providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. Gary Dessler “Employee compensation refers to all forms of pay going to employees and arising from their employment.” The phrase ‘all forms of pay’ in the definition does not include non-financial benefits, but all the direct and indirect financial compensations. According to Thomas J. Bergmann(1988) compensation consists of four distinct components: Compensation = Wage or Salary + Employee benefits +Non-recurring finan- cial rewards+ Non-pecuniary rewards. Compensation refers to a wide range of financial and nonfinancial rewards to employees for their services rendered to the organization. It is paid in the form of wages, salaries and employee benefits such as paid vacations, insurance maternity leave, free travel facility, retirement benefits etc., Monetary payments are a direct form of compensating the employees and have a great impact in motivating employees. The system of compensation should achieve the following objectives. The capable employees are attracted towards the organization The employees are motivated for better performance The employees do not leave the employer frequently There are various methods of establishing employee compensation. Among them, some of the important one are discussed as under: 1. Job analysis: Job analysis information about jobs, workers and required qualification, skill, capability and experience. For this, job description and job specification is prepared in job analysis. i. Job description: Job description is a profile of the job to be performed. It includes job requirements in terms of duties, responsibilities, authority, accountability, working condition etc
ii. Job specification:
Job specification is a profile of worker's requirements to do the job. It specifies minimum qualification, experience and skills of the employees 2. Job evaluation: Job evaluation system determines the value of each job to be performed in an organization. Through job evaluation, position and the job performed by each of the position are comparatively evaluated
i. Job ranking method:
Under this method, all the information regarding the job are collected. Qualification, skills, challenges, difficulties, complexities, importance, contribution etc. are taken as a base to rank the job from simplest to the most complex ii. Job grading method: Under this method, jobs are categorized into grades, which is a group of different jobs requiring similar skills, efforts and responsibilities. Each job is assigned into a grade. iii. Factor comparison method: In this method, the required environment to each job is studied and evaluated which serves the basis for compensation determination. Higher the requirement of these factors for a job, higher will be the compensation and vice versa. iv. Point method: It this method, factors are identified for job performance and each factor is assigned predetermined point or score. After having job performance, scores of each employee are totalled. 3. Compensation survey: This method collects information from other competing organization and determines the compensation to make it more competitive. Compensation is based on the compensation received by employees working at similar position, qualification, levels of other organization. 4. Job pricing: Importance of job performance, contribution and required skill, capability qualification and experience required for job performance etc, are analyzed, and evaluated to determine the price of each job responsibility. Based upon this, the compensation structure of whole jobs is prepared. In the current context, different organization are using different methods and techniques in the determination of compensation. employee mobility and at the other hand, financial position of the organization is being weak increasing competition and raising compensation. To balance these issues, organization are adopting different tests which form the trends in compensation management. Globalization, diversity, increased level of awareness and creation of unlimited opportunities has forced organization to determine appropriate compensation. 1. Skill based payment: The trend of compensation determination based on skill rather than job performance is increasing in these days. Skills required for the job performance are given more importance by organization and is considered as a basis for compensation In this method, employees are categorized into different group based upon the nature of skill, qualification and responsibility while determine the compensation. Minimum to maximum compensation is ascertained to each group and accordingly employees are comp three groups professional, management and leadership. Under this method, jobs are evaluated and the relative worth of jobs is compared to determine the compensation. Less contributing jobs receive lower compensation and high contribution jobs receive higher level of compensation. The use of variable pay system is increasing. It is based on improving production and sharing of prosperity. Different employees even being on the same level get different level of compensation on the basis of their performance or productivity.