COMPENSATION MANAGEMENT

By:-

ABHILASH DOBHAL
 What is compensation management
•Compensation Management is designing and
implementing total compensation package with a
systematic approach to providing value to employees
in exchange for work performance,

•Compensation is a systematic approach to providing

monetary value to employees in exchange for work
performed.
•Compensation may achieve several purposes assisting
in recruitment, job performance, and job satisfaction.
Objectives
To recruit & retain
qualified employees.
To increase or
maintain morale.
To determine
basic wage &
salary.
To reward for
job
performance.
 Its importance

Compensation is an integral part of human resource

management which helps in motivating the
employees and improving organizational
effectiveness

Effectiveness in terms of:

 Attracting & Retaining Talent
 Motivating talent for better performance
 Cost effectiveness
 Its importance

Image Building
Ensure Equity

Institutional Legal
Compliance
effectiveness
Effective
Attract talent Compensation Administratively
Efficient

Motivate & Reward Valued

Retain Behavior
Staff Employee
Management
 Its importance

HIGH COMPENSATION – HIGH COMPENSATION –

LOW COMMITMENT HIGH COMMITMENT
Hired Guns Professionals

LOW COMPENSATION – LOW COMPENSATION –

LOW COMMITMENT HIGH COMMITMENT
Workers as commodity Family oriented
organization
 Types of Compensation
 Types of Compensation

Direct compensation
It refers to monetary benefits offered and provided to
employees in return of the services they provide to the
organization. The monetary benefits include basic
salary, house rent allowance, conveyance, leave travel
allowance, medical reimbursements, special
allowances, bonus, PF/Gratuity, etc. They are given at a
regular interval at a definite time.
 Types of Compensation

Indirect compensation
It refers to non-monetary benefits offered and provided to
employees in lieu of the services provided by them to the
organization. They include Paid Leave, Car /
transportation, Medical Aids and assistance, Insurance (for
self and family), Leave travel Assistance, Retirement
Benefits, Holiday Homes.
 Constituents of Compensation – CTC, heads

 Wage and Salary:

The most important component of compensation and these are essential
irrespective of the type of organization
Administered individually
Provides employee stabile income and can plan chores of daily
life, budget

 Incentives:
Incentives are the additional payment to employees besides the
payment of wages and salaries. Often these are linked with productivity,
either in terms of higher production or cost saving or both.
Can be administered individually and for groups
Additional compensation having immediate effect and no future
liability.
 Constituents of Compensation – CTC, heads

 Fringe Benefits:
Fringe benefits include such benefits which are provided to the employees
either having long-term impact like provident fund, gratuity, pension; or
occurrence of certain events like medical benefits, accident relief, health and life
insurance; or facilitation in performance of job like uniforms, Canteens,
recreation, etc.
Administered for a group mostly

 Perquisites:
These are normally provided to managerial personnel either to facilitate their
job performance or to retain them in the organization. Such perquisites
include company car, club membership, free residential accommodation, paid
holiday trips, stock options, etc.
Administered individually mostly
 Purpose of Compensation

BUSINESS

STRATEGY

PEOPLE
REQUIREMENT

Compensation
Management
 Purpose of Compensation
For Employer
Brand image (employer of choice) for attracting candidates
Motivating employees for higher productivity and
performance
Retaining talent
Consistency in compensation
Provoking healthy internal competition

For Employee
Work-life Balance
Recognition as tool to self esteem
Planning for better quality of life
 Factors affecting Compensation

Mental requirements,
Physical requirements,
Skill requirements,
Responsibility level, and
Working conditions
(risk, time, hazards)
 Factors affecting Compensation

Organizational Affordability
Man power planning
Sales – salary ratio
Market Rate for Talent
Economic Conditions
 Inputs in Compensation Structure
Job Evaluation
Job Specification
Job Description
Time and Motion Study
Market Survey
Demand and Supply
Industry wise bench marking
 Laws governing and affecting Pay Structure
Minimum Wages Act (discuss – minimum remuneration, its
heads
Income Tax Act (discuss – heads which provide tax relief )
Equal Remuneration Act
Payment of Wages Act (discuss – permissible
deductions) Acts on social securities (PF, Bonus,
Gratuity, Employee
Compensation)
 Anatomy of Pay Structure
 Monthly salary components
Basic Salary
Dearness Allowance
House Rent Allowance
Conveyance Allowance
Others (Shift
Allowance, Uniform
Allowance, Education
Allowance)
 Anatomy of Pay Structure
 Incentives
Time based incentive
Production based incentive
Task based incentive
 Anatomy of Pay Structure
 Social Security / Statutory payments
Contribution towards Provident Fund
Contribution towards ESI
Payment of Bonus
Payment of Gratuity (not part of wages but considered
part of CTC)
 Some interesting comparisons

The salary of top executives of public sector are

miserable compared to private sector .
S B I of India chief is paid 10%of HDFC Bank Managing
Director
BHEL’S chief gets about 10 to 12 lakhs per annum
as against ABB ‘S MD getting nearly 40 to 50 lakhs
Recent trends in Compensation Management
Employees’ Stock Ownership Plan
Employee Stock Ownership Plan (ESOP) is an employee benefit plan. The
scheme provides employees the ownership of stocks in the company. It is
one of the profit sharing plans. Employers have the benefit to use the
ESOPs as a tool to fetch loans from a financial institute. It also provides for
tax benefits to the employers.
 Recent trends in Compensation Management
Advantages of ESOP

Ownership
Tax-
Rebate
Retirement
benefits
 Recent trends in Compensation Management
Advantages of ESOP
 Recent trends in Compensation Management
Long Term Compensation Plan
Executive Compensation
Executive compensation is an issue that all companies
spend considerable time studying -- especially public
companies that have to publicly disclose the
compensation details for the five highest-paid
employees in the company. Many public companies
have been criticized by the media, by shareholders
and by the government for creating compensation
plans with large rewards for executives. The
compensation function has to strike a balance
between designing executive compensation plans that
attract and retain top executives and that are
acceptable to the public.
Recognizing and Rewarding Employees
HR professionals design programs to successfully
motivate employees to perform at their best and that
recognize and reward employees for their
contributions in a way that's affordable to the
company. However, ultimately, it's the supervisors and
managers in a company who recognize and reward
employees, and compensation staff must train and
educate managers on how to use rewards and
recognition to make employees feel appreciated by the
company and happy in their jobs.
External Competitiveness
As HR professionals strive to establish competitive pay
rates so an organization can attract and retain the
right talent, they compare their compensation rates to
the rates in published surveys to gauge their
competitiveness. However, many nuances complicate
the process. For example, when you're hiring the head
of software development, the competition for talent
might be a different set of companies than when
you're hiring an administrative assistant.
Internal Equity
Legal considerations are also on the mind of HR
professionals who manage compensation programs. In
addition to being competitive with the external market,
pay must be equitable internally within the organization.
Companies generally want to reward high performers with
more money and try to create pay differences between
employees in the same job to recognize outstanding
performance. However, HR must be mindful that it's
against the law to pay employees who perform the same
work differently solely because the employee is female,
nonwhite or over 40.