UNIT 4
Definition
• Gary Dessler in his book Human Resource Management
defines compensation in these words “Employee
compensation refers to all forms of pay going to
employees and arising from their employment.” The
phrase ‘all forms of pay’ in the definition does not
include non-financial benefits, but all the direct and
indirect financial compensations.
• According to Thomas J. Bergmann (1988) compensation
consists of four distinct components: Compensation =
Wage or Salary + Employee benefits +Non-recurring
financial rewards+ Non-pecuniary rewards.
Process of compensation management is
to establish & maintain an equitable wage &
salary structure & an equitable cost
structure.It involves job evaluation, wage &
salary survey, profit sharing & control of pay
costs.
Two important functions of compensation
• Equity function- Equity is based on past &
current performance.
• Motivation with which the work has been
performed in the past & current performance.
Objectives of Compensation Management
• To Establish a Fair and Equitable Remuneration
• To Attract Competent Personnel
• To Retain the Present Employees
• To Improve Productivity
• To Control Cost
• To Improve Union Management Relations
• To Improve Public Image of the Company
• To Improve Job Satisfaction
• To Motivate Employees: Employees Peace of Mind
• Increases Self-Confidence
Goals of Compensation System
• To pay salary and benefits to attract and retain highly qualified
employees.
• To be competitive with appropriate labor markets.
• To reward meritorious performance by focusing salary increases on
individual achievement and contribution.
• To pay equal pay for equal work. To develop consistency in salaries paid
persons performing equal work for jobs which require equal skill, effort,
and responsibility.
• To operate within the budget established for standard compensation.
• To communicate effectively to enhance understanding between
employees and their supervisors about the key elements of the total
compensation program, including the pay plan, performance reviews,
benefit programs, and the classification system.
• To comply with appropriate federal and state laws.
Significance of Compensation Management
• An ideal compensation system will have positive
impact on the efficiency
• It will enhance the process of job evaluation
• Such a system should be well defined and uniform
• The system should be simple and flexible
• It will raise the morale, efficiency and cooperation
among the workers
• It will enhance the process of job evaluation
• Such a system should be well defined and uniform
Principles of Compensation
• Compensation policy should be developed by taking into
consideration of the views of employers, the employees,
the consumers and the community.
• The compensation policy or wage policy should be clearly
defined to ensure uniform and consistent application.
• The compensation plan should be matching with overall
plans of the company.
• Management should inform the wage/salary related
policies to their employees.
• All wage and salary related decisions should be checked
against the standards set in advance in the wage/salary
policy
Components of Compensation
• Basic Wages/Salaries
• Dearness Allowance
• Incentives
• Bonus
• Non-Monetary Benefits
• Commissions
• Mixed Plan
• Piece Rate Wages
• Fringe Benefits
• Profit Sharing
Types of Compensation
Factors Considered in Deciding the Compensation
REWARD:
Reward is an incentive plan to reinforce
the desirable behavior of workers and in
return for their service to the organization.
Rewards can be monetary in the form of
salary or non monetary in the form of awards
for some special services to the company or
simply giving an employee a work which he
enjoys doing.
Employee reward system:
An employee reward system is a motivation
tactic organizations use to help their staff feel
encouraged to complete high-quality work. It's
different from an incentive program because
incentives are goal oriented.
The primary objective of organizations in
giving rewards is to attract, maintain and retain
efficient, high performing and motivated
employees.
Objective of Employee Reward Management:
• Support the company’s strategy
• Recruit & retain
• Motivates the employees to a greater extent
• Comply with legislation
• Financially sustainable
• Attracting new employees
• Avoid cost of hiring and training of new employee
• Encouraging positive attitude
• Encouraging honesty and loyalty
The rewards can be divided into three main
categories-
• intrinsic versus extrinsic rewards,
• non-financial versus financial rewards,
• membership versus performance-based
rewards.
Benefits of a reward system:
• Higher attendance
• Better work quality
• Greater job satisfaction
• Faster project completion
Designing Reward System
• Rewards should be given to both individuals and
teams
• A multi-dimensional and wider reward system is
likely to reduce undue pressure on promotions
• Rewards must develop pride in belonging to the
organization and a felting that people are valued
• A manual for reward system may be developed
• It is very important that there is transparency and
fairness
