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Compensation
The Compensation model should be closely knitted with following
Model
three elements i.e.
Management Strategy
Compensation Plan Design
Performance
Management
Strategy:
This relates to the basic existence of any organization its
objectives and goals i.e. vision and mission of the
enterprise, for which human resources are hired, and the
organization pays to its employees to keep them
motivated for accomplishing those set objectives in a cost
effective manner.Plan Design
Compensation
Compensation Plan
Design
Job Analysis
Job Description
Job Evaluation
Pay Structure
3
Market Wage
Surveys
The goal of labor market
Methods of Wage
Surveys
Pay Structure
The basis for most pay programs is a pay structure - a hierarchy
of jobs with pay ranges and/or rates assigned. Pay structures
are designed so that the greater the worth of a job (determined
by internal or external equity), the higher the pay grade and
range. At PP, pay program has certain objectives. The principal
ones are as follows:
Internal equity.
External equity (or competitiveness),
Individual equity,
Process equity,
Performance or productivity incentives,
Maximum use of financial resources,
Compliance with laws and regulations, and
Administrative efficiency
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COMPENSATION FUNCTION
best efforts.
Minimizing it can also contribute to organizational effectiveness
since it is a significant cost for most employers.
Compensation Strategy
It is an action plan designed to move an organization toward
achievement of its goal / vision.
Generally at three levels
Pay level decisions
Pay structure decisions
Individual pay determination
e.g. MNC
Low Pay Strategy: Pay minimum level needed to hire
enough employees
e.g. Small enterprises
Compensation Structure
Monetary
Base Pay
Variable Pay
Bonus
Incentive
Stock
options
Non-Monetary (Benefits)
Mandatory benefits
Voluntary benefits
Non-Monetary (Benefits)
Vacation leave
Paid public holidays
Time for personal matters
Sick leave
Maternity leave
Health and life insurance
Medical Aid Schemes
Pension Funds
Employee Services e.g.. Canteens,
Factors Determining
Compensation Structure
The organization's ability to pay
Supply and demand for labor
The prevailing market rate
The cost of living
Productivity
Trade unions bargaining power
Job requirements
Managerial attitudes
Psychological and sociological factors
Direct Compensation
Direct compensation is the full monetary
Direct Compensation
Direct compensation
refers to monetary
benefits offered and
provided to
employees in return
of the services they
provide to the
organization. They
are given at a regular
interval at a definite
Components in Direct
Basic Salary
Compensation
HRA (House Rent Allowance)
CA (Conveyance Allowance)
LTA (Leave Travel Allowance)
Medical Reimbursement
Bonus (Salary Bonus)
SA (Special Allowance)
Indirect Compensation
Indirect compensation includes benefits and
Indirect Compensation
Indirect compensation refers to nonmonetary benefits offered and provided to
employees in lieu of the services provided
by them to the organization.
Non-cash benefit (such as an office car)
provided to an employee. In some
jurisdictions a certain percentage of the
indirect compensation is added to the
beneficiary's income for taxing purposes.
Allowance
HRA
City
Compensatory
Allowance
Conveyance
Bonus
Gratuity
Pension
Super Annuity
Provident Fund
LFA
Medical Allowance
Variable Pay
Performance
Link
Incentives
Bonus
Joining
Bonus
Benefits
Leave Policy
Hospitalization
Overtime Policy
Insurance
Retirement Benefits
Holiday Homes
Flexible Timings
Compensation
Basic Pay
City Allowance
Provident Fund
Benefits
Medi Claim
Insurance
Equity in Financial
Compensation
Equity - Fair pay treatment for employees
External equity - Firm's employees are paid
Determinant of Individual
Financial
Compensation
Compensation surveys
Determinant
of Financial
Expediency
Compensation
Cost of living
Labor unions
Society
Economy
Legislation
Employee as a Determinant
Performance-based
Pay
of
Financial Compensation
Skilled-based Pay
Competency-based Pay
Seniority
Experience
Membership in the organization
Potential
Political Influence
Luck