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Compensation & Maintenance

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Compensation

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Compensation
Classified into three categories: v Base or primary compensation: Refers to

basic pay in the form of wages and salaries.

v Supplementary compensation: Consists of

fringe benefits such as housing, medical aid, paid leave, retirement benefits etc.
v Incentive compensation: Refers to

monetary compensation paid to motivate employees.

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Base & Supplementary compensation

It means wages benefits paid paid to fringe and salaries in addition to

wage and salaries. employees.

Wage and salaries are paidkind. Fringe benefits are paid in in cash. Wage and salaries are paidretain employees Fringe benefits are paid to to compensate

and to increase their efficiency. employees for their services.

Wage and salaries are determinedthe the Fringe benefits depend mainly on on

companys evaluation needs. basis of job policies andand other relevant factors.
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Issue in Compensation External equity. Management 1. Internal equity versus

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.

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Components of Compensation

v Basic pay: Basic pay is generally determined

through job evaluation which is the process of systematically ascertaining the relative worth of a job.

v Allowances: q Dearness Allowance (DA): Percentage of

basic pay acc. To organization.

q House Rent Allowance: Percentage of BP of

30 per cent in case of govt. employees.

q City Compensatory Allowance: This 7/18/12

allowances is paid generally in metros and

q Transport Allowance/Conveyance

Allowance: A fixed sum is paid every month to cover a part of travelling charges. remuneration. Bonus, profit-sharing, commission on sales etc are examples.

v Incentives: It is performance based

v 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. 7/18/12

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Program Base Pay Variable Pay

What it is Regular pay; your "annual salary" Annual "bonus" depending on company, group and individual performance criteria

Who gets it All employees 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 Program is very limited and "option" to buy stock at a locked focuses on retention by awarding in price 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

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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.

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Essential of a Sound Wage and Salary Structure

Internal equity. External competitiveness. Built-in incentive. Link with productivity. Increments.

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Factors affecting Compensation

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

Methods of Wage Payment

Time wage system. Piece wage system. Balance or debt system.

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Time Wage system

Wages are paid on the basis of time spent on the job irrespective of the amount of work done. Advantages:
v Simples and oldest method. v Earnings of workers are regular and fixed. v The plan is economical as no detailed records. v Avoids wasteful handling. v Earnings are not dependent on the amount of
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work.

Disadvantages:

v No incentive for better performance. v Guaranteed remuneration makes workers

indifferent.
v Calculation of labour cost per unit is difficult. v Costs of supervision are high.

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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:
v Direct relation b/w effort and reward. v Fair to all. v Increased in productivity results. v Distinguish b/w efficient and inefficient. v Ambitious and efficient workers are provided
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Disadvantages:

v Difficult to fix piece wage rates. v Earnings of workers are not stable. v Detailed of production have to be kept so that

the clerical work is increased.

v This method leads to industrial disputes. v Trade union dislike piece wage system. v Jealousy b/w efficient and inefficient workers.
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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.
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Process of wage determination

Job analysis. Job evaluation. Wage survey. Developing wage structure. Wage administration rules. Employee appraisal. Broad banding.
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Supplementary compensation
Concept Criteria: Need and importance: Types: Factors influencing:

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Executive Compensation
Straight salary. Bonus based on companys profits or

commission.

Stock options involving issue of the

companys 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.
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Executive compensation depends on some factors:

Complexity of the job. Capacity to pay. Education and experience. Performance. Economic environment. Legislation.

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Job Evaluation

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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.
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Difference b/w Job Evaluation & Performance Appraisal It is the assessment of various jobs to find out of performance of
different employees their relative worth. the same job. different jobs. individuals.
Its purpose is to identify the basis for fixing It takes into consideration the requirements of performance of

decisions concerning pay raise, wages, salary for various jobs. promotion, training and transfer, etc.

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It rates the job holder and the not the job. and not the jobholder. It is done beforean employee joins and Its is done after an employee joins.

performs the job.

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Objectives
To determine equitable wage differentials To eliminate wage inequities; To develop a consistent wage policy; To establish a rational basis for incentive and

between different job s in the organization;

bonus schemes; costs.

To enable management to control the payroll To minimize wage discrimination on the basis
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sex, caste, region, religion, etc.

Process of Job Evaluation

Gaining acceptance. Constituting job evaluation committee. Selecting jobs to be evaluated. Describing the jobs. Selecting the method of evaluation.
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Weighting job factors.

v Skill-mental and manual. v Experience. v Efforts and initiatives. v Working conditions. v Responsibilities to be undertaken. v Supervision required.

Assigning money values.

7/18/12 Periodic reviews.

Advantages of job evaluation

jobs. reducing employee doubts.

It is logical and objective technique of ranking It helps to improve industrial relations. By 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
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workers than those already performing

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. worth of managerial jobs.

It is not well suited to determining the relative It is time-consuming and expensive process. 7/18/12

Methods of Job Evaluation

Non-quantitative methods
v Ranking or job comparison v Grading or job classification

Quantitative methods
v Point rating v Factor comparison
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Ranking Method
Job description: Pair comparisons: Ranking along a number line:

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Advantages of ranking method:

v It is simplest and the oldest method. v It is very economical and less time

consuming.

v It involves less paper work.

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