Scribd
Upload
107 views

Module Compensation Management

This document discusses compensation management and provides an overview of compensation planning objectives and components. It describes the main types of compensation including base pay, variable pay, and benefits. It outlines objectives such as attracting and retaining talent while ensuring equity and controlling costs. Key components of pay structure are basic wages and dearness allowance. Variable pay systems link pay to individual, group or organizational performance. Theories of compensation discussed include reinforcement theory, expectancy theory, equity theory, and agency theory.

Uploaded by

Kirti Sadana
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
107 views

Module Compensation Management

This document discusses compensation management and provides an overview of compensation planning objectives and components. It describes the main types of compensation including base pay, variable pay, and benefits. It outlines objectives such as attracting and retaining talent while ensuring equity and controlling costs. Key components of pay structure are basic wages and dearness allowance. Variable pay systems link pay to individual, group or organizational performance. Theories of compensation discussed include reinforcement theory, expectancy theory, equity theory, and agency theory.

Uploaded by

Kirti Sadana
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 17

COMPENSATION

MANAGEMENT By Prof. Teena Bharti


INTRODUCTION
Compensation is what employees receive in exchange for their contribution to
the organization. Generally speaking, employees offer their services for three
types of rewards
        Base pay
        Variable pay
        Benefits
OBJECTIVES OF COMPENSATION
PLANNING
 Attract talent

 Retain talent

 Ensure equity

 Reward appropriately(loyalty, commitment, experience, risk raking and other desired


behaviours)
 Control costs

 Comply with legal rules

 Ease of operation
COMPONENTS OF PAY
STRUCTURE
The two essential components of pay structure are;
basic wages and
dearness allowance
The basic wage rate is fixed taking the skill needs of the job,
experience needed, difficulty of work, training required,
responsibilities involved and the hazardous nature of the job.
Dearness allowance is paid to employees in order to compensate
them for the occasional or regular rise in the price of essential
commodities.
Components of Pay Structure

The following, however, do not come under the term wages


 Bonus
 Payments made under a profit sharing scheme
 Value of house accommodation
 Medical allowances
 Travelling allowances
 Any other sum paid to defray special expenses incurred by
the worker
 Contribution to pension, provident fund
 Any amenity or service excluded from the computation of
wages
INCENTIVES AND EMPLOYEE
ENGAGEMENT
INTRODUCTION
A proper system of wage payment is absolutely essential to keep employees in good humour. Ideally,
such a system must have the following characteristics:

Characteristics of a wage payment plan


 Simple
 Beneficial
 Equitable
 Guaranteed minimum wage
 Balanced
 Incentive-oriented
 Quality output
 Certainty
 Cost effective
 flexible
Variable Pay Or Pay For Performance
Systems
Here the pay is linked to individual, group or organisational performance. Employees have to
compete and deliver results. Three types of variable pay are commonly used:
 Individual incentives: they link individual effort to pay
 Group incentives: they link pay to the overall performance of the entire group
 Organisation-wide incentives: here employees are rewarded on the basis of the success of
the organisation over a specified time period.
Essentials of a sound incentive plan

 Guaranteed minimum wages


 Simple
 Equitable
 Economical
 Flexible
 Supported by workers and unions
 Motivating
 Prompt payment
INDIVIDUAL INCENTIVE PLANS
Bedeaux plan: Under this plan, the standard time for every work is determined and this standard
time is expressed in minutes. Standard performance is expressed in terms of points. One minute of
standard time for a particular work is considered to be one point. Under this plan, the standard time and
standard wage rate, both are expressed in terms of point. The worker, who achieves more than 60
points in one hour, gets the bonus also. This bonus is equal to the excess of production over pre-
determined production of 60 points of one hour production; he will get the wages of 40 points as bonus.
Emerson's efficiency plan: Under this plan of incentive wages, the wages are paid at the standard rate
and the amount of bonus paid to the workers depends on the individual efficiency of the workers.
Under this plan, the tools and equipment are standardised and the standard time for completing the work is
determined so that an average worker of average efficiency may also complete the work within that
standard time.
Gantt Bonus Plan: Under this system, the minimum amount of wages to be paid to the workers is
determined. The workers, who complete their works within standard or before standard time, are paid a
bonus of 25% of their wages. The rate of bonus may be 33-⅓% also. The workers, who complete their work
in more than standard time, are also paid the wages determined earlier.
Accelerate premium bonus plan: Here the premium is paid at varying rates for increasing efficiency.
THEORIES OF COMPENSATION
REINFORCEMENT AND
EXPECTANCY THEORY
This theory is based on the assumption that, the reward-earning behavior is
likely to be repeated, i.e. an employee would do the same thing again for
which he was acknowledged once.

Similarly, in the case of Expectancy Theory, given by Vroom, the employee


is motivated to do a particular thing for which he is sure or is expected that
performance will be followed by a definite reward or an outcome.
EQUITY THEORY
According to this theory, there should be equity or the uniformity in the pay structure of an
employee’s remuneration. If the employee feels he is not being paid fairly for the amount of
work he does in a day will result in lower productivity, increased turnover and high
absenteeism. The remuneration system should comply with three types of equity:
2.1 Internal Equity: The employee perceives the fairness in different pay for different jobs
based on the nature of work involved, i.e. he must feel that pay differentials among the jobs are
fair.
2.2 External Equity: The employee should feel the fairness in what they are being paid is in
line with what other players in the same industry are paying to their employees for the same
kind of job.
2.3: Individual Equity: The employee perceives the pay differentials among the individuals
who are performing the same kind of a job and within the same organization. Usually, an
individual with more experience gets high remuneration as compared to the fresher
irrespective of the nature of a job.
Diagram: Adam’s Equity
Theory
AGENCY THEORY
This theory states that both the employer and the employee are the stakeholders of the
company, and the remuneration paid to the employee is the agency cost. The employee
will try to get an increased agency cost whereas the employer will try to minimize it.
Hence, the remuneration should be decided in such a way that the interest of both the
parties can be aligned. The theory emphasizes that remuneration can be used to align the
interest and he goals of both the parties.

Thus, these theories posit that the compensation in the form of salary or wages can be
decided on the basis of the outcome or the behavior of an employee.
THANK YOU

You might also like