Compensation Unit 3, HRM

7/31/2019 Compensation Unit 3, HRM

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The remuneration received by anemployee in return for his/her

contribution in the organization.

Helps in motivating employeesand improving organizational

effectiveness.


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Importance of compensation

Recruit retain good employees Increase maintain morale &

satisfaction

Reward & encourage peakperformance.

Reduce turnover & encourage

company loyalty


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Objectives of a Goodcompensation Plan

Internal equity- ensure moredifficult jobs are paid more.

External equity- similar jobs in

industry get similar compensation Individual Equity- equal pay for

equal work


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Wage is..

According to Webster's Dictionarywage is payment for service renderedIt is a payment calculated by hour day,

or week or for certain amount of workdone.

Wage earners often have to give up

pay for leaving early, coming in late,missing a day, or taking a vacation.

Minimum Wage , Living wage & fairWage


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MINIMUM WAGE : education, medical

requirements and amenities.

FAIR WAGE : equal pay for equal workLIVING WAGE : not only bare essentials

like food, clothing but also a for comfort.

Mi i W i R j h


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1

2

3

Minimum Wage in Rajasthanw.e.f jan 2011


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Salary refers to how much you getpaid every year. Salary earners rarely

have to punch a time clock, or keep anaccurate account of their hours,because they get paid for performance

rather than by the hour. Salariedworkers are much more likely to havepaid sick days and paid vacations,

and are not penalized for being late orleaving early from time to time.


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Difference Between salary &Wage

Wage earners are paid by the hour. Salary earners are paid by the

year.

Salary earners usually receivepaid time when they are notworking.

Wage earners often have to giveup pay for time off.


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Salaries are often calculated aspackages.

Wage earners get paid more for

working more than 40 hours per week. Salary workers are rarely offered

overtime pay.

Salaries usually contain all kinds ofbenefits and perks.

P i i l f & l


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Principle of wage & salaryAdministration

General wage & salary level as per theprevailing market rate.

Equal pay foe equal work

Special skills may be rewarded suitabily The wage/salary structure should be

flexible according to economic

conditions. A wage /salary should fulfill a persons

basic need.


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Fringe Benefits-

Fringe Benefits- these are the extrabenefits provided to workers otherthan the usual compensation paid

in the form of wage or salary.These benefits refer to as fringebecause many years ago theyformed a very small part of thetotal salary.


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Includes Payment for time not worked example Sundays, paid

leaves

Sickness benefit- 56 days in a year allowed

Maternity benefit- 6 months leave

Paternity benefit

Health benefit- company med claim Dependants benefit

Hotels & temporary accommodation

Car Fringe benefits

Food benefits Pension

Provident fund


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Executive Compensation

Compensation for executive managers isdifferent from compensation for otheremployees in most organizations. Executive

compensation covers employees thatinclude company presidents, chief executiveofficers (CEOs), chief financial officers(CFOs), vice presidents, occasionallydirectors, and other upper-level managers.


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These high level employees are paidexecutive compensation.

Executive compensation is different fromcompensation for lower-level employees.

The salary and other benefits arenegotiated and are documented in acustomized employment contract. Thecontract spells out compensation, benefits,perquisites, performance bonuses,

separation and severance agreements, andother special terms of employment.


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Executive compensation often includes:

base salary,

bonuses,

incentives such as stock options,

income protection guarantees in the event

of a sale, public stock offering, or otherliquidity event,

a guaranteed severance package in the

instance of employment termination forreasons other than cause,


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a signing bonus for coming onboard,

The combination of salary, incentives, andbonuses is often referred to as Total CashCompensation (TCC) for executives.

Executive compensation is negotiatedbetween the potential executive and theemployer.


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Where non-executive compensation ismost often similar in characteristics

among employees, executivecompensation is negotiated and agreedto in an employment contract and may

include substantial differences from theorganizational norm.


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Variable Compensation

Variable pay is employee compensationthat changes as compared to salary whichis paid in equal proportions throughout

the year. Variable pay is used generally torecognize and reward employeecontribution toward companyproductivity, profitability, team work,

safety, quality, or some other metricdeemed important.


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The employee who is awarded variablecompensation has gone above and

beyond his or her job description tocontribute to organization success.Variable pay is awarded in a variety of

formats including profit sharing,bonuses, holiday bonus, cash, andgoods and services such as a company-

paid trip.


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Types of Incentive

Plan


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Piece Rate System

Differential Rate

Commissions

Bonuses

Awards

Merit Pay People - based Pay :

1. Skill-based Pay

2. Knowledge-based Pay

4. Feedback Pay

Piece Rate


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Piece RatePiece rate incentive is given to the employees based on the number ofunits produced. This plan is practiced in the sectors dealing withmanufacturing of products such as engineering automobile,telecommunication, FMCG

usually combines-A basic pay element this is fixed

An output-related element (piece-rate). Which is triggered by thebusiness exceeding a target output in a defined period of time

Commissions

Commission is a variable component of compensationpackage. It is given on the basis of business generated bythe employee. Commission is a pre fixed component say

5% of the total sales done by the employee. It is practicedin the retail, FMCG and other sectors in the marketing andsales segment.


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Bonuses( bonus act 1965)

Based on company profits or productivity.

Bonuses are given to employees on a pre established goal or criteria. The

organizations set policies regarding the bonuses. Usually bonuses are

provided during the festive season.

Bonus pay is used by many organizations as a thank you to employees

or a team that achieves significant goals. Bonus pay is also used to

improve employee morale, motivation, and productivity. As long as

bonus pay is discretionary by the employer, it is not considered to be a

contract. If the employer promises a bonus, however, the employer

may be legally liable to pay the bonus.


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TypesofBonusSales bonus. This is normally paid if a sales target has been reached.

For sales people this may make up a significant part

of their salary.

Performance bonus. This can be paid to an individual or on a group

or factory wide basis, and is often paid for reaching targets of outputand quality. This

method of payment is an important part ofChristmas bonus. Often called a 13 month's salary, paid for loyalty to

the business. In some

countries such as Germany virtually all companies will pay a Christmasbonus.


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Maturity Curves

Maturity curve incentive plan considers the experience andperformance of an employee for giving out the incentives. It ispracticed in all the industries. Experience is always given a weight-age as experienced people can produce better quality results.


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GroupIncentives Gain Sharing

Gain sharing incentive plans undertake those employees whogive outstanding performances and provide for cost savingmeasures. Organizations believe in sharing the profits with theemployees who are responsible for producing those results.

Profit SharingProfit sharing incentive plans are practiced in retail and FMCGsectors. Other sectors too implement the plan based on

organizational policies. It refers to giving out the share of profitsthe organization earned to all the employees.

ESOP

Compensation Unit 3, HRM

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