MODULE 3

COMPENSATION AND REWARD MANAGEMENT

TOPIC

ESSENCE OF

COMPENSATION

PRESENTED BY :-

GANESH DUTTA(PGCM4 1411)

1.Definition:- “Compensation management is a process of

determining cost effective pay structure, designed to

attract and retain, provide an incentive to work hard, and

structured to ensure that pay levels are perceived as fair.”

(Stephen P. Robbins, David A DeCenzo, Robin Stuart-Kotze

and Eileen B. Stewart)

2 Definition:- According to Kressler , “whatever the

individual and culture variations, reward along with the

strategies and systems related to it, forms a significant part

of a business’s personal policy. It can appeal to both the

material and immaterial values of employees.

Entrepreneurs and manager perceive in reward strategies

a unique challenge and opportunity to make the most of

what employees can contribute and be offered in return in

order to increase the potential of the net product”.

OBJECTIVES OF COMPENTATION MANAGEMENT

1. To attract highly capable and efficient employees so that their

efforts produces organizational performance.

2. To increase the motivation and morale of employees.

3. To elicit need and desirable behaviors from employee.

4. To retain talented employees for continuance of organization

performance and attainment of higher levels of work.

5. To maintain market competitiveness In order to reduce or

control employee attrition which can affect organizational

function.

6. To help employee meet his economic, personal, material,

social, and psychological needs and aspirations.

7. To integrate employee efforts with organizational performance

management systems for increased effectiveness.

PRINCIPLES OF COMPENSATION MANAGEMENT

PRINCIPLES OF

COMPENSATION

MANAGEMENT

NON-DISCRIMINATORY

EQUITY

CONSIDERATIONS

PERFORMANCE

ORIENTATIONEMPLOYEE

DEVELOPMENT

SIMPLE

FLEXIBLE

LEAGEL

COMPLIANCEABILITY TO PAY

1.Ability to pay: when the ability to pay term is arises, two

terms are basically used capacity and capability.

Organization should pay their employee as per their

financial capacity and capability. If an organization pays

more than its ability, then the organization may get bankrupt

and if organization pays much below its ability to pay, they

are not able to attract effective employees who can bring

effectiveness of the organization.

2.Internal and external equity: Organizations must

compensate their employees according to their

qualification, experience, skills, knowledge, job

responsibilities and performance. This is called internal

equity.

Organization must pay their employees a compensation

which is at least comparable to their competitors or industry

standards. This is called external equity.

3. Performance orientation: Performance orientation is

essential for creating a performance driven work

culture where every employee willingly assumes

responsibility and works with ownership. Therefore

compensation should be in commensuration with

individual and organizational performance.

4. Non-discriminatory: Organizations must pay their

employees without any discrimination on the ground of

race, religion, gender, nationality, and ethnicity.

5. Legal compliance: Organization must pay as per the relevant

laws of the land.

For example: In India, the Minimum Wages Act, 1948 stipulates

the workers in unskilled, semi-skilled, and skilled jobs must be

paid a minimum wage.

6. Simplicity and flexibility: compensation systems should be

simple to design, understand and administer. Compensation

plans and policies must be flexible to adapt with ease to the

changing of workforce, needs of the individual employees,

organizational goals and objectives and labour market

conditions.

7. Fosters employee development: Compensation should be such

so as to motivate employees to acquire, sharpen and develop

their skills and competencies in conjunction with changing

technology

QUOTES

“If you pick the right people and give them the

opportunity to spread their wings and put compensation

as a carrier behind it you almost don't have to manage

them.”

-(Jack Welch)

Note to salary setters: “Pay your people the least possible

and you’ll get from them the same.”

-(Malcolm Fobers)