Concept of compensation exploring defining concept
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Concept of Compensation, Exploring & Defining Compensation Context
Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor Al-Qurmoshi Institute of Business
Management Hyderabad
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Concept of Compensation
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CompensationCompensation - money and other benefits
received for providing servicesCascio defined compensation as “Direct
cash payments, indirect payments (employee benefits) and incentives to motivate employees to strive for higher levels of productivity”
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Strategic CompensationStrategic compensation is determining &
providing compensation packages to employees, those are aligned with the business goals and objectives
Organizations have to take special measures regarding compensation to retain the valuable employees
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Exploring and Defining Compensation Context
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Total Compensation
Core compensation• Hourly
wage· Annual
salary
Core compensation• Hourly
wage· Annual
salary
Adjustments to core
compensation• Cost-of living
· Seniority· Merit
· Incentive· Person-focused
Adjustments to core
compensation• Cost-of living
· Seniority· Merit
· Incentive· Person-focused
Total CompensationTotal Compensation
Extrinsic Compensation
Extrinsic Compensation Intrinsic
CompensationIntrinsic
Compensation
Legally Required Employee Benefits• Social Security Act • Workers compensation
laws · Family & Medical leave
Act
Legally Required Employee Benefits• Social Security Act • Workers compensation
laws · Family & Medical leave
Act
Discretionary Employee Benefits Health insurance
Disability insurance
· Life insurance · Retirement plans
· Paid time-off · Accommodation
and enhancement
Discretionary Employee Benefits Health insurance
Disability insurance
· Life insurance · Retirement plans
· Paid time-off · Accommodation
and enhancement
Job characteristics• Skill variety• Task identity
· Task significance· Autonomy· Feedback
Job characteristics• Skill variety• Task identity
· Task significance· Autonomy· Feedback
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Extrinsic Compensation
Core Compensation1) Salaries (Monthly)2) Wages (Hourly, Daily, or Weekly)
Cost-of-Leaving Adjustment (COLAs)1) Consumer Price Index (CPI)2) Seniority Pay3) Merit Pay4) Incentive Pay5) Person-focused Pay (Pay-for-Knowledge and
Skill-Based Pay)
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Extrinsic Compensation (Contd.)
Employee Benefits: Legally Required Benefits
1) Social Security2) Workers Compensation & Sick leave3) Family & Medical Leave
Discretionary Benefits:1) Health Insurance2) Life Insurance3) Retirement Benefits 4) Paid time-off.
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Components of Compensation Wage and SalaryIncentivesFringe BenefitsPerquisites
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Wage and SalaryWage - remuneration to workers, hourly-
rated paymentSalary - remuneration paid to white-collar
employees & managerial personnelWages and salary - paid on the basis of
fixed time period, not associated with productivity of an employee
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IncentivesIncentive - Any reward or benefit given to an
employee over and above the wage or salary with a view to motivate him to excel in his work
Incentives include both monetary as well as non-monetary rewards
A scheme of incentive is a plan to motivate an individual or a group performers
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Benefits
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Fringe BenefitsFringe benefits - Provident fund, gratuity, pension - Medical benefits, accident relief, health
and life insurance - Facilitation in performance of job, like
uniforms, Canteens & recreation
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PerquisitesPerquisites - provided to managerial
personnel either to facilitate their job performance or to retain them in the organization
Perquisites include company car, club membership, free residential accommodation, paid holiday trips and stock options
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Factors Influencing Compensation
Market Forces
WorkValue
OrganisationPolicy
IndividualPerformance
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Three Pay PoliciesThree Pay Policies
Pay Policy Attract Retain Motivate Control Costs
Lead + + ? ?
Match = = ? =
Lag - ? ? +
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Govt. Regulation for Compensation in India
Minimum Wages Act, 1948Payment of Wages Act, 1936Adjudication of Wage DisputesWage boardsPay CommissionsPayment of Bonus Act, 1965
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Compensation Structures
Job Evaluation
Rate Ranges
Pay Grades
Issues Involved in
Setting Compensation
Structures
Issues Involved in
Setting Compensation
Structures
Wage and Salary Surveys
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Concept of Different Wages
Minimum WageFair WageLiving Wage (Highest in Value)
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Concept of Minimum Wage
Minimum Wage - For sustenance of life and preservation of efficiency of workers and to provide some measure of education, medical requirements and amenities.
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Concept of Living Wage Living Wage – In addition to providing
food, clothing and shelter for worker and family, education for children, protection against ill-health, essential social needs and insurance against misfortunes and old age.
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Concept of Fair Wage Fair Wage -above minimum wage but
below living wage; fair wage to be paid based on capacity of industry to pay.
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Calculation of Minimum Wages
Worker’s family – 3 members, earnings of women, children & adolescents disregarded
Minimum food requirements - 2,700 calories/adult.
Clothing requirements - 18 yards per annum/person.
Housing - minimum rent charged by Govt for houses under subsidized housing scheme
Fuel, lighting and other miscellaneous items - 20 % total minimum wage.