The document discusses compensation management and outlines key concepts. It defines compensation as all forms of financial returns and benefits employees receive as part of employment. Compensation management involves balancing the employee-work relationship through monetary and non-monetary benefits. The goals of compensation include motivating employees, improving organizational effectiveness, and complying with labor laws. Successful compensation strategies should link pay to long-term business value creation and achieve an appropriate balance between individual, team and corporate performance.

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Compensation Management
Dr. Mousumi Sengupta
Term IV
SDMIMD Mysore

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Society’s
Views
Stockholders’
Views
Employees’
Views
Managers’
Views
Contrasting Perspectives of Compensation

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Compensation refers to all forms of
financial returns and tangible services and
benefits employees receive as part of an
employment relationship.
Compensation Management is an
organized practice that involves balancing
the work-employee relation by providing
monetary and non-monetary benefits to
employees.

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Compensation includes payments such as
bonuses, profit sharing, overtime pay,
recognition rewards and sales commission.
Compensation can also include non-
monetary perks such as a company-paid
car, company-paid housing and stock
options. Compensation is an integral part of
human resource management which helps
in motivating the employees and improving
organizational effectiveness.

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Why Compensation Management
• Has positive impact on the efficiency and results
produced by employees.
• Encourages the employees to perform better and
achieve the standards fixed.
• Helps management in complying with the various
Labor Laws.
• Helps to solve disputes between the employee union
and management.
Helps in following principle of equal pay.
• Aims at creating a healthy competition among
employees and encourages employees to work hard
and efficiently.
• Provides growth and advancement opportunities to the
deserving employees.

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Hay Group’s research (2010) suggests that a
successful responsible reward strategy:
 Enables the long-term sustainable success of the organisation.
 Pays out over the same timescale that business value is created
in.
 Is linked to a bundle of performance measures that reflect the
impact of the activity not only on shareholder value but on the
bigger picture
 Does not enrich management and employees to the detriment of
shareholders.
 Takes account of the extent to which performance is driven by
external factors beyond management or the employee’s control.
 Takes account of the risks inherent and capital employed in the
business, and the impact this has on the returns required by
shareholders.
 Achieves an appropriate balance between individual, team and
corporate performance.

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Hay Group’s research (2010) suggests that a
successful responsible reward strategy:
Is competitive enough to attract the talent the
business needs.
Encourages rational thinking about the unique
combination of economical and societal
responsibilities of the individual company.
Is justified in differentiating between the highest and
least well paid by impact, workload, intensity and
personal risk.
Is actively, effectively and repeatedly communicated to
employees and stakeholders.
Recognises that reward is more than pay.

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Total Returns for Work

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Components of compensation
Basic
Allowances
Incentives
Benefits
Any other component

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Types/Forms of Compensations
Direct Compensation
Indirect Compensation
Deferred Compensation

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Relational Returns from Work
Recognition
& Status
Employment
Security
Challenging
Work
Learning
Opportunities

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POLICIES TECHNIQUES OBJECTIVES
EFFICIENCY
• Performance
• Quality
• Customers
• Stockholders
• Costs
FAIRNESS
COMPLIANCE
COMPETITIVENESS
Market Surveys Policy PAY
definitions lines STRUCTURE
CONTRIBUTORS
Seniority Performance Merit INCENTIVE
based based guidelines PROGRAMS
MANAGEMENT Costs Communication Change EVALUATION
THE PAY MODEL
ALIGNMENT
Work Descriptions Evaluation/
analysis certification
INTERNAL
STRUCTURE

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Internal alignment
Focus - Comparisons among jobs or skill levels
inside a single organization
External competitiveness
Focus - Compensation relationships external to
the organization: comparison with competitors
Employee contributions
Focus - Relation emphasis placed on employee
performance
Management
Focus - Policies related to managing the pay
system
Pay System Policies

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Include methods used to operationalize
policy decisions and link decisions to overall
compensation objectives
Examples of techniques
Internal consistency
Job analysis
Job evaluation
External competitiveness
Pay surveys
Employee contributions
Incentive plans
Performance-based pay increases
Pay System Techniques

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