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Compensation

Cash, Bonuses, Insurance,
Vacation, Holidays
Perks, Recognition
All forms of
financial return,
tangible services and
benefits
that employees receive as part of their
employment relationship
Compensation refers to wages,
salaries or tips while benefits
describes job extras provided by
the employer.
 Benefits might include health
care packages, dental and life
insurances, and paid time off.
High compensation and
appealing benefits attract
employees .

Some workplace benefits are
required by law and others are
offered as a job perk.
‘COMPENSATION’ IN OThEr TErMS
AlSO CAllEd AS ‘EMPlOyEE
remuneratioN’

Remuneration is the compensation;
an employee receives in return of
his or her contribution to the
organization. His or her standard of
living, status in the society,
motivation, loyalty and productivity
depends upon the remuneration he
or she receives.
Components of compensation
EXTERNAL ENVIRONMENT
INTERNAL ENVIRONMENT

COMPENSATION

FINANCIAL

DIRECT

INDIRECT

NON-FINANCIAL

THE JOB

THE ENV.
FINANCIAL

Direct
wages, salaries, commissions, bonuses

Indirect
insurance plans
life, health, dental, disability
social assistance benefits
retirement plans, social security.
paid absences
vacations, holidays, sick leave
Non-Financial

The Job
interesting, challenging, responsible
opportunity for recognition, advancement,
feeling of achievement

Job Environment
policies, supervision, co-workers, status
symbols, working conditions, flextime,
compressed work week, job sharing,
telecommuting, flexible benefits programs
Factors that Influence Wage Levels
CONDITIONS
OF LABOR
MARKET
AREA
WAGE
RATES

EMPLOYER’S
ABILITY TO PAY

WAGE
MIX

COST OF
LIVING

WORTH OF JOB

EMPLOYEE’S
RELATIVE WORTH

COMPENSATION POLICY OF
ORGANIZATION
COMPENSATION PACKAGE OF ASHOK LEYLAND
CLASSIFICATION OF REWARDS
TOTAL Compensation
Financial

Direct

Monthly
Salary
Annual
Incentives
Bonus

Indirect

Non - Financial

Job Satisfaction

Provident Fund
Gratuity
Travel allowance
Mobile expense
Sales Promotional Expense

Praise / Rewards
PRAISE/REWARDS

Future Leadership Program (FLP): Executives earmarked
and declared future leader based on their competency
Development based Career Plan (DLCP): Competent
executives committing 5 years service to company in the
form of bond will be given minimum 2 elevation during
the bond period.
Executive of the year Award
Company Jeep at individual level
Foreign Tour with family for the team achieving their
yearly target
Major medical claim for self and dependant
Aims of employee compensation
Attract capable employees to the
organization.
Motivate them towards superior
performance.
Retainment of their services over an
extended period of time.
The Importance of Compensation

Impacts an employer’s ability to attract
and retain employees.
Ensure optimal levels of employee
performance in meeting the organization’s
strategic objectives.
Theory Behind Compensation
Equity Theory
Comparing inputs and outputs of
a similar co-worker
Perceived inequity affects
employee effort
Expectancy Theory
People are motivated by intrinsic and
extrinsic outcomes they desire.
People will only be motivated if outcome
is possible.
People will only be motivated if outcome
is contingent.
Types of Base Pay Systems

Job-based

oPay the job (not the person)
oMarket-based (external equity
focus)
oPoint factor-based (internal equity
focus)

Skills / knowledge-based
oPay the person (not the job)
Job Based Pay
Attraction

Depends on market pricing

Motivation

No performance impact

Skill Development

Learn job-related and upward mobility
skills

Culture

Bureaucratic, hierarchical

Structure

Hierarchical, individual jobs and
differentiation

Cost

Good control of individual pay
Knowledge Based Pay
Attraction

Attracts learning-oriented individuals,
high skills individuals

Motivation

Little performance impact

Skill Development

Motivates needed skill development

Culture

Learning, self-managing

Structure

Flat or team-based

Cost

Higher individual pay
Strategic Issues in Compensation

Determining compensation relative to
the market.
Striking a balance between fixed and
variable compensation.
Deciding whether or not to utilize teambased versus individual pay.
CONT……..

Creating the appropriate mix of
financial and non-financial
compensation.
Developing a cost-effective
compensation program that results
in high performance.
New Thinking for the New Millennium
Pay the person .
Reward excellence .
Individualize the pay system .
compensation

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compensation

  • 2. All forms of financial return, tangible services and benefits that employees receive as part of their employment relationship
  • 3. Compensation refers to wages, salaries or tips while benefits describes job extras provided by the employer.  Benefits might include health care packages, dental and life insurances, and paid time off.
  • 4. High compensation and appealing benefits attract employees . Some workplace benefits are required by law and others are offered as a job perk.
  • 5. ‘COMPENSATION’ IN OThEr TErMS AlSO CAllEd AS ‘EMPlOyEE remuneratioN’ Remuneration is the compensation; an employee receives in return of his or her contribution to the organization. His or her standard of living, status in the society, motivation, loyalty and productivity depends upon the remuneration he or she receives.
  • 6. Components of compensation EXTERNAL ENVIRONMENT INTERNAL ENVIRONMENT COMPENSATION FINANCIAL DIRECT INDIRECT NON-FINANCIAL THE JOB THE ENV.
  • 7. FINANCIAL Direct wages, salaries, commissions, bonuses Indirect insurance plans life, health, dental, disability social assistance benefits retirement plans, social security. paid absences vacations, holidays, sick leave
  • 8. Non-Financial The Job interesting, challenging, responsible opportunity for recognition, advancement, feeling of achievement Job Environment policies, supervision, co-workers, status symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs
  • 9. Factors that Influence Wage Levels CONDITIONS OF LABOR MARKET AREA WAGE RATES EMPLOYER’S ABILITY TO PAY WAGE MIX COST OF LIVING WORTH OF JOB EMPLOYEE’S RELATIVE WORTH COMPENSATION POLICY OF ORGANIZATION
  • 10. COMPENSATION PACKAGE OF ASHOK LEYLAND
  • 11. CLASSIFICATION OF REWARDS TOTAL Compensation Financial Direct Monthly Salary Annual Incentives Bonus Indirect Non - Financial Job Satisfaction Provident Fund Gratuity Travel allowance Mobile expense Sales Promotional Expense Praise / Rewards
  • 12. PRAISE/REWARDS Future Leadership Program (FLP): Executives earmarked and declared future leader based on their competency Development based Career Plan (DLCP): Competent executives committing 5 years service to company in the form of bond will be given minimum 2 elevation during the bond period. Executive of the year Award Company Jeep at individual level Foreign Tour with family for the team achieving their yearly target Major medical claim for self and dependant
  • 13. Aims of employee compensation Attract capable employees to the organization. Motivate them towards superior performance. Retainment of their services over an extended period of time.
  • 14. The Importance of Compensation Impacts an employer’s ability to attract and retain employees. Ensure optimal levels of employee performance in meeting the organization’s strategic objectives.
  • 15. Theory Behind Compensation Equity Theory Comparing inputs and outputs of a similar co-worker Perceived inequity affects employee effort
  • 16. Expectancy Theory People are motivated by intrinsic and extrinsic outcomes they desire. People will only be motivated if outcome is possible. People will only be motivated if outcome is contingent.
  • 17. Types of Base Pay Systems Job-based oPay the job (not the person) oMarket-based (external equity focus) oPoint factor-based (internal equity focus) Skills / knowledge-based oPay the person (not the job)
  • 18. Job Based Pay Attraction Depends on market pricing Motivation No performance impact Skill Development Learn job-related and upward mobility skills Culture Bureaucratic, hierarchical Structure Hierarchical, individual jobs and differentiation Cost Good control of individual pay
  • 19. Knowledge Based Pay Attraction Attracts learning-oriented individuals, high skills individuals Motivation Little performance impact Skill Development Motivates needed skill development Culture Learning, self-managing Structure Flat or team-based Cost Higher individual pay
  • 20. Strategic Issues in Compensation Determining compensation relative to the market. Striking a balance between fixed and variable compensation. Deciding whether or not to utilize teambased versus individual pay.
  • 21. CONT…….. Creating the appropriate mix of financial and non-financial compensation. Developing a cost-effective compensation program that results in high performance.
  • 22. New Thinking for the New Millennium Pay the person . Reward excellence . Individualize the pay system .