By:Prof.Brijmohan A.

Vyas
BEC-MBA Department Bagalkot
 Introduction
 Need for sound salary administration
 Objectives
 Factors affecting wages/salary levels
 Incentives
 Types of incentives plans
 Profit sharing, bonus concept, ESOPs
 Pay performance
 Employee benefits/fringe benefits
 Work life balance
 Compensation is what employees receive in
exchange for their contribution to the
organization.
 Generally, employees offer their services for
three types of rewards.
 Pay refers to the base wages and salaries
employees normally receive.
 Compensation forms such as bonuses,
commissions and profit sharing plans are
incentives designed to encourage employees
to produce results beyond normal
expectation.
 Benefits such as insurance, medical,
recreational, retirement, etc., represent a
more indirect type of compensation. So, the
term compensation is a comprehensive one
including pay, incentives, and benefits
offered by employers for hiring the services
of employees.
 So, the term compensation is a
comprehensive one including pay, incentives,
and benefits offered by employers for hiring
the services of employees.
 Compensation offered by an organisation can
come both directly through base pay and
variable pay and indirectly through benefits.
1) Base pay: It is the basic compensation an
employee gets, usually as a wage or salary.
2) Variable pay: it is the compensation that is
linked directly to performance
accomplishments (bonuses, incentives, stock
options).
3) Benefits: these are indirect rewards given to
an employee or group of employees as a part
of organizational membership (health
insurance, vacation pay, retirement pension
etc.).
 The most important objective of any pay
system is fairness or equity. The term equity
has three dimensions.
 Internal equity: This ensures that more
difficult jobs are paid more.
 External equity: This ensures that jobs are
fairly compensated in comparison to similar
jobs in the labour market.
 Individual equity: it ensures equal pay for
equal work, i.e., each individual’s pay is fair
in comparison to others doing the
same/similar job.
 Attract talent
 Retain talent
 Ensure equity
 New and desired behavior
 Control costs
 Comply with legal rules
 Ease of operation
 Wages
 Basicwage
 Dearness allowance
 Job needs
 Ability to pay
 Cost of living
 Prevailing wage rates
 Unions
 Productivity
 State regulation
 Demand and supply of labor
 Job evaluation: It is the process of
finding out the worth of a job to the
company.
 Job analysis offers valuable information
for developing a compensation system in
terms of what duties and responsibilities
need to be undertaken.
 Most of the times a committee is
appointed to collect information and
come up with a hierarchy of jobs
according to their value.
 Analytical Non-Analytical Methods

 PointRanking  Ranking Method

Method  Job-grading Method
 Factor Comparison
Method
 Raking Method: This is the simplest, the most
inexpensive and the most convenient method of
evaluation. The evaluation committee assesses the
worth of each job on the basis of its title or on its
contents. Here each job is compared with another
in the organization and its place is determined.
 Here jobs are not broken into elements or factors to
study further.
For example:

Rank Monthly salaries

1. Accountant Rs. 3000
2. Typist Rs. 1000
3. Office boy Rs. 700
 Job-grading Method: As in the ranking method, the
job grading method does not call for a detailed or
quantitative analysis of job factors. It is based on
the job as a whole. Here there is a yardstick to
measure the grades of the employees.
 In the below example the grades are given from 1
to 3 to different levels and their job is evaluated.

Very simple but physical – Ex: Staff boys

Little complicated but less physical - Clerks
Complicated and has lot of responsibility -Managers
 Point-RankingMethod: This method is widely
used currently. Here, jobs are expressed in
terms of key factors. Points are assigned to
each factor after prioritizing each factor in
order of importance. These points are
summed up to determine the wage rate for
the job.

 Jobswith similar point totals are placed in

similar pay grades.
Degre Define Factor Point values for Total
e Degrees
1 Able to carry out 1 2 3
simple calculations; Degrees
High school Skill
education 10 20 30 60
Does all the clerical Physical
2 5 7 8 15
Effort
operations;
computer literate; Mental
Effort
10 15 20 45
graduates
Responsi
3 Handles mail, bility 20 30 50 100
develops contacts, Working
takes initiative and conditio
5 15 20 40
does work n
independently; post
graduate. Max total points= 260
 Point range Daily Wage rate Job grades of
(Rs) key bank
officials
50-100 3000- 4000 1. Officer

100-150 4000- 5000 2. Accountant

150-200 5000- 6000 3. Manager 1 level

200-250 6000- 7000 4. Manager 2 level

250-300 7000- 8000 5. Manager 3 level

A more systematic method of job evaluation is
the factor comparison method. Though it is
the most complex method of all, it is
consistent and appreciable.
 Instead of summing all the points of the
factors, here- the each factor of the job are
compared with the same factor other jobs.
 For example: To evaluate the wage of a
‘Painter’ its Job Factors are compared with
other Jobs (factors).
 Here existing wage of all the other jobs are
split across the factors.
 Factors Daily Physical Mental Skills
Wage Effort Effort
(Rs)
Electrician 60= 05 -IV 25 30
(I rank) (I rank)
Welder 40= 10 –III 15- III 15 – II
Cleaner 30= 20- II 5 - IV 5 - IV
Plumber 50= 30 20 - II 10 – III
(I rank)
 Incentive plans envisage a basic rate usually
on time basis applicable to all workers and
incentive rates payable to the more efficient
among them as extra compensation for their
meritorious performance in terms of time,
cost and quality.
 The incentive rates may take the form of
bonus or premium.
 Bonus means payments to workers of the
benefits accruing to the firm as the result of
higher output or better quality will be shared
equally or on some agreed basis between the
management and workers.
 Individual incentives
 Group incentives
 Organisation wide incentives
1) Individual incentives: offered to reward the
effort and performance of individuals.
2) Group incentives: group or team incentive
plans reward team members with an incentive
bonus when agreed upon standards are met or
exceeded.
3) Organisational wide incentives: Organisation
incentives reward people for the performance
of the entire organisation. (such as profit
sharing, employee stock options etc.)
 It is a scheme whereby employers undertake
to pay a particular portion of net profits to
their employees on compliance with certain
service conditions and qualifications.
 The purpose of introducing this scheme has
been mainly to strengthen the loyalty of
employees to the firm by offering them an
annual bonus (over and above normal wages)
provided they are on the service rolls of the
firm for a definite period.
 These share of profit of the worker may be
given in cash or in the form of shares in the
company. These are called bonus shares.
 Under employee stock option plan, eligible
employees are allotted company’s shares below
the market price.
 The term stock option implies the right of an
eligible employee to purchase a certain amount
of stock in future at an agrees price.
 The eligibility criteria may include length of
service, contribution to the department/ division
where the employee works, etc.
 The company may even permit employees to
pay the price of the stock allotted to them in
installments or even advance money to be
recovered from their salary every month.
 The allotted shares are generally held in
trust and transferred to the name of the
employee whenever he/she decides to
exercise the option.
 The stock option empowers the employee to
participate in the growth of the company as
a part owner. It also helps the company to
retain talented employees and make them
more committed to the job.
A bonus is an incentive payment that is given
to an employee beyond one’s normal
standard wage. It is generally given at the
end of the year and doe snot become part of
the pay.
 Knowledge based organisations follow a
performance based payment plan offering
awards to employees for saving cost saving
suggestions, bonuses for perfect attendance
or merit pay based on supervisory appraisals.
Guidelines for effective Performance based
pay system:
 Establish high standards of performance, so
that truly outstanding employees emerge as
winners.
 Develop accurate performance appraisl
systems.
 Train supervisors in the mechanism of
carrying out appraisals and offering feedback
to employees in a proper way.

 Tie rewards closely to performance

 Use a wide range of increases. Also make pay

increases meaningful.
 The term ‘fringe benefits’ refers to the extra
benefits provided to employees in addition to
the normal compensation paid in the form of
wages or salary.
Features:
 They are supplementary forms of
compensation.
 They are paid to all employees.
 They are indirect compensation.
 Help to raise the living conditions of
employees.
 May be statutory or voluntary.
 Employee demands

 Trade union demands

 Employers' preference

 As a social security

 To improve human relations

 Payment for the time not worked

 Employee security

 Safety and health

 Welfare recreational facilities

 Old age and retirement benefits.

 Work-life balance is a concept that
describes the ideal situation in which an
employee can split his or her time and
energy between work and other important
aspects of their life.
 An employee, who doesn't make time for
self-care, eventually damages their output
and productivity.
 Havinga healthy work-life balance means
that employees will be happier when they
come to work. This, in turn, helps reduce
stress and the chances of burnout, two
common health issues in the workplace.
Chronic stress occurs when employees are
continuously stressed.