1. Compensation /Remuneration
Defined as the return received by employees for their contribution to the
organisation
Components
 Wages & Salary
Wages represents hourly rates of pay/ rate of units produced
Salary represents monthly rate of pay
Both are subject to annual increments based on - Nature of Job,
Merit/Performance, Seniority etc
 Incentives
Referred as payments by results
Monetary payments in addition to wages & Salary
Classification
Individual Incentive Scheme
Group Incentive Scheme

2. Compensation /Remuneration Cont..
 Fringe Benefits
Include employee benefits such as:
Provident fund
Gratuity
Insurance
Accident Relief
Facilities for Canteen Uniform, Recreation
 Perquisites
Applicable to Executives which include Company Car, Club
Membership, Paid Holidays, Stock-Option Scheme, Furnished House Etc
 Non Monetary Benefits
Include Job Responsibilities which are challenging, Merit Recognition,
Growth Prospects

3. Wage & Salary Administration
Defined as the establishment and implementation of sound policies and
practices of employee compensation
Covering Areas
 Job Evaluation
 Surveys of Wage and Salaries
 Analysis of Organisational Problems
 Development and Maintenance of Wage Structure
 Establishing rules for administering wages
 Wage payments incentives
 Profit Sharing
 Control of Compensation Costs

4. Wage & Salary Administration - Objectives
 Attracts qualified employees by ensuring adequate payments for all jobs
 Reduces the likelihood of friction and grievances over wage inequities
 Enhances employees morale and motivation
 Helps the employers to systematically plan and control the labour costs
 Minimize chances of favoritism

5. Wage Theories
 Reinforcement and Expectancy Theory
States that Behaviour which has a rewarding experience likely to be repeated
ie; Remuneration / Monetary reward followed by high employee performance
is likely to be repeated
 Equity Theory
Proposed by Adam Smith
States that an employee who sees inequity in rewards seeks to restore equity
Emphasises equity in pay structure of employee remuneration
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6. Wage Theories Cont..
 Agency Theory
According to this theory, Employers and employee who are two important
stakeholders of a business unit posses divergent interests and goals
• Employees expect high remuneration (Agency costs) while employers seeks to
minimise it
• This theory proposes an idea that employers should choose a better scheme that
should take care of the interests of both parties; by framing remuneration
structure either as merit pay or outcome oriented

7. Wage Theories Cont..
 Marginal Productivity Theory
Proposed by Philips Henry Wicksteed and John Bates Clark
States that Wages depends upon the demand for and supply of labour
 Residual Claimant Theory
Proposed by Francis. A.Walker
States that wages represent the value created by labour in the production process

8. Wage Theories Cont..
 Surplus Value Theory
Proposed by Karl Marx
States that labour is considered as an article of commerce which can be purchased
on payment of price
The Price of any product is determined by the time spent by labour on it