SYNOPSIS on

THE EFFECT ON COMPENSATION MANAGEMENT IN IMPROVING EMPLOYEES

PERFORMANCE
Submitted in partial fulfillment of the requirement For the

Award of the Degree of

“MASTER OF BUSINESS ADMINISTRATION”

of
BANGALORE CENTRAL UNIVERSITY

Submitted by: SACHIN A B

Reg No:MB182874

Under The Guidance Of

DR. VINAYA T

VIVEKANANDA INSTITUTE OF MANAGEMENT

Dr. Rajkumar road Rajajinagar bangalore 5600552019-2020
 CHAPTER 1
INTRODUCTION
COMPENSATION MANAGEMENT

MEANING OF WAGE/ COMPENSATION PAYMENT:

Wage is a monetary payment made by the employer to his employee for the work done
or services rendered. It is a monetary compensation for the services rendered. A
worker may be paid Rs. 100 per day or Rs. 4500 per month. This is wage payment.
The worker gives his services and takes payment called wage payment. Industrial
workers are paid remuneration for their services in terms of money called wage
payment. Wages are usually paid in cash at the end of one day, one month or one
week. Money wage is the monetary compensation or price paid by the employer to his
employee for the services rendered. Such compensation is also called wage or salary or
reward given by an organization to a person in return to a work done.

Generally, compensation payable to an employee includes the following three

components:
Basic compensation for the job (wage/salary)
Incentive compensation for the employee on job
Supplementary compensation paid to employees (fringe benefit and employee
services)

Definition:
According to Milkovinch and Boudreau, “Compensation refers to all forms of
financial returns, tangible services, and benefits employee received as part of their
employment relationship.”

OBJECTIVE/GOALS OF WAGE & SALARY:

1. Internal & external Equity: A very important objective in administering wage

and salary is to achieve internal and external equity. Internal equity means similar pay
for similar work. Differences in wages between jobs should be in proportion to the
differences in the worth of the jobs.

2. Fair wages: A fair wage is something more that the minimum wage providing
the bare necessities of life. A fair wage depends on several factor- productivity of
labor, prevailing rates of wages in the same or similar occupations in the same or
neighboring region, place of industry in the country’s economy, employer’s capacity to
pay and so on.

3. Attract competent talent: Through proper wage salary administration, the

organization seeks to attract talented, well qualified and hardworking people.

4. Retain good employees: Through fair and competitive wages and salaries, the
organization aims at retaining competent employees who are doing a good job. The
purpose is to reduce employee turnover.

5. Satisfy employee needs: A key objective of adequate wages and salaries is to

help employees fulfill their various needs. It creates a sense of security and enhances
the self-worth of the employees.

6. Motivate employees to higher productivity: A well planned wage and salary

system motivates employees to work hard, resulting in higher levels of productivity.
IMPORTANCE OF WAGE PAYMENT:

1. To worker:

Wage payment is important to all categories of workers. Wage is a matter of life and
death to workers/employees. Their life, welfare and even social status depend on wage
payment. It is only source of income to large majority of workers. They and their
unions always demand higher wages and other monetary benefits.
Majority of labour problems and disputes are directly related to wage payment. The
efficiency of workers and their interest and involvement in the work depend on wage
payment. Even their attitude towards employer depends on wage payment. In brief,
wage payment is a matter of greatest importance to workers. Wage problem is the most
pressing and persistent problem before the entire labour force.

2. To employer:

Wage payment is equally important to employers as their profit depend on the total
wage bill. An employer in general is interested in paying low wages and thereby
controls the cost of production. However, low wages are not necessarily economical.
In fact they may prove to be too costly to the employer in the long run. E.g. In garment
manufacturing company if tailors are not paid properly then it is difficult for the
company to retain them. An employer has a moral and social responsibility to pay fair
wages to his worker as they are equal partners in the production process. He should
give fair wages which will benefit to both the parties. Employees will offer full co-
operation to the management when they are paid attractive wages. On the other hand,
strikes and disputes are likely to develop when workers are paid low wages or when
they are dissatisfied and angry due to low wage rates. It is possible to earn more profit
by paying attractive wages to workers. E.g. Reliance, Citi Bank, Motorola are earned
huge profits because of their higher pay packages.

3. To government:

Government also give special importance and attention to wages paid to industrial
workers as industrial development, productivity, industrial peace and cordial labour-
management relation depend on the wage payment to workers. Government desires to
give protection to the working class and for this minimum wages act and other Acts
are made. In India, wages are now link with the cost of living. This is for the
protection of workers. Government is the biggest employer in India and the wage rates
of government servant and employees of public sector organisations are decided by
government only. Revision of pay scale of government employees made for adjusting
their wages as per the cost of living. For this, “Pay Commission” is appointed and pay
scale is adjusted as per the recommendations made.

In India, wage payment is very critical, controversial and delicate issue for all
categories of work force. This is due to poverty, rising prices, mass unemployment and
rising population. Wage payment indeed a vexatious problem and needs to be tackled
from economic, social and humanistic angles.

CONCEPT OF FAIR WAGES:

Fair wages is the wage which is above the minimum wage but below the living wage.
Obviously the lower limit of the fair wage is the minimum wage and the upper limit is
set by the ability of the industry to pay. Between these two limits, fair wages should
depend on the factors like –

1. Prevailing rates of wages in the same occupation

2. Prevailing rates of wages in the same region or neighbouring areas
3. Employers ability to pay
4. Level of national income and its distribution
5. Productivity of labour
6. Status enjoyed by the industry in the economy

Hence it can be said that fair wages are determined on industry cum region basis.
When fair wages are paid employees enjoy higher standard of living. It is accepted fact
that wages must be fair and reasonable. Wages is fair when the employee is able to
meet its essential needs and enjoy reasonable standard of living. ”Equal pay for equal
work” serves as base of fair wage.

According to Encyclopaedia of social science,”Fair wages are equal to those received

by the workers performing work of equal skill, difficulty or unpleasantness.”

Factors Influencing Wage And Salary Structure:

1. The organization’s ability to pay:

Wage increases should be given by those organizations which can afford them.
Companies that have good sales and therefore high profits tend to pay higher wages
than those which are running at a loss or earning low profits because of the high cost
of production or low sales.

2. Supply and demand of labour:

If the demand and certain skills are high and the supply is low the result is rise in
the price to be paid for these skills. The other alternative is to pay higher wages if the
labour supply is scarce and lower wages when it is excessive.

3. The cost of living:

When the cost of living increases, workers and trade unions demand adjusted
wages to offset the erosion of real wages. However when living costs are stable or
decline the management does not resort with this argument as a reason for wage
reduction.

4. The living wage:

 Employers feel that the level of living prescribed in workers budget is opened to
argument since it is based on subjective opinion.

5. Job requirements:
Jobs are graded according to the relative skill responsibility and job conditions
required.

6. Trade unions bargaining power:

Trade unions do affect the rate of wages. Generally the stronger and more
powerful trade union, higher the wages.

7. Productivity:
Productivity is another criterion and is measured in terms of output man-hour. It
is not due to labour efforts alone. Technological improvements, greater ingenuity and
skill by the labour are all responsible for the increase in productivity.

8. Prevailing market rate:

This is also known as ‘comparable wages’ or ’going wage rate’. Reason behind
this is competition demand that competitors adhere to the same relative wage level.

9. Skill levels available in the market:

With the rapid growth of industries, business trade there is shortage of skilled
resources. The technological development, automation has been affecting the skilled
levels at a faster rate.

10. Psychological and social factors:

This determine in a significant measure how hard a person will work for the
compensation received or what pressures he will exert to get his compensation
increased.

Componsation management allows you to provide positive feedback as well as

identifying areas for improvement. An employee can discuss and even create a
developmental plan with the manager so they can improve their skill. It clarifies
the employee’s role and status in the organization. Some workers like to know
where they stand regarding their job performance and want to see what else they can
do for the company. It is by and large useful for not only for the different payments
purpose but also to make aware of once strengths and weaknesses. So that employees
can able to understand that in which area they are supposed to improve their
performance. Under this exercise evaluation is not only the performance of worker
on the job but also employee potential for development for future expecting
job roles. Moreover performance appraisals should focus on wok planning and
continuous review for development. They should also focus on quality to survive in
the current environment.

Performance Appraisal is the systematic evaluation of the performance of employees

and to understand the abilities of a person for further growth and development.
Performance appraisal is generally done in systematic ways which are as follows:

1. The supervisors measure the pay of employees and compare it with targets and
plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

1. To maintain records in order to determine compensation packages, wage

structure, salaries raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on
right job.
3. To maintain and assess the potential present in a person for further growth and
development.
4. To provide a feedback to employees regarding their performance and related
status.
5. To provide a feedback to employees regarding their performance and related
status.
6. It serves as a basis for influencing working habits of the employees.

To review and retain the promotional and other training programmes

Compensation

Employees need to be compensated for Their Efforts based on volume of

predication. Compensation refers to all forms of financial rewards received by
employees. It arises from their employment. It occupies an important place in the
life of the employee. It is a considerable cost to the employer. Compensation
dissatisfaction can lead to absenteeism, turnover, job dissatisfaction, low
performance, strikes and grievances. Majority of labor management disputes relate
to compensation.

‘’Compensation refers to the extrinsic that employees receive in exchange for their
work. It is composed of the base wage or salary and incentives or bonuses and
benefit.’’

Compensation is a key factor in attracting and keeping the best employees and
ensuring that the organization has the competitive edge in an increasingly
competitive world. The Compensation Management component enables to
differentiate between the remuneration strategies and those of competitors while
still allowing flexibility, control and cost effectiveness. It provides a toolset for
strategic remuneration planning that reflects the organization culture and pay
strategies, and it empowers line managers within a framework of flexible budget
control. Compensation management allow to control bottom – line expenditures
and competitive and motivating remuneration , be it fixed pay, variable pay, stock
options, merit increases, or promotion- in other words, total compensation.
Compensation management is payment in the form of hourly wages or annual salaries
combined with benefits such as insurance, vacation, etc. that can positively or
negatively affect an employee’s work performance.
It can be said that compensation is the “glue” that binds the employee and the
employer together and in the organized sector, this is further codified in the form of a
contract or a mutually binding legal document that spells out exactly how much should
be paid to the employee and the components of the compensation package. The art and
science of arriving at the right compensation makes all the difference between a
satisfied employee and a disgruntled employee.
Though Maslow’s Need Hierarchy Theory talks about compensation being at the
middle to lower rung of the pyramid and the other factors like job satisfaction and
fulfillment being at the top, for a majority of employees, getting the right
compensation is by itself a motivating factor. Hence, employers need to quantify the
employee’s contribution in a proper manner if they are to get the best out of the
employee. The provision of monetary value in exchange for work performed forms the
basis of compensation and how this is managed using processes, procedures and
systems form the basis of compensation management.
The aspect of how skewed compensation management leads to higher attrition is
discussed as well. This aspect is important as studies have shown that a majority of the
employees who quit companies give inadequate or skewed compensation as the reason
for their exit. Hence, compensation management is something that companies must
take seriously if they are to achieve a competitive advantage in the market for
talent.
DEFINITION OF COMPENSATION MANAGEMENT:
It is a systematic approach to providing monetary value to employees in exchange for
work performed. Compensation may achieve purposes assisting in recruitment, job
performance, and job satisfaction.

PREFACE
Human resource is the most vital resource for any organization . It is responsible for
each and every decision taken, each and every work done. Employees should be
managed and motivated by providing best remuneration and compensation as per the
industry standards. The lucrative compensation will also serve the need for attracting
and retaining the best employees.
Compensation is the remuneration received by an employee in return for his/her
contribution to the organization. It is an organized practice that involves balancing the
work-employee relation by providing monetary and non-monetary benefits to the
employees.

Background of the Study

Companies want to attract, retain and motivate brains to meet objectives. Today
Humans are regarded as one of every company’s assets so they need to be
efficiently and effectively managed. One of the tools companies use to attract,
retain and motivate its people is Compensation Management. Compensation is
an integral part of human resource management which helps in motivating the
employees and improving organizational effectiveness.

Employees today are not willing to work only for the cash alone, they expect 'extra'.
This extra is known as employee benefits. Also known as fringe benefits,
Employee benefits are non- financial form of compensation offered in addition to
cash salary to enrich workers’ lives.

Human Resource is the most vital resource for any organization. It is responsible
for each and every decision taken, each and every work done and each and every
result. They should be managed properly and motivated by providing best
remuneration and compensation as per the industry standards. The lucrative
compensation will serve the need for attracting and retaining the best employees.

So, Human Resource managers’ task is to carefully design the organization’s

benefit package. They have to plan about what benefits should offer to whom and
on which basis? Definitely all the employees will not get the same benefit. A sales
person and a receptionist will get different benefit but inadequate benefits do
contribute to low satisfaction level and increase absenteeism and turnover in
employees.
 Rational of the Study

Employee Benefit & Compensation which helps in motivating the employees and
improving organizational effectiveness. An idle compensation & Benefit
management system will help an organization significantly boost the performance
of its employees and create a more engaged workforce that’s willing to go the extra
mile for an organization. That is why we have decided to do our report on
“Employees Benefit & Compensation management”

Objective of the Study

Broad Objective:
To know about the Employee compensation & Benefit management system.
Specific Objective:

1. To know the compensation & Benefit management system towards

Bangalore City

2. To know the employee satisfaction level of Bangalore City

3. To identify the problem of compensation & Benefit management system of

Bangalore City

4. To provide the necessary recommendation about the compensation &

Benefit package of Bangalore City
Types of Compensation

Compensation

Direct Indirect

Pay Incentives Benefits Services

Base Pay Merit Pay

Direct Compensation
It is remuneration provided to employ in exchange for their labor and services.
What makes it direct is that it is given to the employee without an intermediary.
Under direct compensation.
 Pay:
It consists of wages and salaries received for performance work. It
can be base pay and merit pay based on job performance.
 Incentives:
They are provided for the employee’s benefit, but is not given directly
to the employee. Under indirect compensation there are two performing
work. It con be piece wage, commission, bonus, profit sharing, stock
 option etc.

Indirect compensations
It provided for the employees benefit but is not given directly to the
employee. Under direct compensation there are two types of compensation:
 Benefits are the payments addition to pay. They can be
1. Pay for time not worked: paid vacation, holidays, leaves
2. Protection Programs: Pension, Gratuity, Insurance etc
3. Executives Benefit: Free Newspapers, telephone etc
 Service and Perquisites: They increase employees wellbeing
at on cost or significantly reduced cost to employees. They
can be
1. Housing, transport, food
2. Loans Children’s, education expenses
3. Discount on purchases, credit cards
4. Social-culture recreational activities; club subscriptions.

Compensation as component of Human Recourses Management

Compensation management consists of designing the lowest cost pay structure that
will attract, retain, and motivate the competent employees and which is perceived
as fair by the employee satisfaction.
Objectives of compensation management

The following are the objectives of compensation management:

1. An ideal compensation system will have positive impact on the efficiency

and results produced by employees. It will encourage the employees to

perform better and achieve the standards fixed.
2. It will raise the morale, efficiency and cooperation among the workers. It

being just and fair will provide satisfaction to the workers.

3. Sound compensation/ Rewards system bring peace in the relationship of

employer and employees, collective bargaining generally focus on

compensation issues
4. The perfect compensation system provides platform for happy and

satisfied workforce. This minimizes the labor turnover. The organization

enjoys the stability.
5. The business organization can think of compensation and growth if it has

the support of skillful, talented and happy workforce.

6. The sound compensation system is hallmarks of organization success and
prosperity.
7. The success and stability of the organization is measured with pay-

package it provides to its employees.

 Individual Incentives

Individual incentives plan pay off for individual performance. Popular approaches
include piecework plans, time-saving bonuses and commission.

Under straight piecework plan, the employee is typically guaranteed a minimum

hourly rate for meeting some pre established standard output. For output over this
standard, the employee earns so much for each piece produced.

Individual incentives can be based on time saved as well as output generated. As

with piecework, the employee can expect a minimal guaranteed hourly rate, but in
this case the bonus is achieved for doing a standard hour’s work in less than sixty
minutes. Employees who an hour’s work in fifty minutes can do obtain a bonus
that is some percentage of the labor saved.

Sales personnel frequently work on commission basis. In addition to low wage

rate, they get an amount that represents a percentage of the sales price.

Group Incentives

Each of individual incentive can also be used on a group basis. That is two or more
employees can be paid for their combined performance. One problem with group
incentives is that employees do not see them as being directly linked to their own
behavior. The pay of the employee under group incentives is influenced by the
behavior of others with whom that employee works.
Organization wide incentives

The goal of organization wide incentive is to direct the efforts of all employees
toward achieving overall organizational effectiveness. This type of incentive
produces rewards for all employees based on organizational wide cost reduction or
profit sharing.

Executive compensation

Executive compensation is significantly higher than the benefits given to the

middle level managers and operational staff. This is how executive of business
corporations are paid which includes basic salary, bonuses, shares, options and
other company benefits. There are three components of executive compensation
they are explained below:

Executive Salary
Top managers are expected to demonstrate good decision making abilities.
Eventually the supply of qualified senior executives is scare, and organizations
have bid up the price for this talent. They too must keep their salaries in line with
the competition or potentially lose an executive to another organization. High
salary also acts to motivate both top executives and lower level managers. High
pay encourages top level managers to perform well in order to keep their jobs. But
high pay also acts to stimulate lower level managers to work hard so that they can
someday move up the ladder to the “big money”.
Supplement Financial Compensation
Financial incentives like bonuses or stock option plans are the exception among
rank and file workers, but it is the rare senile business executive whose
compensation does not include such incentives. The executive is bonus is
computed on the basis of some formula, usually taking into account increases in
sales and profits. This bonus although earned in the current period is distributed
over several future periods. The major purpose of such deferred compensation is
to increase the cost to the executive of leaving the organization. Similarly stock
options have been a common incentive offered to executives. They generally allow
executives to purchase, at sometime in the future, a specific amount of the
company’s profitability and, therefore the price of the stock; Stock options are
viewed as performance based incentives.
Supplement Non – Financial Compensation

Executives are frequently offered benefits of perquisites not offered to other

employees. These benefits includes such as medical insurance, life insurance,
interest free loan, club membership, vehicles/fuels, quarters, supplemental
retirement account

INCENTIVE

Management is all about managing men. The main task of any manager in an
organization is to get things done through his subordinates. And to get things done,
motivating the employees and keeping their morale up is very essential. There are a
number of ways which different managers in organizations employ to improve
employee motivation, such as by treating the employees fairly, setting achievable
goals, giving positive reinforcement, following an effective discipline policy,
satisfying the employee needs and lastly, the most important of all, basing the rewards
or incentives on job performance. Although, all of the above methods of motivating
employees should be applied by a manager to increase work productivity, yet special
attention should be paid while deciding upon incentives for employees, as nothing can
motivate an individual like them

1. Financial incentives for employees are the amount of increment they will get
upon achieving a particular target, i.e. if an employee does A amount of work,
he will get B amount of money.
2. Financial incentives are not the only types of incentives for employees, there are
companies which give incentives in the form of gift items or organizing events
for the high achieving employees as well.
3. Many organizations these days give rewards to their high performing
employees in the form of books, gadgets, restaurant passes and movie tickets.
4. Throwing parties for employees or having events such as special dinners for the
employees are some of the other employee incentive ideas used by companies
these days
BENEFITS OF INCENTIVES
The incentives for employees, such as a rise in the salary of the high performing
employee, benefits the organization in two ways.
1: The employee who receives a pay hike gets even more motivated and thus,
maintains his high level of performance.
2: Other employees too get indirectly motivated to work harder in aspiration of
receiving similar incentives

MOTIVATIONAL INCENTIVES FOR EMPLOYEES

Before implementing employee incentive programs, a good idea is to make a list of all
the rewards that have been planned and make the employees vote the ones that they
think are the best for them. An organization can also consider the following incentives
for employees.
1. Staff meetings in a good hotel instead of office.
2. A birthday program in which a gift is delivered to the employees house on his
birthday.
3. Attendance incentives for employees could be something like certificates with
"time offs" for the employee.
4. Soccer game tickets or concert tickets to a group which has achieved its target.
5. Certain health incentives for employees who do social work.

BONUS PAY
Bonus pay is compensation over and above the amount of pay specified as a base
salary or hourly rate of pay. The base amount of compensation is specified in the
employee offer letter, in the employee personnel file, or in a contract. Bonus pay can
be distributed randomly as the company can afford to pay a bonus, or the amount of
the bonus pay can be specified by contract.

1. Bonus pay is used by many organizations as a thank you to employees or a team

that achieves significant goals.
2. Bonus pay is also used to improve employee morale, motivation, and
productivity.
3. As long as bonus pay is discretionary by the employer, it is not considered to be
a contract.
4. If the employer promises a bonus, however, the employer may be legally liable
to pay the bonus.

Profit sharing
 1. Profit sharing refers to various incentive plans introduced by businesses that
provide direct or indirect payments to employees that depend on company's
profitability in addition to employees' regular salary and bonuses.
2. In publicly traded companies these plans typically amount to allocation of shares
to employees.

HOW IT WORKS:
1. The company contributes a portion of its pre-tax profits to a pool that will be
distributed among eligible employees.
2. The amount distributed to each employee may be weighted by the employee's
base salary so that employees with higher base salaries receive a slightly higher
amount of the shared pool of profits.
3. Generally this is done on an annual basis.

Disadvantages
1. The pay for each employee moves up or down together (no individual
differences for merit or performance).
2. Focuses only on the goal of profitability (which may be at the expense of
quality).
3. For smaller companies, these plans may result in drastic swings in earnings for
employees which the employees may find difficult to manage their personal
finances.

Components of compensation:-

Basic wages/Salaries:-
This refers to the cash component of the wage structure based on which other elements
of compensation may be structured. It is normally a fixed amount which is subject to
changes based on annual increments or subject to periodical pay hikes. It is structured
based on the position of an individual in the organization and differs from grades to
grades.

Dearness allowance:-
The payment of dearness allowance facilitates employees and workers to face the price
increase or inflation of prices of goods and services consumed by him. The onslaught
of price increase has a major bearing on the living conditions of the labor. The
increasing prices reduce the compensation to nothing and the money's worth is coming
down based on the level of inflation.

The payment of dearness allowance, which may be a fixed percentage on the basic
wage, enables the employees to face the increasing prices.

Bonus:-

The bonus can be paid in different ways. It can be fixed percentage on the basic wage
paid annually or in proportion to the profitability. The Government also prescribes a
minimum statutory bonus for all employees and workers.

There is also a bonus plan which compensates the Managers and employees based on
the sales revenue or Profit margin achieved. Bonus plans can also be based on piece
wages but depends upon the productivity of labor.

Commissions:-

Commission to Managers and employees may be based on the sales revenue or profits
of the company. It is always a fixed percentage on the target achieved. For taxation
purposes, commission is again a taxable component of compensation.

The payment of commission as a component of commission is practiced heavily on

target based sales. Depending upon the targets achieved, companies may pay a
commission on a monthly or periodical basis.

Mixed plans:-

Companies may also pay employees and others a combination of pay as well as
commissions. This plan is called combination or mixed plan. Apart from the salaries
paid, the employees may be eligible for a fixed percentage of commission upon
achievement of fixed target of sales or profits or Performance objectives.

Nowadays, most of the corporate sector is following this practice. This is also termed
as variable component of compensation.
Piece rate wages:-

Piece rate wages are prevalent in the manufacturing wages. The laborers are paid
wages for each of the Quantity produced by them. The gross earnings of the labour
would be equivalent to number of goods produced by them.

Piece rate wages improves productivity and is an absolute measurement of

productivity to wage structure. The fairness of compensation is totally based on the
productivity and not by other qualitative factors.

The GANTT productivity planning and Taylor's plan of wages are examples of piece
rate wages and the related consequences.

Sign on Bonuses:-

The latest trend in the compensation planning is the lump sum bonus for the incoming
employee. A person, who accepts the offer, is paid a lump sum as a bonus.

Even though this practice is not prevalent in most of the industries, Equity research
and investment banking companies are paying this to attract the scarce talent.

Profit sharing payments:-

Profit sharing is again a novel concept nowadays. This can be paid through payment of
cash or through ESOPS. The structuring of wages may be done in such a way that, it
attracts competitiveness and improved productivity.

Profit sharing can also be in the form of deferred compensation at the time of
retirement. At the time of retirement the employees may be paid a lump sum or retiral
benefits.

Fringe benefits:-

The provision of fringe benefits does not attract any explanation. These includes.,

a) Company cars
b) Paid vacations
c) Membership of social/cultural clubs
d) Entertainment tickets/allowances.
e) Discounted travel tickets.
f) Family vacation packages.

Reimbursements:-

Employees, depending upon their gradations in the organization may get

reimbursements based on the Expenses incurred and substantiated. Certain expenses
are also paid based on expenses incurred during the course of business.

In many cases, employers provides advances to the employees for incurring certain
expenses that are incurred during the course of the business.

Some examples are:

a) Travel expenses.
b) Entertainment expenses
c) Out of pocket expenses
d) Refreshments expenses during office routine outside office premises.

Sickness benefits/pregnancy:-

The increasing social consciousness of corporates had resulted in the payment of

sickness benefit to the Employees of companies. This also includes payments during
pregnancy of women employees.

The expenses incurred due to injury or illness are compensated or reimbursed to the
employees. In certain companies, the death of an employee is compensated financially.

Companies are also providing supporting financial benefits to the family of the
bereaved employees. However, companies covering these cost through appropriate
insurance policies like, Medical and life insurance.
The whole idea of compensation management can be better understood through the
following Pyramid structure.

Leave Travel Allowance

These allowances are provided to retain the best talent in the organization. The
employees are given allowances to visit any place they wish with their families. The
allowances are scaled as per the position of employee in the organization.

Medical Reimbursement
Organizations also look after the health conditions of their employees. The employees
are provided with medi-claims for them and their family members. These medi-claims
include health-insurances and treatment bills reimbursements.

Bonus
Bonus is paid to the employees during festive seasons to motivate them and provide
them the social security. The bonus amount usually amounts to one month’s salary of
the employee.

Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel
expenses, reduced interest loans; insurance, club memberships, etc are provided to
employees to provide them social security and motivate them which improve the
organizational productivity.

INDIRECT COMPENSATION
Indirect compensation refers to non-monetary benefits offered and provided to
employees in lieu of the services provided by them to the organization. They include
Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel
Assistance Limits, Retirement Benefits, Holiday Homes.

Leave Policy
It is the right of employee to get adequate number of leave while working with the
organization. The organizations provide for paid leaves such as, casual leaves, medical
leaves (sick leave), and maternity leaves, statutory pay, etc.

Overtime Policy
Employees should be provided with the adequate allowances and facilities during their
overtime, if they happened to do so, such as transport facilities, overtime pay, etc.

Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an
interval of one year. Even their dependents should be eligible for the medi-claims that
provide them emotional and social security.

Insurance
Organizations also provide for accidental insurance and life insurance for employees.
This gives them the emotional security and they feel themselves valued in the
organization.

Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with
their families. Some organizations arrange for a tour for the employees of the
organization. This is usually done to make the employees stress free.

Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which
benefits them after they retire from the organization at the prescribed age.

Holiday Homes
Organizations provide for holiday homes and guest house for their employees at
different locations. These holiday homes are usually located in hill station and other
most wanted holiday spots. The organizations make sure that the employees do not
face any kind of difficulties during their stay in the guest house.

Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work
during normal shifts due to their personal problems and valid reasons.

IMPORTANCE OFCOMPENSATION

Compensation and Reward system plays vital role in a business organization. Since,
among four Ms, i.e. Men, Material, Machine and Money, Men has been
most important factor, it is impossible to imagine a business process without Men.
Every factor contributes to the process of production/business. It expects return from
the business process such as rent is there turn expected by the landlord, capitalist
expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour
expects wages from the process. Labor plays vital role in bringing about the process of
production/business in motion. The other factors being human, has expectations,
emotions, ambitions and egos. Labor therefore expects to have fair share in the
business/production process.

Labor plays vital role in bringing about the process of production/business in

motion. The other factors being human, has expectations, emotions, ambitions
and egos.

Labor therefore expects to have fair share in the business/production process.

Therefore a fair compensation system is a must for every business organization. The
fair compensation system will help in the following:

o An ideal compensation system will have positive impact on the efficiency and
results produced by employees. It will encourage the employees to perform
better and achieve the standards fixed.
o It will enhance the process of job evaluation. It will also help in setting up an
ideal job evaluation and the set standards would be more realistic and
achievable.
o Such a system should be well defined and uniform. It will be apply to all the
levels of the organization as a general system.

The system should be simple and flexible so that every employee would be able to
compute his own compensation receivable.

o It should be easy to implement, should not result in exploitation of workers.

o It will raise the morale, efficiency and cooperation among the workers. It,
being just and fair would provide satisfaction to the workers.

o Such system would help management in complying with the various labor
acts.

o Such system should also solve disputes between the employee union and
management.

o The system should follow the management principle of equal pay.

o It should motivate and encouragement those who perform better and should
provide opportunities for those who wish to excel.

o Sound Compensation/Reward System brings peace in the relationship of

employer and employees.

o It aims at creating a healthy competition among them and encourages

employees to work hard and efficiently.

o The system provides growth and advancement opportunities to the deserving

employees.
 o The perfect compensation system provides platform for happy and satisfied
workforce. This minimizes the labour turnover. The organization enjoys the
stability.

o The organization is able to retain the best talent by providing them adequate
compensation thereby stopping them from switching over to another job.

o The business organization can think of expansion and growth if it has the
support of skillful, talented and happy workforce.

o The sound compensation system is hallmark of organization’s success and

prosperity. The success and stability of organization is measured with pay-
package it provides to its employees.

SUCCESS FACTORS FOR COMPENSATION MANAGEMENT:

Success Factors Compensation delivers and ensures:

 Simplified, more accurate compensation plan management.

 Intuitive, highly configurable base salary and variable pay (bonus, stock, and
equity) processes with defined, streamlined workflows.

 Calibration with Performance to ensure fairness and employee

retention. Integrated with the suite, performance data is calibrated across the
company and seamlessly used with SuccessFactors Compensation.
 Insight for total compensation analysis. Pre-built reports and dashboards for
budget rollups, exceptions, legal compliance, employee details and perform-and-
reward analysis. Plus, compensation data can be combined with other business
data for more comprehensive insight.

 Assurance that budgets are used wisely. Automated monitoring of compliance

with variable pay guidelines, keeps payouts in line with budgets. Plus, save time
as bonus and merit recommendations are automated from employee performance
data. Run "what-if" scenarios to instantly see how increasing merit pay to top
performers will impact budgets.

 Significantly reduced risk with improved audit compliance. Data for audits is
automatically stored, greatly reducing this burden for compensation
administrators.
By rewarding great execution, you will retain more of your top talent and drive
organizational performance that exceeds all expectations. Plus, benefit from
improved budgeting accuracy and reduced risk.

COMPENSATION OF PAYROLL:

Payroll refers to the administration of employees' salaries, wages, bonuses,

net pay, and deductions. It consist of the employee ID, employee name, date
of joining, daily attendance record, basic salary, allowances, overtime pay,
bonus, commissions, incentives, pay for holidays, vacations and sickness,
value of meals and lodging etc. There are some deductions such as PF, taxes,
loan installments or advances taken by employee.

Payroll is administered on monthly basis and annual basis.

While administrating the monthly payroll basic salary, HRA, conveyance,

and other special allowances such mobile, etc are considered. There are
some deductions
Which are provident fund (12%) of the salary, taxes and other deductions.

compute his own compensation receivable.

o It should be easy to implement, should not result in exploitation of workers.

o It will raise the morale, efficiency and cooperation among the workers. It,
being just and fair would provide satisfaction to the workers.

o Such system would help management in complying with the various labor
acts.

o Such system should also solve disputes between the employee union and
management.

o The system should follow the management principle of equal pay.

o It should motivate and encouragement those who perform better and should
provide opportunities for those who wish to excel.

o Sound Compensation/Reward System brings peace in the relationship of

employer and employees.

o It aims at creating a healthy competition among them and encourages

employees to work hard and efficiently.

o The system provides growth and advancement opportunities to the deserving

employees.
 o The perfect compensation system provides platform for happy and satisfied
workforce. This minimizes the labour turnover. The organization enjoys the
stability.

o The organization is able to retain the best talent by providing them adequate
compensation thereby stopping them from switching over to another job.

o The business organization can think of expansion and growth if it has the
support of skillful, talented and happy workforce.

o The sound compensation system is hallmark of organization’s success and

prosperity. The success and stability of organization is measured with pay-
package it provides to its employees.

SUCCESS FACTORS FOR COMPENSATION MANAGEMENT:

Success Factors Compensation delivers and ensures:

 Simplified, more accurate compensation plan management.

 Intuitive, highly configurable base salary and variable pay (bonus, stock, and
equity) processes with defined, streamlined workflows.

 Calibration with Performance to ensure fairness and employee

retention. Integrated with the suite, performance data is calibrated across the
company and seamlessly used with SuccessFactors Compensation.
 Insight for total compensation analysis. Pre-built reports and dashboards for
budget rollups, exceptions, legal compliance, employee details and perform-and-
reward analysis. Plus, compensation data can be combined with other business
data for more comprehensive insight.

 Assurance that budgets are used wisely. Automated monitoring of compliance

with variable pay guidelines, keeps payouts in line with budgets. Plus, save time
as bonus and merit recommendations are automated from employee performance
data. Run "what-if" scenarios to instantly see how increasing merit pay to top
performers will impact budgets.

 Significantly reduced risk with improved audit compliance. Data for audits is
automatically stored, greatly reducing this burden for compensation
administrators.
By rewarding great execution, you will retain more of your top talent and drive
organizational performance that exceeds all expectations. Plus, benefit from
improved budgeting accuracy and reduced risk.

COMPENSATION OF PAYROLL:

Payroll refers to the administration of employees' salaries, wages, bonuses,

net pay, and deductions. It consist of the employee ID, employee name, date
of joining, daily attendance record, basic salary, allowances, overtime pay,
bonus, commissions, incentives, pay for holidays, vacations and sickness,
value of meals and lodging etc. There are some deductions such as PF, taxes,
loan installments or advances taken by employee.

Payroll is administered on monthly basis and annual basis.

While administrating the monthly payroll basic salary, HRA, conveyance,

and other special allowances such mobile, etc are considered. There are
some deductions
Advantages of Performance Appraisal
It is said that performance appraisal is an investment for the company which can be
justified by following advantages:

1. Promotion:

Performance Appraisal helps the supervisors to chalk out the promotion

programmes for efficient employees. In this regards, inefficient workers can
be dismissed or demoted in case.

2. Compensation:

Performance Appraisal helps in chalking out compensation packages for

employees. Merit rating is possible through performance appraisal.
Performance Appraisal tries to give worth to a performance. Compensation
packages which includes bonus, high salary rates, extra benefits, allowances
and pre-requisites are dependent on performance appraisal. The criteria
should be merit rather than seniority.

3. Employees Development:

The systematic procedure of performance appraisal helps the supervisors to

frame training policies and programmes. It helps to analyse strengths and
weaknesses of employees so that new jobs can be designed for efficient
employees. It also helps in framing future development programmes.

4. Selection Validation:

Performance Appraisal helps the supervisors to understand the validity and

importance of the selection procedure. The supervisors come to know the
validity and thereby the strengths and weaknesses of selection procedure.
Future changes in selection methods can be made in this regard.
 5. Communication:

For an organization, effective communication between employees and

employers is very important. Through performance appraisal, communication
can be sought for in the following ways:

a. Through performance appraisal, the employers can understand and

accept skills of subordinates.
b. The subordinates can also understand and create a trust and confidence
in superiors.
c. It also helps in maintaining cordial and congenial labour management
relationship.
d. It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation:

Performance appraisal serves as a motivation tool. Through evaluating

performance of employees, a person’s efficiency can be determined if the
targets are achieved. This very well motivates a person for better job and
helps him to improve his performance in the future.

Relationship of Performance Appraisal and Job Analysis

Performance Appraisal relates to job analysis, in the sense that job analysis
establishes job requirement, which converts the analysis into standard, on which
performance is judged, and results in defining the basis for performance appraisal.
Objectives of Performance Appraisal
 To promote the employees, on the basis of performance and competence.
 To identify the requirement for training and development of employees.
 To provide confirmation to those employees who are hired as probationary
employees, upon completion of the term.
 To take a decision regarding the hike in employees pay, incentives etc.
 To facilitate communication between superior and subordinate.
 To help employees in understanding where they stand in terms of performance.

Performance Appraisal Process

 The figure shown above is a standard performance appraisal process
that takes place in an organization, wherein each step is important and
arranged in a systematic manner. The process is conducted periodically,
usually twice a year, i.e. semi-annually and annually called as mid-term
review and annual review respectively.

Method of Performance Appraisal

In the process of designing performance appraisal process, it is important to identify

the best method for assessment. There are a number of methods introduced to gauge
the quantity and quality of work performed by an individual. These methods are
broadly classified into two categories:
 Past-oriented Methods (Also known as Traditional Methods of Performance
Appraisal)
 Rating Scales
 Checklists
 Forced Choice
 Forced Distribution
 Critical Incident
 Performance test and observation
 Field review
 Confidential Record
 Essay method
 Comparative Evaluation Approaches
 Cost Accounting Method
 Behaviorally Anchored Rating Scales

 Future Oriented Methods (Also known as Modern Methods of Performance

Appraisal)
 Management by objectives
 Psychological Appraisal
 Assessment Centres
 360-Degree Feedback
 720-Degree Feedback

Performance Appraisal is a part of performance management. It helps in gaining

the competitive edge, by improving the performance level of the employees
working in the organization, making rational decisions regarding hike in salaries,
promotions, transfers, discharge of the employees, reducing job dissatisfaction and
employee turnover.

Related Terms:
1. Traditional Methods of Performance Appraisal
2. Modern Methods of Performance Appraisal
3. Performance Management
4. Training Process
5. Job Evaluation Methods

NEED FOR THE STUDY

In this competitive Corporate field Human resource play an important role. This
study helps to understand the roles of performance of the employees improving
ability and skills, to understand the roles of performance. It also assess the
conditions of employees. Employee compensation also results in improvement of
service qualities of employee performance. It also brings out a contrast on
productivity of employees and their motivation toward the work.

STATEMENT OF THE
PROBLEM
The compensations are paid in different forms the study become relevant to identify
the employee needs and the gap which arises due to lack of incentives and
compensation know how hence the study will be conducted to gain necessary inputs
about compensations and offerings towards employees
 CHAPTER 2
RESARCH METHODOLOGY
RESEARCH DESIGN

A research design is an arrangement of condition for collection and

analysis of the data in a manner that aims to combine relevance to the research
purpose with economy in procedure.

The study is descriptive in nature i.e., descriptive research. Descriptive

research is concerned with describing the characteristics of a particular individual or
group. This includes surveys and fact-finding enquiries of different kinds. The main
characteristic of this method is that the researcher has no control over the variables;
one can only report what has happened or what is happening. Thus, the research
design in case of descriptive study is a comparative design throwing light on all the
areas and must be prepared keeping the objectives of the study and the resources
available. This study involves collection of data from Junior level Executives.

Primary data:

These are those which are collected a fresh (again but in a new or
different way) and for the first time and thus happen to be original
in character and known as Primary data.

It is based on primary source of information.

Secondary data :
It means that are already available that is they refer to the data,
which have already been collected and analyzed by someone else
for its own use and later the same data is used by a different user or
person.
It is based on secondary source of information
OBJECTIVES OF THE STUDY

 To determine the extent at which compensation management affect

employeesperformance
 To evaluate the relationship between working condition and
employeeperformance
 To access the rate at which welfare services affect employeesperformances
 To explore relationship between compensation management and
improvedproductivity
 To explore the relationship between compensation management and retainment
ofstaff.

SOURCES OF DATA

PRIMARY DATA

Primary data will be collected through survey by means of questionnaire, personal

interview and observations.

SECONDARY DATA

The major source of secondary data is through

 Internet
 Journal
s
 Books
 Websites
  Brochures

PLAN OF ANALYSIS

A study will help the organization by the survey of 100 respondents in the
city by the questionnaire, which leads to measure the effect on compensation
management in improving employees performance. Statistical tools used for the
research which helps in analyzing and interpreting the data collected.
Percentage Analysis used to understand the percentage of certain number
of respondents respected to different questions. Bar graph & Pie Chart have been
used to showcase the graphical representation of the analyzed data.
 CHAPTER 3
SWOT ANALYSIS
SWOT Analysis

When we use SWOT analysis, Its often for strategic planning. It prepares for
decisions and gives an overall look at the strengths, weaknesses,
opportunities, and threats of business. But SWOT analysis can also be used to
increase and build upon customer satisfaction.
To give a well-rounded overview of how to use SWOT analysis for a boost
in customer satisfaction, we’ll start with the Strengths and Weaknesses first.

SWOT analysis, for any who may be unfamiliar, is a planning method

typically used in business strategy to identify
the Strengths, Weaknesses, Opportunities and Threats that may face a
business or project.
 A number of us have likely had the opportunity to either observe or
participate in this exercise for the broader business in which we work. A
quick overview of the core concepts:

Strengths and weaknesses

Strengths and weaknesses internal to the organization. Strengths represent
positive attributes or characteristics, factors that provide an
advantage. Weaknesses are attributes or characteristics that place the
business at a disadvantage relative to others.

Opportunities and threats

Opportunities and threats are external to the organization. Opportunities
represent external trends and chances to improve performance – something
happening in the outside environment that presents positive
potential. Threats are elements or trends in the outside environment that
could cause trouble for the business, place it at risk.

Strengths
1. Good/very good package
2. Market competitive/over-competitive in most areas
3. mechanism works well for the management grades

Weaknesses
1. Pay compression between bands
2. Competence-progression automatic
3. Little recognition of individual performance
4. Attraction/retention differences across the businesses
5. Lack of a longer term view
6. Overtime addiction
Opportunities
1. Build performance culture instead of expectation culture
2. Better employee relations climate in recent years
3. Clear business strategy

Threats
1. Need clarity over behaviours to encourage
2. Balance between quality and speed
 CHAPTER 4

OUTCOME OF THE STUDY

OUTCOME OF THE STUDTY

• For employees its one of the major hindrance is delivering job performance &
so it’s the prime responsibility of the company to provide every necessary
infrastructure.
• Performance appraisal is on an annual basis. This should be done quarterly to
make it more effective.
• It is also observed that basic infrastructure facilities like P.C, Printer are not up
to the mark.
• Relation of the employees with the superiors is supportive.
• Maximum support is given to the employees for their innovative ideas for
process improvement.
• Maximum employees are favorable with the internal environment of the
organization.
• Majority of the employees are satisfied with their increment through monetary
motivation.
• Among the total number of respondents 85% think that they should change the
compensation system
• 30% respondents believe that the Employees have a positive reaction about the
compensation system
• Among 20 respondents 50% respondents states that the job evaluation has a
great impact on job progress
• 55% of the total respondents said that they are allowed by the management to
make decision about componsation,
• Proper training programs on safety from hazardous & inflammable material are
conducted to avoid accidents.
• Majority of the employees are satisfied with the medical support given by the
organization through this their performance can increase.
• Maximum employees are satisfied with the recreational activities provided by
the organization.
 CHAPTER 5
LEARNING EXPERIENCE CONCLUSION SUGGESTION AND
BIBILIOGRAPHY
 LEARNING EXPERIENCE

This project gave me great opportunity to learn about the all aspects of the

COMPONSATION MANAGEMENT AND PERFORMANCE APPRAISAL

And helped me to know about current situation of the PERFORMANCE
APPRAISAL

The learning experience gained by me during the in plant training

was very much practical oriented. Mostly all the concepts which I studied
in the class, are applicable practically
I gained many new management skills and also got a chance to learn new things
on my own experience.
The overall study of the organization

1. Improve skills
One of the most important things you can gain from
internship is new knowledge and network and it helps to improve
many new skills and knowledge

2. Professional communications
It is the best way to learn how to
navigate the working world through real-life hands on experience
one of the most valuable skill you will gain from an internship is the
ability to speak with people in a professionals

3. Making connections
 The people who will be reference in the
future it will setup many new connections and build the strong
relationship

4. Independence
Internship will teach you to make your own
decision and do things on your own being able to work
independently with little guidence is very important in the
working world

I came to know what exactly needs wheather quality of work or quality of work
to be done or both. And also some extent I could understand the
COMPONSATION MANAGEMENT work culture. Uniformity which is a
essential element that management should maintain it will also create an
impression on the minds of another about their taste, preference, values .I had a
great time working on the project, as it given insights into the working
environment of an organization. The environment is good. I have learn lot of thing
there.

This project gave me a great learning experience and at the same time it gave me
enough scope to implement my educational ability. The information advice
presented in this project is based on secondary information.
SUGGESTIONS

As in the competitive world where the need for every organization to prove
itself the best and make an outstanding and remarkable progress is the need,
no fact could be left ignored. Every organization must know the
shortcomings and must try to go for building up the shortcomings. An
ethical practice in any organization could only be achieved if the
organization works for the well being of its employees. Every organization
must possess a basic structure and the organization must be capable enough
to reward its outstanding performers and must appreciate the initiative
works.

● Performance Appraisal should be experience, work skill, labourism sincerity.

● Evaluation should be as per performance and shall not be biased.

● Valuation of performance should be done in each quarter.

● Appraisal should not be Bell Curve. It should be based on department/

individual either 1005 or 0%.

● Employee is the key resource of the organization. Hence employee satisfaction

is the key to success for the organizational growth. For employee satisfaction
there should be good incremental and promotional policies.

● Things carried out on paper should be followed/ implemented or at least can be

tried.

● Performance Appraisal should be done by MBO (Management by Objective)

/M&M method of appraisal.

● Every employee should have a right of justification for his own roles,
responsibilities and designation.
● Organization must use 360 degree appraisal method because this method not
only includes the performance of an employee but his interpersonal skills also

RECOMMENDATION

For all the programs the organization must follow feedback method to
understand the effectiveness of any practice in a better way.

Holistic views of induction should out show both positive and negative
aspects of the organization. This ultimately let the employee know about
both the phases of the policies adopted by the organization.

Practice of providing a brief presentation of the company and a booklet

for rules and regulations of company must be maintained so that the
employee could go through it whenever required.

Individual should concentrate more while training. When an

organization invests on training of an employee, the purpose of training
serves the mutual benefit of both organization and the employee. Thus,
the employee should be more oriented towards drawing as much benefits
as he can. Employees are supposed to understand their role for particular
training program.

Company must maintain training manuals or training charts and training

report submitted by the trainee. This, practice not only keeps a
maintained record of the programs been conducted but also keep the
employee known of the knowledge gained by him which could later be
utilized.

A pre- evaluation and post evaluation practice should be followed to

 understand the success of training and the training could be then
effectively used to fill gaps later.

Continuous training module should be conducted, personality

development training should be provided.

To motivate the employees

Performance awards could be given every year.

Incentives could be paid.

BIBLIOGRAPHY

 Books

1. The Componsation management– Richard C Grote

2. Effective performance – Paul Falcone
3. Performance phrase book – Adams Media

 News papper
 Business Models
 Indian express

INTERNET
1 WWW.COMPONSATIONMANAGEMENTAPPRAISAL.COM
3. WWW.PERFORMANCEAPPRAISALSYSTEM.COM