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Components Of Compensation Management

The document outlines the various components of employee compensation, including base pay structure, variable pay programs, benefits, and rewards & recognition. It highlights the importance of these components in motivating employees and enhancing organizational efficiency. Furthermore, it discusses the complexities involved in administering a comprehensive compensation package beyond just the employee's salary.

Recruiting & HR◦
COMPONENTS OF COMPENSATION PRESENTED BY RAHUL ROY(BWU/MBA/19/026)
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
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.
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.
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.
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
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.
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
# 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
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.
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.
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.
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