2. Compensation

3. Compensation
 Classified into three categories:
Base or primary compensation: Refers to basic pay
in the form of wages and salaries.
Supplementary compensation: Consists of fringe
benefits such as housing, medical aid, paid leave,
retirement benefits etc.
Incentive compensation: Refers to monetary
compensation paid to motivate employees.

4. Base & Supplementary
compensation
 It means wages and salaries
paid to employees.
 Wage and salaries are paid
in cash.
 Wage and salaries are paid
to compensate employees
for their services.
 Wage and salaries are
determined on the basis of
job evaluation and other
relevant factors.
 It means fringe benefits
paid in addition to wage
and salaries.
 Fringe benefits are paid in
kind.
 Fringe benefits are paid to
retain employees and to
increase their efficiency.
 Fringe benefits depend
mainly on the company’s
policies and needs.

5. Issue in Compensation Management
1. Internal equity versus External equity.
2. Fixed pay versus Variable pay
3. Performance versus Membership.
4. Job versus individual pay.
5. Elitism versus Egalitarianism.
6. Below market versus Above market Compensation.
7. Monetary versus Non- monetary rewards.
8. Open versus secret pay.
9. Centralization versus decentralization of pay
decisions.

6. Components of Compensation
Basic pay: Basic pay is generally determined through job
evaluation which is the process of systematically
ascertaining the relative worth of a job.
Allowances:
Dearness Allowance (DA): Percentage of basic pay acc.
To organization.
House Rent Allowance: Percentage of BP of 30 per cent
in case of govt. employees.
City Compensatory Allowance: This allowances is paid
generally in metros and other big cities where cost of living
is high.

7. Transport Allowance/Conveyance Allowance: A
fixed sum is paid every month to cover a part of
travelling charges.
Incentives: It is performance based remuneration.
Bonus, profit-sharing, commission on sales etc are
exmaples.
Fringe benefits/Perquisities: Particularly to
managers. PF, gratuity, LTC, encashment of earned
leaves, company house, company car, medical aid,
interest free loan, stock options etc.

9. Program What it is Who gets it
Base Pay Regular pay; your "annual
salary"
All employees
Variable Pay Annual "bonus" depending on
company, group and individual
performance criteria
All non-incentive plan employees
are eligible; actual pay will vary
based on performance of the
individual and his/her unit
Commission and Incentive Pay For sales employees, portion of
total compensation varies on
specific sales goals and
objectives
Sales employees and executives
on incentive and commission
programs
Stock Options Recipients are granted the
"option" to buy stock at a locked
in price
Program is very limited and
focuses on retention by awarding
options to key employees in
critical job categories
Awards and Recognition Various individual and group
awards designed to recognize
very specific and extraordinary
accomplishments
All employees are eligible
depending on the nature of the
award and any relevant
restrictions

10. Objectives
 To establish a fair and equitable remuneration.
 To attract competent personnel.
 To retain the present employees.
 To improve productivity.
 To control costs.
 To establish job sequences and lines of promotion
wherever applicable.
 To improve union management relations.
 To improve public image of the company.

11. Essential of a Sound Wage and Salary
Structure
 Internal equity.
 External competitiveness.
 Built-in incentive.
 Link with productivity.
 Increments.

12. Factors affecting Compensation
 Demand for and supply of labour.
 Ability to pay.
 Labour unions.
 Cost of living.
 Prevailing wage rates.
 Job requirements.
 Productivity.
 State regulation.

13. Methods of Wage Payment
 Time wage system.
 Piece wage system.
 Balance or debt system.

14. Time Wage system
Wages are paid on the basis of time spent on the job
irrespective of the amount of work done.
Advantages:
Simples and oldest method.
Earnings of workers are regular and fixed.
The plan is economical as no detailed records.
Avoids wasteful handling.
Earnings are not dependent on the amount of work.
A sense of equality.
It is an objective method.
The employer can calculate the wage bill in advance.

15. Disadvantages:
No incentive for better performance.
Guaranteed remuneration makes workers indifferent.
Calculation of labour cost per unit is difficult.
Costs of supervision are high.

16. Piece wage system
Remuneration is based on the amount of work done or
output of a worker. One unit of output is considered as one
piece and a specific rate of wage is paid per piece.
Advantages:
 Direct relation b/w effort and reward.
Fair to all.
Increased in productivity results.
Distinguish b/w efficient and inefficient.
Ambitious and efficient workers are provided with ample
opportunities.

17. Disadvantages:
Difficult to fix piece wage rates.
Earnings of workers are not stable.
Detailed of production have to be kept so that the
clerical work is increased.
This method leads to industrial disputes.
Trade union dislike piece wage system.
Jealousy b/w efficient and inefficient workers.
Piece may not be of good quality.

18. Balance or debt system
This method is a combination of time and wage
systems. If the wages calculated at piece rate exceed
the time rate, the worker gets the credit. On the other
hand, if time wages exceed piece wages, the worker is
paid time wage and the deficit is carried forward as
debt to be reconserved in future.
This method applicable mostly on Dock Worker - a
laborer who loads and unloads vessels in a port.

19. Process of wage determination
Job analysis.
Job evaluation.
Wage survey.
Developing wage structure.
Wage administration rules.
Employee appraisal.
Broad banding.

20. Supplementary compensation
 Concept
 Criteria:
 Need and importance:
 Types:
 Factors influencing:

21. Executive Compensation
 Straight salary.
 Bonus based on company’s profits or commission.
 Stock options involving issue of the company’s shares
at a special price.
 Fringe benefits or perquisites such as free furnished
housing, servants, free telephone, discount coupons,
expense account, membership of professional
association etc.

22. Executive compensation depends on
some factors:
 Complexity of the job.
 Capacity to pay.
 Education and experience.
 Performance.
 Economic environment.
 Legislation.

24. Concept of Job Evaluation
“the process of analysis and assessment of jobs to
ascertain reliably their relative worth using the
assessment as the basis for a balanced wage structure.”
British Institute of Management.

25. Difference b/w Job Evaluation &
Performance Appraisal
 It is the assessment of
various jobs to find out
their relative worth.
 It takes into consideration
the requirements of
different jobs.
 Its purpose is to identify
the basis for fixing wages,
salary for various jobs.
 It is the assessment of
performance of different
employees the same job.
 It takes into consideration
the performance of
different individuals.
 Its purpose is to identify
the basis for decisions
concerning pay raise,
promotion, training and
transfer, etc.

26.  It rates the job holder
and the not the job.
 It is done before an
employee joins.
 It rates the job and not
the jobholder.
 Its is done after an
employee joins and
performs the job.

27. Objectives
 To determine equitable wage differentials between
different job s in the organization;
 To eliminate wage inequities;
 To develop a consistent wage policy;
 To establish a rational basis for incentive and bonus
schemes;
 To enable management to control the payroll costs.
 To minimize wage discrimination on the basis of age,
sex, caste, region, religion, etc.

28. Process of Job Evaluation
 Gaining acceptance.
 Constituting job evaluation committee.
 Selecting jobs to be evaluated.
 Describing the jobs.
 Selecting the method of evaluation.
 Weighting job factors.
Skill-mental and manual.
Experience.
Efforts and initiatives.
Working conditions.

29. Responsibilities to be undertaken.
Supervision required.
 Assigning money values.
 Periodic reviews.

30. Advantages of job evaluation
 It is logical and objective technique of ranking jobs.
 It helps to improve industrial relations. By reducing
employee doubts.
 It helps in fitting new jobs at their appropriate places.
 It provides a clear and objectives basis.
 It involves detailed analysis of a job.
 It reveals job which require loss or more skilled
workers than those already performing these jobs.

31. Disadvantages of job evaluation
 It is not fully objective and scientific.
 It fails to consider several factors which influence the
value of a given job from workers’ point of view.
 It makes the wage and salary structure inflexible by
freezing wage differentials between jobs.
 It is not well suited to determining the relative worth
of managerial jobs.
 It is time-consuming and expensive process.
 Some of the methods of ob evaluation are difficult to
understand.

32. Methods of Job Evaluation
 Non-quantitative methods
Ranking or job comparison
Grading or job classification
 Quantitative methods
Point rating
Factor comparison

33. Ranking Method
 Job description:
 Pair comparisons:
 Ranking along a number line:

34. Advantages of ranking method:
It is simplest and the oldest method.
It is very economical and less time consuming.
It involves less paper work.