Amity Business

School

CONCEPT OF COMPENSATION
Compensation is what employees receive
in exchange for their contribution to the
organization
An employees standard of living, status
in the society, Motivation, Loyalty and
Productivity depend upon the
compensation he/she receives
For the employer to employee
remuneration is significant because of its
contribution to cost of production

Amity Business
School

NATURE OF COMPENSATION
Compensation can be offered by an
organization both directly( Base Pay &
Variable Pay) and Indirectly (Benefits)
1. Base Pay -Basic compensation an
employee gets usually as a wage or salary
2 Variable Pay -Compensation linked
directly to the performance
3. Benefits- Indirect rewards given as a
part of organizational membership.

Amity Business
School

MAIN OBJECTIVES OF COMPENSATION

1. Internal Equity- Ensures that more difficult
jobs are paid more.
2. External Parity- Aims to compensate fairly in
comparison to similar jobs in labor market.
3. Individual Equity-Equal Pay for equal work.

Amity Business
School

SOME OTHER OBJECTIVES

To attract talent
To retain talent
Ensure equity
To motivate new & desired behavior
Control cost
Comply with legal rules
Ease of operation

Amity Business
School

FACTORS INFLUENCING EMPLOYEE

COMPENSATION
I. External Factors
i. Labor Market
ii. Cost of Living
iii. Labor Laws
iv. Society
v. Economy

Amity Business
School

Contd./

II. Internal Factors:

i. Business Strategy
ii. Job Evaluation & Performance
Appraisal
iii. Employee

Amity Business
School

SYSTEM
OF
COMPENSATING

Dimensions

Amity Business
School

Pay for Work & Performance

Pay for Time not Work
Disability Income Continuation
Deferred Income
Spouse (Family) Income Continuation
Health, Accident & Liability Protection
Income Equivalent Payments Perks
Organizations Develop Compensation Policy

Amity Business
School

HOW IS COMPENSATION USED?

Compensation may be adjusted according the
business needs, goals, and available resources
Compensation may be used to:
recruit and retain qualified employees.
increase or maintain morale/satisfaction.
reward and encourage peak performance.
achieve internal and external equity.
reduce turnover and encourage company loyalty.
modify (through negotiations) practices of unions.

WHAT ARE THE COMPONENTS OF A

COMPENSATION SYSTEM?

Amity Business
School

The components of a compensation system

include:
Job Descriptions
Job Analysis
Job Evaluation
Pay Structures
Salary Surveys
Policies and Regulations

Amity Business
School

WHAT ARE DIFFERENT TYPES OF

COMPENSATION?
Different types of compensation include:
Base Pay
Commissions
Overtime Pay
Bonuses, Profit Sharing, Merit Pay
Stock Options
Travel/Meal/Housing Allowance
Benefits including: dental, insurance, medical,
vacation, leaves, retirement, taxes...

COMPENSATION PLAN

Amity Business
School

Develop a program outline

Designate an individual to oversee
Develop a compensation philosophy
Conduct a job analysis of all positions
Evaluate jobs
Determine grades
Establish grade pricing and salary range
Determine an appropriate salary structure
Develop a salary administration policy
Obtain top executives' approval of the basic salary program
Communicate the final program to employees and managers
Monitor the program

Amity Business
School

ECONOMIC THEORY
OF WAGES

Amity Business
School

ECONOMIC THEORIES
1.Social
Wage
Theories

Subsistence
Theory

Wage fund
Theory

Residual Claimant
Theory

Marxian Theory

2.Justification Marginal
Bargaining
Theories
Productivity
Theory

3.Behavioral
Theories

Employees
Acceptance
level

Theory

Supply and
Demand
Theory

Internal Wage
Structure

Competitive
Theory

Wage and
Motivation

LIMITATIONS OF ECONOMIC

Amity Business
THEORY
School

Wages and Prices are either fully fixed or

fully flexible.
Assumption of Full Employment
Wages could be influenced by factors other
than wages too.
Wage and Benefits reflect Industry
characteristics and personal characteristics.
Interference by government
Technology and Productivity are major
determinants
Pressure for linking labour standards with
International Trade.

Amity Business
School

WAGES AND SALARY

ADMINISTRATION
AT
MICRO LEVEL

Amity Business
School

Techniques

Policies

ALIGNMENT

COMPETITVENESS

CONTRIBUTION
MANAGEMENT

Work
analysis

Market

Description INTERNAL
STRUCTURE

Surveys PAY STRUCTURE

Seniority Performance/ INCENTIVE

Based
Merit Based
PROGRAMS
Costs

Objectives

EFFICIENCY

-Performance
-Quality
-Customers
-Costs
FAIRNESS

Communication EVALUATION COMPLIANCE

Amity Business
School

INTERNAL ALIGNMENT
Dependent of Internal Pay Structure
Levels
Differentials
Criteria
-Content and Value
-Use Value and Exchange Value
-Job and Person Based

Amity Business
School

EXTERNAL COMPETITIVENESS
Factors Shaping External Competitiveness
Labour Market
Nature of Demand
Nature of Supply
Product Market Factors
Degree of Competition
Level of Product Demand
Organisation Factors
Industry, Strategy, Size
Individual Manager

EXTERNAL
COMPETITIVENESS

Amity Business
School

CONTRIBUTION

Seniority Based

Performance Based Pay

Merit Guidelines

Amity Business
School

MANAGEMENT
Managing Labour Cost
-Controlling Employment
-Controlling av. Cash Compensation
Communication
-Managing the Massage
Pay

-Change Agent in Restructuring

Amity Business
School

WAGE CONCEPT

Amity Business
School

WAGE AND SALARY

Wage: Index of productivity

Definition of Wage
Wage vs Salary

Amity Business
School

ROLE OF VARIOUS
PARTIES IN
COMPENSATION &
REWARD
MANAGEMENT

Amity Business
School

ROLE OF EMPLOYERS

Ability to pay
Cost effect
Wage costs
Unit labour costs
Cost reduction

Amity Business
School

ROLE OF EMPLOYEES

Ability to live and work

Price effect
Wage levels
Effort put in
Wage maximization

Amity Business
School

ROLE OF THE GOVERNMENT

Five Year Plans & Wage Policy
Legal Framework
-Payment of Wages Act 1936
-Minimum Wages Act 1948
-Payment of Bonus Act 1965
-Equal Remuneration Act 1976

Unilateral Pay Fixation

Pay Commissions
Wage Boards
Adjudication

ROLE OF UNIONS

Amity Business
School

Collective Bargaining (Levels)

Sectoral Bargaining at National Level
Industry-cum- Region wide Agreements
Decentralized Firm/ Plant Level
Agreements

Amity Business
School

LEGISLATIONS
AFFECTING
COMPENSATION

ACTS AFFECTING COMPENSATION

Amity Business
School

Payment of Gratuity Act, 1972

The Workmens Compensation Act, 1923
The Contract Labor (R & A) Act,
Article 43 of Constitution Of India
All acts with Wage or Salary or any compensation between
the Employer and Employee

Amity Business
School

THANK YOU!