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Compensation Management


HRM is all about creating

Competent Comfortable Confident work force

With a view to contribute to the

Organizational Personal/individual Social goals


The Commodity Concept The FOP Concept The Paternalistic Concept The Humanitarian Concept The Behavioral Human Resource Concept The Emerging Concept


Resources need to be Collected Coordinated Utilized through human

Success or failure of an organization depends upon the human For any organization to function effectively , it must have resources of human HRM is to secure the best from people by winning their wholehearted cooperation

Pervasive force Action oriented Individually oriented People oriented Development oriented Integrating mechanism Comprehensive function Auxiliary service Inter-disciplinary function Continuous function

SIGNIFICANCE OF HRM Significance for an enterprise Attracting and retaining Developing Securing willful cooperation Utilizing Ensuring the competent and dedicated team Professional significance Personal development Healthy relationships Allocation of work


Social significance Suitable employment Balance between jobs available and jobseekers Eliminate waste human resource National significance: Assignment???

FUNCTIONS HRP Job Analysis Staffing Indoctrination T&D PMS Career Planning Compensation Benefits Labor Relations Record Keeping

Globalization Profitability through growth Technology Intellectual Capital Change, Change and more change

FUNCTIONS Grievance procedures Disciplinary procedures Conflict resolutions Quality circles Participative Management Organizational Change and OD Absenteeism

INTRODUCTION Money received in performance of work and many kinds of services and benefits that an organization provides to the employee Systematic approach to providing monetary value to the employees in exchange for the work performed A tool used by the management to further the existence of the organization Adjustable to the goals, available resources and needs of the business

INTRODUCTION All forms of tangible benefits and financial returns that an employee receives as part of employment relationship Integral part of HRM that helps in motivating the employee and increasing the effectiveness of an organization by paying salary or wage

Remuneration for labor is wage Contractual income Piece or time, it is agreed upon before the product is sold

Salary is calculated annually or monthly Earnings relates to the remuneration receives in cash and kind at regular intervals for the time worked with remuneration for time not worked Excludes social security and pension schemes

COMPENSATION Traditional system: follow the instructions Physical needs Job security, increments etc

But now everything is changed Psychological needs are important Participative management Align to the business goals and strategies Monetary and non monetary benefits Competitive compensation

OBJECTIVES Recruit and retain qualified people To have enthusiastic and delighted employees Motivation Retain skilled and talent staff Internal and external equity Reduce turnover Loyalty Equality and fairness in terms to pay to work Reward exceptional performances Control cost Compliance with legal regulation

Most important element in the employment relationship Equal interest to all

Employer: cost, performance is important Employee: decent standard of living Government: employment, inflation, purchasing power

It is fair if based on systematic components


Job description: in writing responsibilities, duties, location, functions, can be individual or group Job analysis: JD is developed from JA Job evaluation: worth of job Pay structure: grades, standardizing the compensation Salary survey: may purchase or conduct your own Policies and regulations: fair compensation, internal and external equity Total compensation package

Direct compensation Indirect compensation Non monetary compensation


Basic pay: first component. determined according to the level of skill, effort and responsibility required to perform the job Bonus: for an exceptional performance, gift, reward, for special occasions, short term a gift over and above what is normally due as remuneration to the receiver 4 types of bonus

Production bonus Bonus as an implied term of contract between the parties Customary bonus Profit bonus:

statutory recognition in payment of bonus Act , depends on profits in a relevant year, executives deserve more than non managerial staff

Long term incentives or stock options: right to buy a piece of business Perks : in addition to normally allowed perks like PF, Gratuity it includes vacations, membership cards, well furnished houses, telephone bills, car fuel, driver, servants etc

Flexi hrs Elder care Retirement schemes laundry Tickets Child care Clothing Paid leaves etc


Praise and recognition Job responsibilities Working conditions etc


Non compensation system

Enhance dignity and satisfaction from the work performed

Promote constructive relationship among workers

Allocate resources for work performance

Leadership and management

Enhance, physical health ,IQ,EQ and SQ

Design requiring attention and effort

Grant control to meet the personal demands


External Demand and supply of labor

The Minimum Wages Act, 1948 Going rate Productivity

Cost of living

DA, Basic pay to remain undisturbed, sacrifice the merit pay

Supreme Court keeps social and ethical considerations in adjusting wages and salary disputes

Society Labor union

Comparable pay---accurate labor market data Cost of living: COL allowance As per labor representation


The Payment of Wages Act, no irregularities and no unauthorized deductions The Minimum Wages act, 1948, State and Central Govt. to fix in sweated industries The Equal Remuneration Act, 1976 The Equal Pay Act, 1963 The Companys Act, 1956 Wage Boards, Tribunals and fair wages committees


The economy

Depressed Booming COL is used as pay standard, COL grows as economy expands

Compensation survey
Outsource or self Market rate is most important

FACTORS Internal Compensation polices Fairness Maintain equity

Pay leaders Market rate Pay followers

Organizational ability to pay JA and JD employee


Systematic process of determining the KSAs for performing the job

Determine the task Classify, exempted and non exempted Model JD Finalize and document all JDs Evaluate General task analysis by departments Verify ranking by comparing, change if required Prepare matrix Determine grades Establish levels Salary range, monetary range is determined


What accounts for individual differences in pay within organizations????

Education Experience Performance Product market Labor market All play a crucial role in pay determination


Competitive disadvantage for a firm in the product market if the labor cost is high than those of competitors and such costs are reflected in high prices of products Hindustan Motors products has high labor cost than Maruti Udyog Competitive prices by HM is difficult Similarly labor market, competition is for technicians and managers also Lower pay level will be a problem In order to attract and retain labor

Remuneration received can not measure the contribution made, so other than salaries, certain supplementary services are available fringe benefits Additional to regular wages and not a substitute Primarily for the benefit of an employee Which can be expressed in terms of cash Different from welfare services If no relation to the employment, it is not a fringe benefit

CLASSIFICATIONS For employee security: retirement plans, social security, unemployment compensation Increase satisfaction causing reduction in turnover: vacations, sick leaves, holidays, discounts on companys goods and services Statutory: medical care, gratuity, PF etc Contractual: agreement, DA, HRA, city allowance, night shift allowance Voluntary : unilaterally by the company, incentive for family planning, washing allowance, suggestion rewards