ‘good-to-have’ for competitive-edge. Benefits may
include:
ii) Paid Time Off
It is earned by employees while they work.
a) Holidays (governed by the law),
b) Leaves (governed by the shop and establishment act)
ii) Insurance Programs:
The insurance programs may include health insurance, life insurance,
personal accident insurance

7. Benefits
iii. Fringe Benefits:
Fringe benefits include a variety of non-cash payments that are used
to attract and retain talented employees.
Examples:-Entertainment expenses, Out of pocket expenses;
iv. Social Security Benefits:
Social security benefits are aimed at protecting employees against all
types of social risks that may cause undue hardships to them in
fulfilling their basic needs.

8. Benefits
iv. Social Security Benefits:-
The social security besides medical facilities, compensation benefits
and insurance coverage to the employees, also include the retirement
benefits
a) Provident Fund (PF):
Provident Fund contributions are determined in India by the
Employees Provident Fund and Miscellaneous Provisions Act, 1952.
b)Gratuity:
Gratuity is also a type of retirement benefit paid to an employee.
Gratuity is linked to the number of years of service and is paid only to

9. # 4. Rewards & Recognition
At the end of the day we are all human beings and like to compete
and do better than others. This creates a natural urge to be
rewarded and recognized.
a) Comfortable working condition & flexible hours
b) Promoting growth prospectus
c) Offering more responsibilities
d) Offering bonus on events

10. Reason for offering benefits
The total wage cost of an employee to the organization is far more than the pay rate
of that employee. Likewise, the total compensation reward of the employee exceeds his
or
her take-home pay. Total compensation consists partly of the pay of the employee and
partly
of a set of other rewards that are loosely called benefits.
The addition of these items to the compensation package considerably complicates
all aspects of the administration of compensation — from the compensation strategy to
the implementation of the plan. Benefits are unlike base pay in that they are awarded for
different objectives, they are not periodically given, they are oftentimes deferred rather
than current, and they require different types of administration.

11. Conclusion
It continues to evolve as part of a system of all the combined
rewards that employers offer to employees. Components of
compensation means components of remuneration to employees.
An average employees in the organized sector is usually entitled to
various benefits. It not only helps them to keep motivated but also
makes profit in organization by increasing work efficiency of
employees.

12. References
D. G. Collings and G. Wood, “Human Resource Management, a Critical Approach,” Routledge,
London, 2009.
D. Torrington, L. Hall and S. Taylor, “Human Resource Management,” 6th Edition, Financial Times
Prentice Hall, Harlow, 2005.
3. A. Mehlmann, “An Approach to Optimal Recruitment and Transition Strategies for Manpower
Systems Using Dynamic Programming,” Journal of the Operational Research Society, Vol. 31, No.
11, 1980, pp. 1009-1015.
4. R. Poornachandra, “A Dynamic Programming Approach to Determine Optimal Manpower
Recruitment Policies,” Journal of the Operational Research Society, Vol. 41, No. 10, 1990, pp. 983-
988.

13. Thank You