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Types of Rewards
Factors Affecting Compensation
Compensation Equity
Factors Affecting Pay Satisfaction
Learning Objectives
Equity Theory
Introduction & Concept
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3. Introduction
1. Organization expect efficient performance from their
employees in order to contribute to the attainment of
individual and organizational goals.
2. Organization reward employees who contribute to the
achievement of organizational goals in the form of
Compensation.
Effort
Reward
Performance
Organizational
Goals
Individual
Goals
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4. Introduction
3. Compensation in one form or other is certainly one of
the most important factor of motivation.
4. It acts as the means of satisfying the physical needs, it
also provides recognition, a sense of accomplishment
and determines social status.
5. Hence, formulation and determination of sound
compensation policy to attract and retain right
personnel in the right position is the prime objective of
Compensation Management.
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5. Concept
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1. Compensation refers to a wide range of financial and
non-financial rewards given to employees for the
services rendered by them to the organization.
2. Compensation includes direct cash payments, indirect
payments in the form of employee benefits and
incentives to motivate employees to strive for higher
levels of productivity.
3. It is a systematic approach to provide monetary value
to the employees in exchange for the work performed.
6. Objectives of Compensation Management
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1. The basic purpose of compensation management is to
establish and maintain an equitable reward system.
2. The objectives of compensation management are:
1) Equity
2) Efficiency
3) Optimum Utilization of workforce
4) Acquire qualified personnel
5) Retain current employees
6) Reward desired behaviour
7) Control Cost
8) Comply with legal regulations
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Equity Theory
Types of Rewards
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Types of Rewards
Compensation Equity
Factors Affecting Pay Satisfaction
Learning Objectives
Introduction & Concept
Equity Theory
Factors Affecting Compensation
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10. Factors Affecting Compensation
System
There are two factors which affect compensation system
External Factors Internal Factors
Demand and Supply Ability to Pay
Cost of Living Job Requirement
Trade union Managerial Strategy
Govt. Legislation The employee
Psychological & Social Factors - Performance
Economy - Seniority
Technological Development - Experience
Prevailing Market Rates - Potential
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Types of Rewards
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Introduction & Concept
Equity Theory
Compensation Equity
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12. Compensation Equity
1. Is Compensation Equity means
“Equal pay for equal work”.
Or
"Equal pay for different but equivalent work "
2. It also means degree to which the actual pay of
an employee matches what he or she thinks to
deserve.
3. High pay equity means high employee satisfaction
with job whereas low pay equity increases the
chances of absenteeism, grievances, strikes, and
turnover.
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13. Consequences of Inequity
1) Distort either their own or others input or outcome
2) Behave in some way so as to induce their own inputs
or outcomes
3) Behave in some way so as to induce others inputs or
outcomes
4) Choose a different comparison referent
5) Leave the organization
13
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Types of Rewards
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Introduction & Concept
Equity Theory
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15. Adam’s Equity Theory
1. This theory focuses on the employees’ perception of
fairness of their work input and outcomes.
2. Specifically, they strive to maintain the ratio of their own
reward to contribution with others.
3. Employees develop beliefs about what is fair reward for
one’s contribution i.e. an exchange.
4. They compare their exchanges with self, others –
insiders and outsiders called referents and the
procedure.
5. If an employee believes his treatment is inequitable, he
or she will be motivated to do something about it – that
is, seek justice.
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18. Wage Differentials
• Relative difference in wage levels is called wage
differentials.
• Different persons get different wages depending upon the
nature of job, skill of person, sex, age, region, employers
capacity to pay, demand & supply of labour, cost of living,
bargaining power etc.
• Types of wage differentials:
– Occupational wage differential
– Inter-Firm wage differential
– Inter-Area or Regional wage differential
– Inter-Industry wage differential
– Inter-Personal wage differential
– Sectoral wage differential
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19. Wage Equity
• Employees desire compensation that must be distributed in
a equitable manner.
• It means fairness among the organizations’ employees &
fairness relative to what people get for doing a similar job in
another organization.
• Equity theory explains that what happens when individuals
perceive an imbalance between what they put into a job and
what they get out of it relative to others give & get ratio.
• Employees are strongly motivated to maintain a balance
between what they perceive as their inputs or contributions
with their compensation they get.
• If an employee perceives an inequity, a tension will develop
& employee gets demotivated.
• 3 referent categories are: Others, System, self
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20. Consequences of Inequity
• Distort either their own or others input or outcome.
• Behave in some way so as to induce their own inputs
or outcomes
• Behave in some way so as to induce others inputs or
outcomes
• Choose a different comparison referent
• Leave the organization
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Learning Objectives
Introduction & Concept
Equity Theory
Factors Affecting Pay Satisfaction
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