Compensation

COMPENSATION
 Compensation is what employees receive in
exchange for their contribution to the
organization
 Compensation affects the purchasing power
of an employee
 It is a clear indicator of his power and prestige
 Compensation effects a person economically ,
sociologically and psychologically
COMPONENTS OF COMPENSATION
Base or Primary Compensation
 Basic compensation an employee gets – wage / salary
 Allowances : DA + Other Allowances
 DA: Cost of living adjustment allowance; mitigate the impact
of inflation; percentage of the basic salary
Monthly Salary = Basic Wages + Allowances
Supplementary Compensation
Variable Pay
 incentives
 profit- sharing
 Bonuses – Executives – percentage of profits
 Fringe Benefits
 LTA
 Medical
 Legal formalities – P.F. , E.S.I. , Bonus
 sick leave with pay
 Medical Insurance
 Life Insurance
 Recreation facilities
 Free Housing Facilities
 Free Transport Facilities
 Cooperative Credit Society
 Education facilities – employee / children
 Perquisites or Perks
 company car
 executive eating facilities
 children’s education
 mobile phones
 club membership
 loans
 use of company plane
 company paid parking ( Trade Tower)
 Business class Air travel
 Chauffer Service
 personal home repairs
 legal counselling
 Wage
• Is a montary compensation paid by an
employer to an employee in exchange of work
done or his contribution to the organization.
• Payment may be calculated as a fixed amount
for each task completed , or at an hourly or
daily rate, or based on an easily measured
quantity of work done.
•
 TIME WAGE SYSTEM
 Employee is paid – daily , weekly , monthly
 Wages are paid to employees – according to
the time work – irrespective of the quantity of
work done
 Industries where Quality of goods – of
extreme importance
ADVANTAGES OF TWS
 Simple and easily understood
 Better Quality work – no speeding up
 Less wastes – proper handling of tools and
machines
 Stable income to employees
DRAWBACKS OF TWS
 Inefficiency – no link between productivity
and wages
 Lack of Motivation – equal wages – efficient
and inefficient worker
 Strict Supervision – requires close and strict
supervision
 PIECE WAGE SYSTEM
 Output or productivity of workers
 payment is made according to the quantity
 idle time – will not be paid – as the case under
time wage system
ADVANTAGES OF PRS
 Provides incentive – to produce more
 Fairness- correlating wages with productivity
 Costing of production becomes easier – wages
constant factor of production
 Lesser Supervision
DRAWBACKS OF PRS
 Ignores Quality- thorough inspection and
quality control becomes essential
 Excessive Speed – may cause injury / undue
wastage of raw material / undue wear and
tear
 Strained IR – if worker output is low – due to
fault of management
 TIME VS. PIECE WAGE
BASIS TIME WAGE SYSTEM PIECE WAGE SYSTEM
Time or Output Wages-time spent on the Wages – number of units
job produced

Efficiency Wages – not linked – Wages linked with output

output ( efficiency) (efficiency)

Quality High Need not be very high

Supervision Close supervision Close supervision is not

required

Maintenance Low – machines and High – workers – more

equipments are properly concerned – production –
handled than with life of machines
and equipments

Wastage Chances- wastage of time Chances of wastage of raw

materials – power –
machines and equipment