COMPENSATIO

N MANAGEME
NT

INTRODUCTION
Compensation is payment in the form of
hourly wages or annual salary combined with
benefits such as insurance, vacation, stock
options, etc. that can positively or negatively
affect an employee's work performance.

TYPES OF COMPENSATION
MANAGEMENT

Compensation
Management

Direct

Indirect

Need of Compensation
Management
To Motivate the employees.
To run an organization effectively
and accomplishing its goals.
To Attract and sustain the best
talent.

Terminologies
Wages- Aggregate earnings of a employee
for his service for a day, or a week, or a
month . It is the price paid for the services of
labour in the process of production.
Includes 2 parts- the basic wages & other
allowance
Salary- Compensation to an employee for
service rendered on a weekly, monthly or
annual basis.

Objectives of wage & salary

Administration

Control of costs
Establishment of fair & equitable
remuneration
Employee motivation
Fair Wages.
Attract competent talent.
Satisfy employee needs.

Retain good employees.

Motivate employees for higher productivity.
Improve union management relations.
Promote Corporate Image.
Government Laws.

Functions of wage & salary

Administration

To recommend changes in wage policies

and in the salary or wage level.
To review wage and salary department
wise.
To check all activities of the salary
administration against the company
policies.

Principles of wage & salary

Administration
Wage policies should be carefully
developed, having in mind the interest of :
(a) the owners
(b) the employees
(c) the consumers
(d) the community
It should be clearly expressed in writing.
It should be checked against the formulated
policies

 It must inform to the employees in

right way.
It should be evaluated from time to
time.
Departmental performance should be
checked periodically against the
standards set in advance
Job descriptions and performance
rating should e checked periodically to
keep them up to date

Problems in Wages and Salary

Administration
High pressure from employees unions for
increasing the remuneration.
High pressure from management to reduce
cost.

Methods of Wage Payment

Methods

Time
Wage

Piece
Wage

Time Wage System

This is the oldest system of remunerating

labour. Under this method employee is paid
on the basis of time worked i.e. at hourly,
weekly or monthly rate, irrespective of the
quantity of work done.

Advantages

Simplicity
Security
Maintenance of quality
Union support
Convenient

Disadvantages

Lack of incentives
Lack of distinction
Complacency
Close supervision
Expensive

Piece Wage System

Wages can be defined as, "a sum of money

paid to the staff by the employer for
rendering services as per a contract. Piece
rate is used for jobs in which the quantity of
work done by a person or a group is readily
counted or calculated.

Advantages

Motivating
Higher productivity
Less supervision
Society benefits
Opportunities for talented and Sincere
employees

Disadvantages

Insecurity
Higher cost of production
Accidents
More paper work
Poor quality

INCENTIVES
According to Burack and Smith, An incentive
scheme is a plan or program to motivate
individual or group performance. An incentive
program is most frequently built on monetary
rewards, but may also include a variety of nonmonetary reward and prizes.

Types of Incentive Plans

Individual
Incentive
Plans

Group
Incentive
Plans

Individual
Incentive
Plan
Piecework

Standard
hour plan

Bonus

Commissi
ons

Perquisites

Stock
options

Group
Incentive
Plan
Productivit
y Gain
sharing
Plans

Profit
Sharing
Plans

Current
Distributio
n Plans

Deferred
distributio
n Plans

Combined
Plans

Advantages

Motivation
Innovation
Fosters team-work
Sharing of rewards
Lesser supervision

Disadvantages

Deterioration of quality
Overwork
Neglect of safety measures
Rivalry

Fringe Benefit
Compensation in addition to direct
wages or salaries, such as company car,
house allowance, medical insurance,
paid holidays, pension schemes,
subsidized meals. Some fringe benefits
are regarded part of a taxable income.

Objectives of Fringe Benefits

Attracting and retaining talent.

Negotiation tool.
Promote organizational image.
Satisfy employee needs.
Increase satisfaction and morale.

Types Of Fringe Benefits

Pension Schemes.
Personal security.
Financial assistance.
Personal needs.
Company cars and petrol.
Other benefits.
Intangible benefits.

Employee Welfare
According to INTERNATIONAL LABOR
ORGANISATION, employee welfare is
described as to include such services ,
facilities and amenities as may be established
in or in the vicinity of undertakings to enable
the persons employed in them to perform their
work in healthy, congenial surrounding and to
provide them with amenities conducive to
good health and high morale.

Types of welfare services:

Intramural welfare services
Proper drinking water facility.
Creches.
Washing and bathing facilities.
Rest shelters.
Canteens.
Medical aid.
Recreational facilities.

 Extramural welfare services

Housing facilities.
Transportation facility.
Education facility.
Health facility.