RCM notes unit 3

1. REWARD AND COMPENSATION
MANAGEMENT
Subject Code: BA4019
III Semester
HR Elective

2. UNIT III
MANAGING EMPLOYEE BENEFITS AND
REWARDS
 Nature and types of employee benefits
 Statutory employee benefits in India
 Deferred compensation plan
 Non-monetary benefits
 Reward - Meaning, Elements, Types
 Basic concepts of reward management
 Designing reward system
 Approaches to reward system
 Difference between reward and compensation

3. Meaning, Purpose & Nature of
Employee Benefits
Employee benefits are provided to employees over and
above salaries and wages. Any kind of consideration
given to the employees, in return for the services
provided by them to the company, other than their
basic pay, is called employee benefits.
The purpose of employee benefits is to increase the
economic security of staff members, and in doing so,
improve worker retention across the organization. As
such, it is one component of reward management.
Employee Benefits nature can be non-cash
compensation which is given to the employee.

4. Types of employee benefits
2 Major types of Employee Benefits.
• Mandatory Employee Benefits
• Supplementary Benefits in India

5. Mandatory Employee Benefits
There are six key statutory benefits:
• Employees’ Provident Funds and Miscellaneous Provisions Acts,
1952.
• Employees’ State Insurance Act, 1948
• Maternity Benefit Act, 1961
• Payment of Gratuity Act, 1972
• Employees’ Compensation Act, 1923
• Statutory leaves are regulated by each State’s Shops &
Establishments Acts or by the Factories Act (depending on which
Act the company has registered under). These cover sick leave,
casual leave, privilege/earned leave, national holidays, State
Founding Day, and other leaves such as bereavement leave.
• Labor laws provide for compensatory days off for working on
holidays and overtime pay of at least two (2) times wages.

6. Supplementary Benefits in India
Bonus (extra compensation) options
• Performance bonus
• Attendance bonus
• Longevity bonus
• Profit sharing
• Discount stock purchase plans
Medical and health
• On-site medical clinic
• Medical care programs (HMO, health insurance)
• Dental care programs (insurance)
• Vision care programs
• Flexible spending accounts for healthcare costs
• Employee assistance programs
• Wellness programs
• On-site fitness facilities
• Fitness facility membership

7. Paid time off
• Sick leave
• Well pay
• Mental health days
• Holidays
• Vacation
• Bereavement leave
• Ten paid hours a month for volunteer work
• 35 extra vacation days in 10th year and every 5th year thereafter
• Personal or emergency business days or floating holidays
• Paid sabbaticals
• Professional association participation
Insurance
• Short-term disability insurance
• Long-term disability insurance
• Life insurance
• Mental health insurance
• Travel accident insurance (when traveling on company business)
• Insurances mentioned under "Medical and health"
Supplementary Benefits in India

8. Supplementary Benefits in India
Retirement
• Defined benefit pension
• Defined contribution
• Financial planning assistance
• 401(k)
• Profit sharing
• Discount stock purchase plans
Children and Family
• Free child care
• On-site child care
• Free elder care
• Vouchers to help pay for child care
• Information about cost and quality of day care
• Discounts on day care
• Flexible spending account for child care
• Sick child care center (to cover when providers won’t accept children)
• Financial support for infertility treatments and/or adoption aid

9. Supplementary Benefits in India
Pets
• On-site kennel service
• Dog and cat grooming
• Animal sitting for business travelers
• Pet walking services
• Bereavement period for the loss of pets
• Pet insurance
• “Bring a pet to work” day
• Allowed to keep pets at work (an office cat)
Education and Development
• Tuition reimbursement or payment for seminars and classes
• Educational assistance (interest-free loans for own or children’s education)
• Career planning and development
• Scholarships for children of employees
• Professional association meeting, conference or seminar expense
Concierge services
• Car wash and oil change
• Dry cleaning service
• Maid service to clean home
• Errands run

10. Supplementary Benefits in India
Food
• Free drinks such as pop, coffee, tea, juice and espresso
• Free lunch
• Free popcorn, ice cream or other snacks
• Discount meals
• Holiday turkeys
• Already prepared take-home meals
• Paid mini-bar snacks at hotel (while on travel)
• Paid meals for entire family if working on weekend (to allow some family time)
• Beer, wine, meals included in company-provided refreshments at company events
Clothes
• Free uniforms or uniform cleaning
• Free clothes for personal use (such as shirts, sweaters, jackets, hats)
• Shoe repair
• Safety shoes
• Safety eyeglasses
Personal
• Beautician on site
• $5 haircuts
• Free on-site massages
• Nap time during the workday

11. Supplementary Benefits in India
Discounts offered to employees
• Leased automobiles
• Life insurance
• Discounts (up to 50%) of closing costs in the purchase of a new home
• Clothing
Transit
• Van-pool programs
• Company car
• Free or subsidized mass-transit passes
• Free parking (car or bicycle)
• Free taxi rides home
• First-class travel
• Free ride in jump seat of company planes
• Free airline passes
• Keep frequent flyer miles for personal use

12. Supplementary Benefits in India
Other
• Relocation expenses
• Subsidized or free housing
• Employee referral bonus
• Boomerang bonus (employee rehire bonus)
• Prepaid legal services (telephone advice, wills, purchase of a home)
• Award or gift certificates (redeemable at the employer’s or another local store) as bonuses for attendance,
productivity, and punctuality
• Game rooms (pool, foosball, video games, etc.)
• Free movies
• Free cigarettes
• Company sponsored/subsidized events such as trips to athletic events, concerts and hikes
• Theme days such as Halloween costume days and holiday cookie exchange days
• Condominium, hotel, camping or other recreational area for employee use
• Annual family trips back to the "home country" of H1 B visa employees
• Relocation back to the "home country" if the job doesn't work out
• Relocation back to any United States location in case of "no fault" layoff or termination
• Birthday card or note from executive
• Assistance in obtaining a visa to visit the United States
• In-plant bank branches for employee banking services
• Life Cycle account of $10,000 to help employees cross major thresholds such as buying a first house or financing
college education

13. Statutory employee benefits in India
India is the country with the second largest labour force in the world.
The evolution of labour and employment laws broadly known as
“Industrial law” has changed the employer-employee equation.
Employees have become aware of their rights and hence, an
awakening has brought a whirlwind of changes in the industrial
laws. The present article sheds light on some of the key employee
benefits under the labour laws.
1. EMPLOYEES’ STATE INSURANCE ACT, 1948
2. EMPLOYEES’ PROVIDENT FUND & MISCELLANEOUS PROVISIONS
ACT, 1952 (EPF ACT)
3. MATERNITY BENEFIT ACT, 1961
4. PAYMENT OF GRATUITY ACT, 1972
5. EMPLOYEES’ COMPENSATION ACT, 1923

14. EMPLOYEES’ STATE INSURANCE ACT,
1948
The Employees’ State Insurance Corporation (ESIC) is a statutory body under
the ownership of Ministry of Labor and Employment, Government of
India.
The Employees’ State Insurance Act, 1948 (ESI Act) is enacted with an
objective to provide social security benefits to employees. Under the ESI
Act, the government has introduced a compulsory insurance scheme
known as “Employees’ State Insurance Scheme”
All the employees having a monthly wage up to INR 21,000/- per month are
mandatorily covered under the ESI Act and the ESI Scheme. However, in
the case of persons with a disability, the maximum wage is capped at INR
25,000 per month.
The applicability of ESI Act is extended to all factories. Further the ESI Act is
extended to establishments employing 10 or more persons,
Contribution rate (w.e.f. 1.07.2019)
Employees - 0.75 % of the monthly salary
Employer is 3.25 % of the monthly salary

15. EMPLOYEES’ PROVIDENT FUND &
MISCELLANEOUS PROVISIONS ACT,
1952 (EPF ACT)
The Employees’ Provident Fund Organisation is the statutory body
under the Government of India’s Ministry of Labour and
Employment.
The EPF Act is mandatorily applicable to all establishments having 20
or more employees. The EPF Act continues to apply even if the
threshold falls below 20 employees.
Under the EPF Act, the EPFO has constituted and maintains a fund
known as the Employees’ Provident Fund (EPF). Both employer and
employees have to make monthly contributions towards the EPF
Contribution rate: 12% each on employee’s basic salary +DA
Further under the EPF Act currently there is a maximum wage ceiling
of INR 15,000/- per month

16. There are three schemes under the
EPF Act:
i. Employees’ Provident Fund Scheme, 1952: purpose of providing a post
retirement benefit for the employees or a class of employees or their legal heirs
in case of death, employed under the establishment.
ii. Employees’ Pension Scheme(EPS), 1995: purpose of providing the
superannuation pension, retiring pension or permanent total disablement
pension to the employees and also to provide widow or widower’s pension,
children pension or pension payable to the beneficiaries of such employees.
Under this scheme, out of the employers’ contribution of 12 per cent, 8.33 per
cent is allocated to Employees’ Pension scheme and balance of 3.67 per cent is
allocated to Employees’ Provident Fund Scheme.
From 1 September, 2014, any new joinees/ individuals who joined Employees’
Provident Fund on or after 1st September 2014, if at the time of joining their
monthly wage (Basic+ Dearness Allowance) exceeded INR 15,000/- per month,
they would be ineligible to be a part of Employees’ Pension Scheme, and in such
case 8.33 per cent of employer’s share is not to be diverted to the pension
scheme and total employer’s share goes to Employees’ Provident Fund Scheme.

17. There are three schemes under the
EPF Act:
iii. Employees’ Deposit-linked Insurance Scheme(EDLI),
1976:purpose of providing insurance benefits to the
employees of an establishment or a class of
establishments to whom this EPF Act applies in case of
death while in service.
For this scheme no amount is taken from employee's
salary. However, the employer has to make a payment
of 0.5 % of the total pay on which contributions are
payable of a maximum of INR 15,000 every month.

18. MATERNITY BENEFIT ACT, 1961
This Act is applicable to factory and all establishments having 10 or
employees. There is no wage limit and every female employee irrespective
of wage limit is covered.
Paid maternity leave available for women employees up to 26 weeks
availed by women employee for a period extending up to a maximum of
8 (eight) weeks before the expected delivery date and the remaining time
can be availed after childbirth
For women who are having 2 (two) or more surviving children, the duration
of paid maternity leave shall be 12 weeks (i.e. 6 weeks before and 6 weeks
after expected date of delivery).
Further, with effect from 01/03/2012, a woman to maternity benefit under
the Act shall also be entitled to receive from her employer a medical
bonus of Rs. 3500/- if no prenatal confinement and postnatal care is
provided for by the employer free of charge.
compulsory requirement for all establishments employing at least 50
employees to have a crèche (day-care) facilities.

19. PAYMENT OF GRATUITY ACT, 1972
The Payment of Gratuity Act, 1972( Gratuity Act) is applicable to
factories and establishments employing 10(ten) or more persons.
Under the Gratuity Act, an employee irrespective of his salary or status,
becomes entitled to monetary benefit usually given at the time of
employee separation from organization or retirement. This benefit is
mandatory to be provided, if the such an employee has completed
five years of continuous services
In the event if an employee's services are terminated due to his death or
has become disabled due to an accident or a disease, an employer is
mandated by law to pay gratuity to him or his nominee/legal heir, as
the case maybe, irrespective of the number of years of continuous
service.
The quantum of gratuity is calculated at the rate of 15 days a wages
based on rate of wages last drawn by the employee for every
completed year of service or a part thereof exceeding 6(six) months.

20. EMPLOYEES’ COMPENSATION ACT,
1923
The Employees’ Compensation Act, 1923 covers certain employees irrespective of
their status or salaries either directly or through contractor.
The main objective of the Act is that it casts liability on the employer to pay
compensation to an employee on death or personal injury resulting into total or
partial disablement or occupational disease caused to an employee arising out of
and during the course of employment.
The Employees’ Compensation Act provides for different scales of compensation for
different kinds of injuries.
Conditions for Receiving Compensation: An employee to whom personal injury is
caused by accident is entitled to receive compensation under this law if the
accident arose out of and in the course of his employment. That means the
accident must occur while the employee is in employment and it must also be
connected with his employment.
If any accident occurs on the premises of any employer which results in death of an
employee or serious bodily injury to an employee, the employer must, within 7
(seven) days of the death or serious bodily injury, send in the prescribed form a
report to the Commissioner for employee compensation giving the circumstances
attending the death or serious bodily injury.

21. EMPLOYEES’ COMPENSATION ACT,
1923
Circumstances in which the employer is not liable to pay
compensation to an employee are as follows:
i. If the injury does not result in total or partial disablement of
the employee for a period exceeding 3 (three days)
ii. If the injury does not result in death of the employee and is
caused by an accident which is attributable to:
– If an employee have been at the time thereof under the
influence of drink or drugs
– The disobedience of the employee to an order expressly given,
or to a rule expressly framed, for the purpose of securing the
safety of workman, or
– The willful removal or disregard by the employee of any safety
guard or other device which he knew to have been provided for
the purpose of securing the safety of employee.

22. Deferred Compensation Plan
A deferred compensation plan can be defined as an
arrangement where an employee defers a part of
his/her current income until a specified date in
future. Wages earned in one period are actually
paid at a later date. Example: Life Insurance
payment, Pension, PF.
Types of Deferred Compensation Plan
There are two types of deferred compensation
plans.
1. Qualified Deferred Compensation Plan
2. Non-qualified Compensation Plan

23. Qualified Deferred Compensation
Plan
• Qualified deferred compensation is enacted to protect retirement
funds. Employees have a right to free full disclosure of their
retirement plans under such laws. Employee retirement funds must
be maintained in a trust account by law.
• The plans must be made available to all employees and are only for
the benefit of the employee. It implies that if the firm fails to pay its
debts, creditors will not be able to seize the cash.
• The quantity of money can be put into a qualified plan. It has
minimal requirements that an employee must meet to be eligible
for the plan and comprehensive restrictions on how employers
should provide adequate money. In general, qualified deferred
compensation plans are subject to stricter regulations.

24. Non-qualified Compensation Plan
• The most notable difference is that NQDCs does not
impose a maximum contribution limit on employees'
contributions to their retirement savings accounts.
• Companies provide NQDCs to employees who earn a
lot of money and want to save more of it. People can
avoid paying taxes on a more significant part of their
wages and receive bigger tax-deferred investment
returns due to the schemes. Because the government
requirements do not cover them, such plans are riskier
than qualified deferred compensation plans. NQDCs
are not secured accounts, and the business's creditors
can take over monies placed in them if the company
defaults or goes bankrupt.

25. Differences Between qualified & non-
qualified deferred compensation

26. Advantages of Deferred Salary Plans
1. Financial stability after retirement
People who participate in deferred compensation programs receive a steady
income when they retire. The money obtained from retirement accounts ensures
financial security. To earn interest, beneficiaries can save their money and invest it
later in mutual funds or other investment choices.
2. Tax advantages
The part of one's income postponed for future payment lowers current income
and is not taxed until the beneficiary receives the payment. The deferred
salary program is especially beneficial to people who expect to fall into a lower
income tax band in the future. Furthermore, if future tax rates decline,
beneficiaries of deferred compensation schemes will pay less in taxes in the long
run.
3. Capital Gain
Many companies put money in deferred salary accounts into mutual funds or
other secure investment choices that yield a consistent interest rate. Regular
interest payments increase the value of the post-retirement payout. Furthermore,
if the investment's value grows over time, the recipient will benefit from capital
gains.

27. Non-monetary benefits.
1. Flexible working
2. Give employees time to work on their own projects
3. Extra leave
4. Allow time to do volunteer work
5. One-on-one meetings
6. Give employees chance to show appreciation for each other
7. Reward employees with more responsibility
8. Let everyone know who you’re rewarding and what you’re rewarding them with
9. Give your employees the opportunity to attend educational or wellbeing
events/workshops
10. Recognise your employees on social media
11. Collaborative message from all employees
12. Ask your employees what they’d like?
13. Set up a mentorship programme
14. Birthday off
15. Employee of the month/quarter

28. Reward
Meaning: Rewards are monetary or non monetary compensation apart from their salary which is
given to the employees on account of their performance to motivate them.
The elements of rewards include programs, practices, elements that define an organization's
strategy to attract, motivate, create engagement, loyalty, keeping employees or in other ways
retain employees.
However, the key elements are as follows:
• Compensation refers to all types of economic returns − tangible offerings and advantages
personnel obtain as a part of an employment relationship
• Employee benefits are provided to employees over and above salaries and wages.
• Work-Life balance is an aspect of employee well-being related to the employee's ability to
manage both personal and professional responsibilities with adequate time for rest and
leisure.
• Performance and Recognition key driver of motivation and employee satisfaction in the
workplace.
• Development and Career Opportunities
Types of Rewards:
1. Intrinsic versus Extrinsic Rewards
2. Financial versus Non-financial Rewards
3. Performance-based versus Membership-based Rewards

29. Intrinsic versus Extrinsic Rewards
• Intrinsic rewards are the rewards that are non-
tangible but yet results in higher levels of job
satisfaction. Intrinsic rewards make employees
feel valued in a company. Some examples are- an
impressive job title, career growth, personal
achievements, praises, etc.
• Extrinsic rewards are tangible rewards that
employees receive upon doing good work.
Extrinsic rewards focus on improving employees'
performance through appreciation. It includes
bonuses, raises, gifts, etc.

30. Financial versus Non-financial
Rewards
Financial rewards work by positively contributing to the overall employees'
financial wellbeing. It includes bonuses, salary raises, etc.
Non-financial types of rewards do not provide any financial gain to the
employee. Instead, it focuses on appreciating employees through
employee benefits. Gym memberships, parking spaces, gift cards are a few
examples.
Non-financial rewards are more feasible for companies to reward employees
mainly because:
• Long-term effects as compared to financial rewards: Employees are more
likely to keep enjoying the benefits. However, financial rewards give one-
time satisfaction.
• Employees feel more comfortable about discussing their rewards with
their peers.
• For the same performance, financial incentives require higher investment.
• It's a more affordable option for small businesses and startups.

31. Performance-based versus
Membership-based Rewards
Performance-based rewards are allocated based on
the performance of an employee in a company.
Performance-based rewards are given in pay
plans, incentive systems, group bonuses, or
commissions.
Membership-based rewards are given in the form
of benefits and services provided to the
company's employees. For example, it might be
in the form of the annual Christmas bonus,
company retreat, upgraded office furnishing, etc.

32. Basic Concepts of reward
management
Reward means a thing given to anyone because of his/her
contribution to the organization
It is contribute to strategy implementation by shaping
individual behavior
Reward management is a motivational practice.
The company sets goals and establishes rules for its
employees to follow to achieve those goals.
It attracts a worker’s attention and inspires him/her to
perform the task.
reward is a pay-off for performance which is directly
concerned with the level of motivation and job
satisfaction.

33. Reward management is important
for the following reasons:
• Retains employees
• Attracts new employees
• Avoids the cost of hiring and training new
employees
• Builds loyalty and honesty
• Creates a healthy work environment
• Encourages positive attitudes and behavior
• Makes employees more likely to seek
advancement

34. Designing Reward System
The organization should be clear about what it would like to
reinforce through rewards - performance, effort, process,
credibility, team building, loyalty (retention), sincerity etc.
This needs to be clearly communicated advance to the
employees concerned. Regardless of what the
management says it rewards people will respond to what
behaviors they perceive are rewarded. Employees should
preferably be involved in such a decision.
As the first step in designing a reward system, an organization
should develop consensus on the values, norms, and
behavior it wants to reinforce in its members. In short, is
should be clear on the kind of organizational culture it
wants to create.

35. Points may be consider while
designing reward system:
The following points may be kept in mind while
designing reward system:
• Rewards should be given to both individuals and
teams.
• A multi-dimensional and wider reward system is
likely to reduce undue pressure on promotions
from which many organizations in India suffer.
• Variable component of compensation may be
included in the reward system.
• Extra increments, as reward are dysfunctional
lump-sum rewards may instead be considered.

36. Points may be consider while
designing reward system:
• Rewards must develop pride in belonging to the organization and a felting that
people are valued. It should promote teamwork and inter-team collaboration, and
should reinforce organizational values and what is desirable in the organization
and the unit/department concerned. HRD should conduct annual surveys in
the various units/departments to get feedback on these and other dimensions of
the reward system. The results should be discussed at the top level.
• A manual for reward system may be developed, so that all employees may know
about the system Corporate and Department Rewards Committees may be
constituted. The Corporate Rewards Committee may collect data, rate various
units/departments on different dimensions, receive recommendations, approve
(after discussions with respective unit/departments heads), etc. It may also
develop policy, formats schemes, procedures, etc.
• A reward corpus may be formed, e.g.. by contributing some 15% of managers
wage bill. All rewards may come out of this fund. Cash rewards, non-cash intrinsic
rewards and non-cash extrinsic rewards may be of the same quantum.
• It is very important that there is transparency and fairness in the reward system
and is perceived so by the employees.

37. Issues in Designing Reward System
Whom to Reward?
In any company different types of employees exist -
Managers, blue collar workers, white collar
workers, line employees, project team members,
permanent teams, individual workers, and so on
and so forth. Organization need know whom to
reward. In general, it relates to the question if
organization should reward all employees of
company or only a certain kind

38. Issues in Designing Reward System
What to Reward ?
Another important aspect is to know what to reward the employee's
results or performance or behavior or the skills.
Four main objectives exist that can be rewarded.
1) Results-Based Rewards : It means payment by piecework.
2) Performance-Based Rewards : It needs good benchmarks that the
actual performance can be measured against. Otherwise, employees
will feel assessed unfairly.
3) Competence-Based Rewards : It focuses on "the ability to perform".
Competence is only measurable in qualitative terms and usually "hangs
on the back of an existing (performance-based reward) system".
4) Skill-Based Rewards : It supports the development of skills. It makes
sense when companies want flexible employees. The use of skill-based
rewards supports the long-term development of the employees

39. Issues in Designing Reward System
What Kind of Reward ?
Next important aspect is to decide what kind
reward should be given. Cost intensive
incentives such as cash bonuses or rather
recognition such as a certificate or an
"employee of the month" award or may be
both

40. Approaches to reward system
1. Bargaining Approach: So it was the long back approach
which determine the compensation based on bargaining
capacity of workers with their employees.
2. Traditional Approach: It is based on the analytical study
as well as job evaluation of a particularly job and its
design. It is determine the relative worth and
technological factors concerning of jobs or a specified
job.
3. Contemporary Compensation Approach: This approach
has more emphasize on skill, efficiencies and
competencies which are worthwhile aspect to
determine the compensation and rewards. The
employees can influence their compensation through
their efficient performance.

41. Difference Between Compensation
and Benefits
Compensation vs Benefits
Compensation Benefits
Compensation refers to a financial
reward that is given to an employee
based on his performance
Benefits are an exchange of value for
the labor provided
Compensation provided to attract
talented and qualified people to join
their company
Benefits are provided to motivate an
employee to perform well on the given
tasks

42. Comparison Table Between
Compensation and Benefits