1) Compensation refers to all forms of pay received by employees in exchange for work performed, including direct cash payments, indirect payments like benefits, and incentives. 2) Strategic compensation aims to align compensation packages with business goals and objectives to retain valuable employees. 3) Total compensation includes core compensation like salary and wages, adjustments for cost-of-living, seniority, merit, incentives, as well as legally required benefits, discretionary benefits, and intrinsic rewards from characteristics of the job.

1. Concept of Compensation, Exploring
& Defining Compensation Context
Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor
Al-Qurmoshi Institute of Business Management
Hyderabad

3. Concept of
Compensation

4. Compensation
 Compensation - money and other benefits received
for providing services
 Cascio defined compensation as “Direct cash
payments, indirect payments (employee benefits) and
incentives to motivate employees to strive for higher
levels of productivity”

5. Strategic Compensation
 Strategic compensation is determining & providing
compensation packages to employees, those are
aligned with the business goals and objectives
 Organizations have to take special measures regarding
compensation to retain the valuable employees

6. Exploring and Defining
Compensation Context

7. Total Compensation
Core
compensation
• Hourly wage
Annual salary
Adjustments to
core
compensation
• Cost-of living
Seniority
Merit
Incentive
Person-focused
Total Compensation
Extrinsic
Compensation
Intrinsic
Compensation
Legally Required
Employee
Benefits
• Social Security
Act
•Workers
compensation
laws
Family &
Medical leave Act
Discretionary
Employee Benefits
Health insurance
Disability insurance
Life insurance
Retirement plans
Paid time-off
Accommodation
and enhancement
Job characteristics
• Skill variety
•Task identity
Task significance
Autonomy
Feedback

8. Extrinsic Compensation
 Core Compensation
1) Salaries (Monthly)
2) Wages (Hourly, Daily, or Weekly)
 Cost-of-Leaving Adjustment (COLAs)
1) Consumer Price Index (CPI)
2) Seniority Pay
3) Merit Pay
4) Incentive Pay
5) Person-focused Pay (Pay-for-Knowledge and Skill-
Based Pay)
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9. Extrinsic Compensation (Contd.)
 Employee Benefits:
 Legally Required Benefits
1) Social Security
2) Workers Compensation & Sick leave
3) Family & Medical Leave
 Discretionary Benefits:
1) Health Insurance
2) Life Insurance
3) Retirement Benefits
4) Paid time-off.
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10. Components of Compensation
 Wage and Salary
 Incentives
 Fringe Benefits
 Perquisites

11. Wage and Salary
 Wage - remuneration to workers, hourly-rated
payment
 Salary - remuneration paid to white-collar employees
& managerial personnel
 Wages and salary - paid on the basis of fixed time
period, not associated with productivity of an
employee

12. Incentives
 Incentive - Any reward or benefit given to an employee
over and above the wage or salary with a view to motivate
him to excel in his work
 Incentives include both monetary as well as non-monetary
rewards
 A scheme of incentive is a plan to motivate an individual
or a group performers

13. Benefits

14. Fringe Benefits
 Fringe benefits
- Provident fund, gratuity, pension
- Medical benefits, accident relief, health and life
insurance
- Facilitation in performance of job, like uniforms,
Canteens & recreation

15. Perquisites
 Perquisites - provided to managerial personnel either
to facilitate their job performance or to retain them in
the organization
 Perquisites include company car, club membership,
free residential accommodation, paid holiday trips and
stock options

16. Factors Influencing Compensation
Market
Forces
Work
Value
Organisation
Policy
Individual
Performance

17. Three Pay Policies
Pay Policy Attract Retain Motivate Control
Costs
Lead + + ? ?
Match = = ? =
Lag - ? ? +

18. Govt. Regulation for Compensation in India
 Minimum Wages Act, 1948
 Payment of Wages Act, 1936
 Adjudication of Wage Disputes
 Wage boards
 Pay Commissions
 Payment of Bonus Act, 1965

19. Compensation Structures
Job Evaluation
Pay Grades
Rate Ranges
Issues Involved
in Setting
Compensation
Structures
Wage and Salary
Surveys

20. Concept of Different Wages
 Minimum Wage
 Fair Wage
 Living Wage (Highest in Value)

21. Concept of Minimum Wage
 Minimum Wage - For sustenance of life and
preservation of efficiency of workers and to provide
some measure of education, medical requirements
and amenities.

22. Concept of Living Wage
 Living Wage – In addition to providing food,
clothing and shelter for worker and family,
education for children, protection against ill-health,
essential social needs and insurance against
misfortunes and old age.

23. Concept of Fair Wage
 Fair Wage -above minimum wage but below living
wage; fair wage to be paid based on capacity of
industry to pay.

24. Calculation of Minimum Wages
 Worker’s family – 3 members, earnings of women,
children & adolescents disregarded
 Minimum food requirements - 2,700 calories/adult.
 Clothing requirements - 18 yards per annum/person.
 Housing - minimum rent charged by Govt for houses
under subsidized housing scheme
 Fuel, lighting and other miscellaneous items - 20 %
total minimum wage.