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2.2.5 Compensation Management

 Employee Remuneration
Remuneration is the compensation an employee receives in return
for his or her contribution to the organization

Every company has Remuneration/Reward policy based on

strategic compensation planning to enhance growth & Motivation
of employees, while at the same time , aligning their efforts with
objectives, business, mission and culture of the organization

The objective of a policy is to remain competitive for labour

whilst rewarding good performance and adopting a position on
pay which controls cost and is felt be fair by all employees
 Components of Compensation System
Compensation System

Indirect Direct

Basic Pay Merit Pay

Medical Recreational
Insurance Facilities
Life Ins Car Salary Wage
Vacations
Disability Low cost or
Holidays
Income Free meals Bonus
Sick Leave Saving plan
Pension Credit Cards Commission
Stock
Social Entertainment Piece rate
Purchase
Security Profit sharing
Annuity
Stock option
Compensation
Direct compensation encompasses employee wages and salaries,
incentives, bonus and commissions.

Indirect compensation comprised the many benefits supplied by

employer, and non financial compensation includes employer
recognition program, rewarding jobs and flexible work hours to
accommodate personal needs

Pay is one of major consideration because it provide recognition

and livelihood.

Pay is an major operational cost for an employer, in Mfg. set up it

is around 20% whereas in service industries it could be as high as
80%
Compensation Components
Wage & Salary: wage represent hourly rates of pay and salary
refers to the monthly rate of pay irrespective of the numbers
of hours put in by an employee. Wage and salary are subject
to annual increments. They differ employee to employee, and
depend upon the nature of job, seniority and merit

Incentives: Payment by results, it depends on productivity

sales, profit or cost reduction efforts

Fringe benefits: The PF/Gratuity, medical care, Canteen

hospitalization, accident relief, health & group insurance,
uniform, recreation
Compensation Components
Perquisites: The Club membership, Company Car, Paid
holidays, Furnished house, Stock option etc

Non Monetary benefits: Recognition of merit, Growth

prospects, competent supervision, comfortable working
condition, Job sharing, and flextime
 Consequences of Pay dissatisfaction
Performance

Desire for more Strikes

pay Absenteeism

Grievances
Turnover

Search for higher Psychological

Paying jobs withdrawal
Job
Dissatisfaction Visits to
Lower Doctors
Pay
attractiveness
Dissatisfaction
of Job Absenteeism Poor Mental
Health
Motivation and Performance Model
Feed back to

Employees
Employee
Employee
Performance Rewards Considers
Sets
Is Equity of
expectation are given
Rewarded Performance
and goals
rewards
Employee sets new goals and

Expectations based on prior experience

 Model of Motivation
Perceived
Value
of rewards Ability
Intrinsic
rewards
Perceived
Probability
that effort will Effort Performance Satisfaction
Result in performance
Extrinsic
rewards
Role
Perceived perception
Probability Perceived
that efforts will Perception of demands of
results in desire reward
Equity of
job and most expedient way Rewards
of doing the things
Intrinsic Rewards
Intrinsic rewards are less tangible, originate from the person or
job itself
Variety in job content
Sense of being part of whole value adding process
Belief that they are valuable member of team,
Increased responsibility and autonomy
Sense of accomplishment
Participation in setting targets and opportunities to achieve
them
Feed back of information
Recognition
Opportunity to learn & grow
Extrinsic Rewards
Extrinsic rewards results from the action of others such as supervisors
and are more easily controlled by Managers
Short term material enjoyment
Long term security
Social status
Recognition of personal achievement
Factors influence compensation
Employer

National Labour
Economy Market

Rewards
Compensation
Cost of Remuneration
Employee
Living

Govt. Union
Factors to establish Pay Rates
The Salary Survey
The worth of each job ascertain through job
evaluation
Grouping of similar jobs into pay grades
Price each grade wage curves
Develop rate ranges and fine tune
Remuneration Model
Job Description

Job Evaluation

Job Hierarchy

Pay Survey

Pricing of Jobs

Individual pay for each

Job within a range
Linking compensation to organization
objectives
When organizations undertake to downsize,
restructure, outsource or re-engineer, they intend to
become leaner and flatter in order to gain flexibility
and respond more quickly to ever changing customer
demands. With fewer employees, these Organisation
must manage compensation programs in ways that
the remaining employees are motivated to make
meaningful contribution while assuming ownership
of their job
The compensation system need to be tailored to
meets needs of organization & its employees
Value added Compensation
Strategic compensation policy includes:

To reward employees past performance

To remain competitive in the labour market
To maintain salary equity among employee
To mesh employees future performance with the
organizational goals
To control the compensation budget
To attract new employees
To reduce unnecessary turnover
Thank you