COMPENSATION MANAGEMENT

WHAT IS COMPENSATION ???

The remuneration received by an employee in return for his/her contribution in the organization. Helps in motivating employees and improving organizational effectiveness.

Importance of compensation
Recruit retain good employees Increase maintain morale & satisfaction Reward & encourage peak performance. Reduce turnover & encourage company loyalty

Objectives of a Good compensation Plan

Internal equity- ensure more difficult jobs are paid more. External equity- similar jobs in industry get similar compensation Individual Equity- equal pay for equal work

COMPENSATION
FINANCIAL
NONFINANCIAL

WAGES AND SALARIES

INCENTIVES

FRINGE BENEFITS

PERKS

BENEFITS AND SERVICES

Wage is..
According to Webster's Dictionary wage is payment for service rendered It is a payment calculated by hour day, or week or for certain amount of work done. Wage earners often have to give up pay for leaving early, coming in late, missing a day, or taking a vacation. Minimum Wage , Living wage & fair Wage

CONCEPT OF WAGES
MINIMUM WAGE : education, medical requirements and amenities. FAIR WAGE : equal pay for equal work LIVING WAGE : not only bare essentials like food, clothing but also a for comfort.

Minimum Wage in Rajasthan w.e.f jan 2011

No. Scheduled Employment Category of Workers Total Minimum Wages per Day (in Rs)

Skilled 1

155 145 135 155 145

Agriculture

Semi-Skilled Unskilled Skilled

Automobile Workshop Semi-Skilled

Unskilled
Skilled

135
155 145 135

Employment in Bricks Works Industries

Semi-Skilled Unskilled

 Salary refers to how much you get paid every year. Salary earners rarely have to punch a time clock, or keep an accurate account of their hours, because they get paid for performance rather than by the hour. Salaried workers are much more likely to have paid sick days and paid vacations, and are not penalized for being late or leaving early from time to time.

Difference Between salary & Wage

Wage earners are paid by the hour. Salary earners are paid by the year. Salary earners usually receive paid time when they are not working. Wage earners often have to give up pay for time off.

 Salaries are often calculated as packages. Wage earners get paid more for working more than 40 hours per week. Salary workers are rarely offered overtime pay. Salaries usually contain all kinds of benefits and perks.

Principle of wage & salary Administration

General wage & salary level as per the prevailing market rate. Equal pay foe equal work Special skills may be rewarded suitabily The wage/salary structure should be flexible according to economic conditions. A wage /salary should fulfill a persons basic need.

Fringe Benefits Fringe Benefits- these are the extra benefits provided to workers other than the usual compensation paid in the form of wage or salary. These benefits refer to as fringe because many years ago they formed a very small part of the total salary.

 Payment for time not worked example Sundays, paid leaves Sickness benefit- 56 days in a year allowed Maternity benefit- 6 months leave Paternity benefit Health benefit- company med claim Dependants benefit Hotels & temporary accommodation Car Fringe benefits Food benefits Pension Provident fund

Includes

Executive Compensation
Compensation for executive managers is different from compensation for other employees in most organizations. Executive compensation covers employees that include company presidents, chief executive officers (CEOs), chief financial officers (CFOs), vice presidents, occasionally directors, and other upper-level managers.

 These high level employees are paid executive compensation. Executive compensation is different from compensation for lower-level employees. The salary and other benefits are negotiated and are documented in a customized employment contract. The contract spells out compensation, benefits, perquisites, performance bonuses, separation and severance agreements, and other special terms of employment.

Executive compensation often includes: base salary, bonuses, incentives such as stock options, income protection guarantees in the event of a sale, public stock offering, or other liquidity event, a guaranteed severance package in the instance of employment termination for reasons other than cause,

 a signing bonus for coming onboard, The combination of salary, incentives, and bonuses is often referred to as Total Cash Compensation (TCC) for executives. Executive compensation is negotiated between the potential executive and the employer.

 Where non-executive compensation is most often similar in characteristics among employees, executive compensation is negotiated and agreed to in an employment contract and may include substantial differences from the organizational norm.

Variable Compensation
Variable pay is employee compensation that changes as compared to salary which is paid in equal proportions throughout the year. Variable pay is used generally to recognize and reward employee contribution toward company productivity, profitability, team work, safety, quality, or some other metric deemed important.

 The employee who is awarded variable compensation has gone above and beyond his or her job description to contribute to organization success. Variable pay is awarded in a variety of formats including profit sharing, bonuses, holiday bonus, cash, and goods and services such as a companypaid trip.

Types of Incentive Plan

GROUP AND ORGANISATION WIDE INCENTIVES

PROFIT SHARING GAIN SHARING EMPLOYEE STOCK OPTION PLAN SUGGESTION SYSTEM

INDIVIDUAL INCENTIVES
Piece Rate System Differential Rate Commissions Bonuses Awards Merit Pay People - based Pay : 1. Skill-based Pay 2. Knowledge-based Pay 4. Feedback Pay

 Piece Rate Piece rate incentive is given to the employees based on the number of units produced. This plan is practiced in the sectors dealing with manufacturing of products such as engineering automobile, telecommunication, FMCG usually combines-A basic pay element this is fixed An output-related element (piece-rate). Which is triggered by the business exceeding a target output in a defined period of time

Commissions

Commission is a variable component of compensation package. It is given on the basis of business generated by the employee. Commission is a pre fixed component say 5% of the total sales done by the employee. It is practiced in the retail, FMCG and other sectors in the marketing and sales segment.

Bonuses( bonus act 1965) Based on company profits or productivity.

Bonuses are given to employees on a pre established goal or criteria. The

organizations set policies regarding the bonuses. Usually bonuses are provided during the festive season.

Bonus pay is used by many organizations as a thank you to employees or a team that achieves significant goals. Bonus pay is also used to improve employee morale, motivation, and productivity. As long as bonus pay is discretionary by the employer, it is not considered to be a contract. If the employer promises a bonus, however, the employer may be legally liable to pay the bonus.

Types of Bonus
Sales bonus. This is normally paid if a sales target has been reached. For sales people this may make up a significant part of their salary. Performance bonus. This can be paid to an individual or on a group or factory wide basis, and is often paid for reaching targets of output and quality. This method of payment is an important part of Christmas bonus. Often called a 13 month's salary, paid for loyalty to the business. In some countries such as Germany virtually all companies will pay a Christmas bonus.

Maturity Curves Maturity curve incentive plan considers the experience and performance of an employee for giving out the incentives. It is practiced in all the industries. Experience is always given a weightage as experienced people can produce better quality results.

Group Incentives
Gain Sharing Gain sharing incentive plans undertake those employees who give outstanding performances and provide for cost saving measures. Organizations believe in sharing the profits with the employees who are responsible for producing those results.
Profit Sharing Profit sharing incentive plans are practiced in retail and FMCG sectors. Other sectors too implement the plan based on organizational policies. It refers to giving out the share of profits the organization earned to all the employees. ESOP