The document provides an overview of compensation management, detailing various forms of compensation such as salary, bonuses, allowances, and non-monetary rewards. It emphasizes the objectives of compensation for both employees and employers, as well as the principles guiding effective compensation strategies. Additionally, it covers compensation structures, the importance of social security, retirement planning, and the role of compensation in attracting and retaining talent within organizations.

1. Introduction to Compensation
Management
Module 1

2. Compensation is referred to an money and other benefits
received by an employee for providing services to his
employer. Compensation refers to all forms of financial
returns tangible services and benefits employees receive as
part of an employment relationship.
Compensation
According to Keith Davis “Compensation is what employees
receive in exchange for their contribution to the organization”

3. 3
Objectives of Compensation
• TO EMPLOYEES
• Employees are paid according to requirement of their jobs.
• The chance of favoritism are minimized.
• Jobs sequence and lines of promotion are established wherever they
are applicable.
• Employees moral and motivation are increased because of the
sound compensation structure.

4. • TO EMPLOYERS
• They can systematically plan for and control the turnover in
the organization.
• A sound compensation structure reduces the likelihood of
friction and grievance over remuneration
• It enhances an employee morale and motivation because
adequate and fairly administrative incentives are basis to his
wants and need.
• It attracts qualified employees by ensuring and adequate
payment for all the jobs.
Objectives

5. • Equitable
• Balanced
• Secure
• Cost Effective
• Incentives
• Acceptable to all
employees
Principles of Compensation Management

6. Wages:-
It is a payment usually of money for labor or
services usually according to contract and
on a hourly, daily, or piece work basis
In another words; It is a money that is paid
by an employer to an employee in exchange
for work
Salary:-
A salary is the money that someone is paid
each month by their employer, especially
when they are in a profession such as
teaching, law ect…,

7. DA (dearness allowance)
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It is an amount paid to employees as a cost of living
adjustment allowance to mitigate the impact of inflation. It
is typically calculated as a percentage of the basic salary
and is adjusted periodically to reflect changes in the cost of
living index. DA ensures that the purchasing power of
employees is maintained despite rising prices of essential
commodities.
Consolidated
Pay:-
It means a total salary without any breakup, which
means consolidated salary is not divided into salary
components like basic wages, HRA, transport & medical
allowance etc. ..,
It is paid weekly or monthly basis to the employees.

8. Equity Based Program:-
An equity based incentive plan is used to attract,
retain, and incentivize employees.
Companies often reward employees, partners, directors,
contractors, or other by granting them shares in an equity
plan.
Commission :-
It refers to a form of compensation provided to
employees based on the sales they generate or their
business they bring to the company.
It is a variable payment structure that reward
employees for their sales performance.

9. Rewards
It refers to the benefits or incentives that an individual receives in return
for their work, services, or achievements.
These rewards can be tangible or intangible and are often used to
motivate and recognize outstanding performance, achievements, or
contributions.
Remuneration
It refers to the compensation or payment received by an
individual for their work, services, or contributions. It
encompasses all the financial and non-financial benefits
that an individual receives in exchange for their efforts,
skills and time.
Bonus
A Bonus is an extra amount of money that is added to
someone pay, usually because they have worked very hard.

10. Various types of compensation and
supplementary compensation
1. Direct compensation
• Basic salary
• House rent allowances
• Leave travel allowances
• Bonus
• DeaRness allowances

11. 2. INDIRECT OR SUPPLEMENTARY ALLOWANCES
• Leave policy
• Overtime policy
• Hospitalization
• Insurance
• Flexible timings

12. 12
Theories of Compensation
1. Reinforcement and Expectancy Theory
2. Equity Theory
3. Agency Theory
a) internal equity
b) external equity
c) individual equity

13. Compensation Structure
1. STRAIGHT SALARY
COMPENSATION
2. SALARY PLUS COMMISSION
3. COMMISSION ONLY
4. TERRITORY VOLUME
COMPENSATION PLAN
5. RESIDUAL COMMISSION

14. SALARY STRUCTURE
OR
COMPENSATION STRUCTURE

15. Basic Salary
HRA (House Rent Allowance)
LTA (Leave Travel Allowance)
Applicable Allowance
Performance Bonus
EPF (Employees’ Provident Fund)
Professional Tax
TDS (Tax Deducted at Source)
ESIC (Employees’ State Insurance Corporation)
Gratuity

17. MEANING OF INCENTIVES
IN SIMPLE WORDS INCENTIVES ARE EXTRA FINANCIAL MOTIVATION
THEY ARE DESIGNED TO STIMULATE HUMAN EFFORT BY REWARDING
THE PERSON OVER AND ABOVE THE TIME RATED REMUNERATION FOR
IMPROVEMENTS IN THE PRESENT AND TARGETED RESULT
Short term incentive:- Long term
incentive:-
a) Annual incentive
plan
b) Retention bonus
a) Performance
shares
b) Stock option

18. DEFINITIONS OF SOCIAL SECURITY
ACCORDING TO ILO,
SOCIAL SECURITY IS THE PROTECTION
WHICH SOCIETY PROVIDES FOR ITS MEMBER THROUGH A
SERIES OF PUBLIC MEASURE AGAINST THE ECONOMIC AND
SOCIAL DISTRESS THAT OTHERWISE WOULD BE CAUSED BY
THE STOPPAGE OR SUBSTANTIAL PREDICTION OF EARNING
RESULTING FROM SICKNESS MATERNITY EMPLOYMENT
INJURY UNEMPLOYMENT INVALIDITY OLDAGE AND DEATH

19. Retirement planning
Retirement planning means preparing todays for
your future life so that you continue to meet all your
goals and dreams independently.
Different plans for Retirement:-
a. National Pension Scheme
b. Annuity Plans
c. Pension Funds
d. Pension Plans with Life Cover

20. Meaning of Pension Plan
Pension plan is a type of retirement
plan where employers promise to
pay a defined benefit to employees
for life they retire.

21. Individual Retirement Account (IRA)
AN INDIVIDUAL RETIREMENT
ACCOUNT (IRA) IS A SAVING ACCOUNT
WITH TAX ADVANTAGES THAT
INDIVIDUALS CAN USE TO SAVE AND
INVEST LONG TERM.

22. Employee stock ownership plan (ESOP)
AN EMPLOYEE STOCK OWNERSHIP
PLAN (ESOP) REFERS TO AN EMPLOYEE
BENEFIT PLAN THAT GIVES THE
EMPLOYEES AN OWNERSHIP STAKE IN
THE COMPANY .

23. Stock bonus plan meaning
A STOCK BONUS PLAN IS A TYPE OF RETIREMENT
PLAN DESIGNED TO INCREASE EMPLOYEES’ VESTED
INTEREST IN A COMPANY’S SUCCESS. A STOCK BONUS
PLAN IS A TYPE OF PROFIT-SHARING PLAN PAID IN
EMPLOYER STOCK INSTEAD OF CASH.
Profit sharing plan meaning
A profit-sharing plan is a pension plan, which gives an
employee a share in the company’s profits. As per this plan,
which also referred to as the deferred profit-sharing plan
(DPSP), employees will go onto receive a portion from the
company’s profits which depend on the annual or quarterly
earnings.

24. COMPENSATION MANAGEMENT
DEFINITION:
ACCORDING TO DEB,
“COMPENSATION MANAGEMENT IS A SYSTEM OF COMPENSATING
INDIVIDUALS FOR THE WORK THEY PERFORM IN SUCH A WAY THAT THE
ORGANIZATION IS ABLE TO ATTRACT, RETAIN AND MOTIVATE THEM TO
PERFORM WELL KEEPING IN VIEW ORGANIZATIONAL AND MARKET FACTORS.”

25. Components of Compensation Management
• a. Job descriptions
• b. Job analysis
• c. Pay structures
• d. Salary surveys

26. Benefits of compensation
• Financial security
• Motivation and
productivity
• Work life balance
26
Employ
ee:-
Employer
:-
• Attract and retention of talent
• Employee engagement and moral
• Reputation and employee
branding

27. Meaning of Non-
Monetary
Compensations
NON- MONETARY COMPENSATION IS DEFINED AS
ANY COMPENSATION OR REWARD GIVEN TO AN
EMPLOYEE IN A NON-CASH FORM FOR THEIR WORK
IN THE ORGANIZATION.

28. Forms of Non-Monetary
Compensation

29. 1. TIME OFF FROM WORK
1.INCLUDES PAID TIME OFF (PTO)
MUCH AS VACATION AND SICK
TIME
2.ALSO INCLUDES TIME OFF WITHOUT
PAY SUCH AS UNPAID SABBATICALS
AND LEAVE MANDATED BY FAMILY
AND MEDICAL LEAVE ACT (FMLA)

30. 2. CAREER DEVELOPMENT
OPPORTUNITIES
HELPS THE EMPLOYEES TO
ENHANCE THEIR JOB-RELATED
SKILLS, WHICH HELPS THEM TO
TAKE UP NEW, EXPANDED PROJECTS
OR ROLES IN FUTURE

31. 3. Employee Recognition
Awards
• These are given to publicly
acknowledge the major
performance milestones and
other positive employee
behavior that goes beyond the
typical call of duty

32. 4. WORK-LIFE BENEFITS
THIS BENEFIT INCLUDES THE
POLICIES AND SERVICES THAT
THE ORGANIZATION HAS TO
PUT IN PLACE TO HELP
EMPLOYEES BALANCE
OBLIGATIONS AT OFFICE AND
AT HOME

33. 5. Autonomy At Work
• Giving employees the
autonomy to perform, take
decision of their tasks on their
own without someone else or
his/her manager’s
micromanaging would give
them an opportunity to learn

34. 6. TIME OUT OF NORMAL WORK
COMMITMENTS
FREEING UP EMPLOYEES TIME AT
WORK TO FOCUS ON THE WORK OR
PROJECTS THEY ARE PASSIONATE
ABOUT WHICH MAY OR MAY NOT BE
RELATED TO THEIR MAIN TASK WILL BE
A ANOTHER WAY OF REWARDING
THEM.

35. 3P APPROACH
3P Compensation is a system designed to pay salaries
according to employee’s merit and performance in
order to create fairness, encouragement in company
Helping each employee maximize his abilities in
works , contributing to company development

36. • Pay for position
• Pay for person
• Pay for performance

37. Compensation management in
multinational organization
Objectives:-
1. This policy should be consistent with the
overall strategy, structure and business need
to be accomplished.
2. It must be competitive and recognize factors
such as incentives to Foreign Service, in
reasonable costs.
3. This policy should facilitate the transfer of
international employees in the most cost-
effective manner for the firm.
4. The compensation policy must work to attract
and retain the staff in the areas where
Multinational has the greatest need.

38. Factor Affecting International
Compensation
A. Social Contract
B. Culture
C. Trade Union
D. Ownership and Capital Market
E. Cost of Living

39. Compensation statergies as a
integral part of HRM
Compensation Strategies play a important role in
Human Resource Management (HRM), serving as a
crucial component in attracting, retaining, and
motivating a talented workforce.
Compensation strategies are foundational elements of
HRM, intricately linked to an organization's ability to
attract, retain, and motivate a skilled workforce.

40. Why compensation is
important in
organization
1. ATTRACTING AND
RETAINING TALENT
2. EMPLOYEE MOTIVATION
AND PERFORMANCE
3. REDUCES TURNOVER COST
4. RETURN ON INVESTMENT
5. RISK MANAGEMENT

41. COMPENSATION POLICY

42. MEANING
A COMPENSATION POLICY IS A FORMAL
STATEMENT THAT OUTLINES AN
ORGANIZATION'S APPROACH TO
DETERMINING AND ADMINISTERING
EMPLOYEE COMPENSATION. IT DEFINES
HOW SALARIES, WAGES, BONUSES,
BENEFITS, AND OTHER FORMS OF
REMUNERATION ARE STRUCTURED AND
MANAGED TO ENSURE FAIRNESS,
COMPETITIVENESS, AND ALIGNMENT WITH
ORGANIZATIONAL GOALS

43. TYPES OF COMPENSATION
POLICY
• GENERAL COMPENSATION LEVEL
• WAGE AND SALARY STRUCTURE
• FORMULAS BASED ON TIME OR
PRODUCTIVITY GOVERNING
DISBURSEMENT OF WAGE OR SALARY
FUNDS TO INDIVIDUALS