A

PROJECT REPORT
ON
COMPENSATION MANAGEMNT
AT
Project report submitted in partial fulfillment of the
requirement for the award of the degree
of
MASTER OF BUSINESS ADMINISTRATION

Submitted By:

MS. MOHAMMADI BEGUM

Roll No. 1516-12-672-100

DEPARTMENT OF BUSINESS MANAGEMENT

SHADAN INSTITUTE OF COMPUTER STUDIES FOR
GIRLS

(Affiliated to Osmania University)

Khairtabad, Hyderabad

DECLARATION
I

hereby declare

that

this

project

report

titled

COMPENSATION

MANAGEMENT has been carried out by me for HDFC BANK , this report has to be
submitted by me for the award of my MBA Degree in the department of Business Management,
Osmania University.
I, further, declare that this is my original work and I did not try to duplicate any
other report. This is done by me as a part of my academic course during 2012-2014

Place:
Date:

MS. MOHAMMADI BEGUM

Roll No. 1516-12-672-100

ACKNOWLEDGEMENT
At the outset, I wish to thank the management of HDFC BANK For their kind
gesture of allowing me to undertake this project, and its various employees who lent their
helping hand towards the completion of this study.
The co-operation I received from the wide cross-section of employees of HDFC

BANK makes it difficult to single out individuals for acknowledgement. However, I am

particularly indebted to Mr. ABHISHEK JAIN Manager for allowing me to carry
out my project work in the organization, for apprising me of the situation with necessary
background and helping me to complete this project work. I am also thankful to the staff.

I would like to thank, ____________________________, principle of

COLLEGE under the guidance of Ms. ARSHIYA, Asst. Professor for giving
me such an opportunity to carry out this project, I am thankful to all the faculty members
of our college for co-operation and their encouragement during the course of project
work.
I am thankful to my parents and all my friends who are cooperated to complete this project encouragement.

ABSTRACT
Compensation

Management

deals

with

initiating,

designing,

formulating and implementing total compensation package that must be

designed for the employees. Compensation Management is otherwise called
as wage and salary Administration, Remuneration Management or Reward
Management. Even though the basic concept of Compensation deals with
earning a means of living by doing some work, compensation is viewed
differently by different persons of an organization such as the employer,
employee and society. All of them have different views of compensation.
The nature of Compensation deals with the monetary gains, so that the
employees are satisfied with his/her worth. The main objective of
Compensation Management is to recruit competent and talented persons, to
improve employees satisfaction and to retain them by ensuring that internal
and external equity concept is followed in the organization for the
improvement of employees satisfaction.

INDEX
CONTENTS
PAGE NO
LIST OF TABLES
LIST OF GRAPHS

i
ii

LIST OF FIGURES

iii

CHAPTER-1

1-5

INTRODUCTION

CHAPTER-2

6-17

COMPANY PROFILE

CHAPTER-3

18-55

REVIEW OF LITERATURE

CHAPTER-4

56-71

DATA ANALYSIS AND INTERPRETATION

CHAPTER-7

72-75

FINDINGS
CONCLUSIONS
SUGESSTIONS
CHAPTER-8
BIBLIOGRAPHY
QUESTIONNAIRE

76
78

LIST OF TABLES

.NO

PA
GENO

1 Opinion on awareness of pay policy in HDFC BANK

57

2 Knowing about compensation packages in IT industries

58

59

Basis for remuneration factor in HDFC BANK

Base of compensation provided in the organization

60

5 Pay package according to. factor

61

6 Determination of incentives pay factor

62

7 Kinds/Plan of incentives in the organization

63

8 Satisfaction factor about fringe benefits

64

Types of benefits factors

65

Level of fringe benefits providing to the employees

66

What is the average working duration/ hour of an employee?

67

0
1
2

1 Do you agree that the shift system is convenient than adopting a

fixed timing to work?

68

1 Do you have a formal job evaluation plan in place?

69

1 Do you have an employee policy manual?

70

1 Which type of Compensation payment system do you prefer?

71

3
4
5

LIST OF GRAPHS

.NO

PA
GENO

1 Opinion on awareness of pay policy in HDFC BANK

57

2 Knowing about compensation packages in IT industries

58

59

Basis for remuneration factor in HDFC BANK

Base of compensation provided in the organization

60

5 Pay package according to. factor

61

6 Determination of incentives pay factor

62

7 Kinds/Plan of incentives in the organization

63

8 Satisfaction factor about fringe benefits

64

Types of benefits factors

65

Level of fringe benefits providing to the employees

66

What is the average working duration/ hour of an employee?

67

0
1
2

1 Do you agree that the shift system is convenient than adopting a

fixed timing to work?

68

1 Do you have a formal job evaluation plan in place?

69

1 Do you have an employee policy manual?

70

1 Which type of Compensation payment system do you prefer?

71

3
4
5

CHAPTER I
INTRODUCTION

INTRODUCTION
Human resources are the most valuable and unique assets of an organization. The
successful management of an organizations human Resources is an exciting, dynamic
and challenging task, especially at a time when the world has become a global village and
economies are in a state of flux. The scarcity of talented resources and the growing
expectations of the modern day worker have further increased the complexity of the
Human resources function.
Even though specific resources function/activities are the responsibility of the
human resources department, the actual management of human resources is the
responsibility of all managers to understand and give due Importances to the different
human resources policies and activities in the Organization.
Human Resources Management outline the importance of HRM and its different
functions in an organization.
It examines the various HR processes that are concerned with attracting,
managing, motivating and developing employees for the organization. The book discusses
the issue in human resources management in a changing environment and suggests
possible ways of leveraging and managing human resources. changing trends in human
resources management have been explained using contemporary examples from Indian
companies.If you want 10 days of happiness, grow grain. If you want 10 years of
happiness, grow a tree. If you want 100 years of happiness, grow power.

OBJECTIVE OF THE STUDY

To examine the various Compensation procedures that is being followed in the

organization.

To present the observation to the Management of HDFC BANK to improve the

performance of the existing system by implementing new compensation methods.

The company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service get a gratuity on departure at 15 days
salary (last drawn salary) for each completed year of service.

Maintaining the flexible, reliable and secure IT infrastructure that is necessary to

support the companys global operations is an ongoing challenge.

HDFC Bank distribution has continued developing its framework of succession

planning to identify and support the development of employees, who have the
potential capacity and competence to fulfill the roles required for delivering the
future performance required within the business.

NATURE OF RESEARCH METHODOLOGY

The nature of study conducted is to understand the procedure of the compensation

management, assess the effective compensation packages and to suggest improvements
for enhancing their effectiveness.

Primary Sources of Data

The primary data is collected through the personal interview with the HR manager
and the other employees of the HR circle.. A questionnaire is designed to collect
responses from the employees of the organization.

Secondary Source of Data

The Secondary sources of data are the textbooks, collected by journals articles,
records of the organization and World Wide Web.

Study inside the organization

Four main departments were identified i.e. Flight operation, Administration,
Security, Customs and

Immigration

the H.R.P with each department the head of the

department and his/her immediate junior were chosen as they informants. The
information from there dept and the required knowledge specially from the administrative
was used from discussion on compensation packages.

SAMPLING TECHNIQUE
The sampling technique used for the collection of information through the
questionnaires is the simple random sampling. And the sample size is 50 respondents.

QUESTIONNAIRE DESIGN
The designed questionnaire consists of 12 to 13 questions, a combination of open
ended and close ended questions for employees.

ANALYSIS OF DATA
For the purpose of analysis, feedback is collected from the employees in the
organization by the way of questionnaire. Data collected is represented in the form of
percentages in the form of percentages and graphs and an analysis has been done on the
basis of these percentages and graphs.

LIMITATIONS OF THE STUDY

Due to complex human behavior there is tendency that respondent fail to

provide accurate information.

The study was conducted for a period of 45 days only.
Scope of the study was limited
Sample size taken was small and so it may not be actual representative of the

organization.
Confidentiality of some information related to human resource plan cost lack

of actual and complete information.

There was time constraint due to busy academic schedule of the college.
Frame error has been observed because of in accurate and incomplete
sampling frame.

CHAPTER - II
COMPANY PROFILE

COMPANY PROFILE

ORIGIN OF THE ORGANIZATION

HDFC is India's premier housing finance company and enjoys an impeccable
track record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to remain
the market leader in mortgages.
Its outstanding loan portfolio covers well over a million dwelling units. HDFC
has developed significant expertise in retail mortgage loans to different market segments
and also has a large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large shareholder base
and unique consumer franchise, HDFC was ideally positioned to promote a bank in the
Indian environment.
GROWTH AND DEVELOPMENT OF THE ORGANIZATION
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable
network of over 1400 branches spread over 600 cities across India. All branches are
linked on an online real-time basis. Customers in over 120 locations are also serviced
through Telephone Banking. The Bank's expansion plans take into account the need to
have a presence in all major industrial and commercial centres where its corporate
customers are located as well as the need to build a strong retail customer base for both
deposits and loan products.
The Bank also has a network of about over 2000 networked ATMs across these
cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and
international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express
Credit/Charge cardholders.
8

PRESENT STATUS OF THE ORGANIZATION

The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an in-principle approval from the Reserve Bank of India (RBI) to set up a
bank in the private sector, as part of the RBIs liberalization of the Indian Banking
Industry in 1994. The bank was incorporated in August 1994 in the name of HDFC Bank
Limited. With its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.
PROMOTER:
HDFC is Indias premier housing finance company and enjoys an impeccable
track record in India as well as in international markets. Since its inception is 1977, the
Corporation has maintained a consistent and healthy growth in its operations to remain a
market leader in mortgages.
BUSINESS FOCUS:
HDFC Banks mission is to be a World-Class Indian Bank. The Banks aim is to build
sound customer franchises across distinct businesses so as to be the preferred provided of
banking services in the segments that the bank operates in and to achieve healthy growth
in profitability, consistent with the banks risk appetite.
CAPITAL STRUCTURE:
The authorized capital of HDFC Bank is Rs.450 crore (Rs.45 billion). The paid-up capital
is Rs282 crore (Rs.28.2 billion). The HDFC Group holds 24.2% of the banks equity
while about 13.1% of the equity is held by the depository in respect of the banks issue of
American Depository Shares (ADS/ADR Issue)..

DISTRIBUTION NETWORK:
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of
over 1400 branches spread over 600 cities across the country. All branches are linked on
an online real-time basis. Customers in 90 locations are also serviced through Phone
Banking. The Banks expansion plans take into account the need to have a presence in all
major industrial and commercial centers where its corporate customers are located as well
as the need to build a strong retail customer base for both deposits and loan products.
MANAGEMENT
Mr. Jagdish Kapoor took over as the banks Chairman in July 2001, Prior to this,
Mr.Kapoor was a Deputy governor of the Reserve Bank of India.
The Managing Director, Mr.Aditya Puri, has been a professional banker for over
25 years. And before joining HDFC Bank in 1994 was heading Citibanks operations in
Malaysia.
The Banks Board of Directors is composed of eminent individuals with a wealth
of experience in public policy, administration, industry and commercial banking. Senior
executive representing HDFC are also on the Board Senior banking professionals with
substantial experience in India and abroad head various businesses and functions and
report to the Managing Director.

10

FUNCTIONAL DEPARTMENTS OF THE ORGANIZATION

The bank has three key business areas:
1. WHOLESALE BANKING SERVICES:
Here our target market is primarily large, blue-chip companies and to a lesser
extent, emerging mid-sized corporate. For these corporate, we provide a wide range of
services, including working capital finance, trade services, transactional services, cash
management, etc. We are a leading provider of structured solutions, which combine cash
management services with vendor and distributor finance, for facilitating superior supply
chain management for our corporate customers. We are also recognized as a leading
provider of cash management and transactional banking solutions to mutual funds,
BANK exchange members and banks.
2. RETAIL BANKING SERVICES :
The objective of the Retail Bank is to provide our target market customers a full
range of financial products and banking services, giving the customer a one-stop window
for all his/her banking requirements. The products are backed by world-class service and
delivered to the customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC
Bank Plus and the Investment Advisory Services programs have been designed keeping in
mind needs of customers who seek distinct financial solutions, information and advice on
various investment avenues.

11

3. TREASURY OPERATIONS :
Within this business, the bank has three main product areas A ) Foreign Exchange and Derivatives
B ) Local Currency Money Market &
C ) Debt Securities and Equities.
With the liberalization of the financial markets in India, corporate need more
sophisticated risk management information, advice and product structures.
The above business groups are supported by the following groups:

Audit & Compliance

Credit & Market Risk

Finance, Administration & Legal

Human Resources

Information Technology

Operations

4. SYSTEMS & TECHNOLOGY:

The Bank uses state-of-the-art technology for both internal and external
customers.
A) BANKING APPLICATIONS:
In terms of software, the Corporate Banking business is supported by UBS, while
the Retail Banking business by Fin ware. These world-class systems have been specially
customized for HDFC Bank by i-flex Solutions Ltd. which is a Citigroup company. The
Bank also uses various other systems to support other infrastructure
12

B).LOTUS NOTES:
Lotus Notes is the system that HDFC bank uses for internal communication.
c) Facilities Management
Wipro is the company appointed to give HDFC Bank the on-site support required
at different locations / cities.
ORGANIZATION STRUCTURE AND ORGANIZATION CHART
HDFC Bank Board of Directors comprises of eminent individuals with a wealth of
experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board.

13

ORGANIZATION CHART
Chairman

Managing Director &

Joint Managing
Director

Executive
Director
(Corporate

Joint Managing
Director

Executive
Director

Executive
Director

Executive
Director

(Project

(Wholesale

(Retail

Sr. General Managers

General Managers

Sales
manager

Sales
manger
2

Team
leader

Team
leader

BDE 1
BDE 2

BDE 1
BDE 2

SALES
Manage
r3

Team
leader

BDE 1
BDE 2
14

Sales
Manager
4

Team
leader

BDE 1
BDE 2

PROUCT AND SERVICE PROFILE OF THE ORGANIZATION

Products of HDFC Bank includes the following:
DEPOSITS:
1) SAVINGS ACCOUNT:
2) Current accounts
3) Personal Loan
4) Senior Citizen Services
5) Fixed accounts. etc
SERVICES
A) RETAIL BANKING SERVICES:
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and
delivered to the customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking.
B) WHOLESALE BANKING SERVICES
Here our target market is primarily large, blue-chip companies and to a lesser
extent, emerging mid-sized corporate. For these corporate, we provide a wide range of
services, including working capital finance, trade services, transactional services, cash
management, etc.

15

CHAPTER III
REVIEW OF LITERATURE

16

REVIEW OF LITERATURE
INTRODUCTION TO TOPIC
Compensation is what employees receive in exchange for their contribution to the
organization. Generally,. Employees offer their services for three types of rewards. Pay
refers to the base wages and salaries employees normally receive. Compensation forms
such as bonuses, commissions and profit sharing plans are incentives designed to
encourage employees to produce results beyond normal expectation. Benefits such as
insurance, medical, recreational, retirement, etc., represent a more indirect type of
compensation. So, the term compensation is a comprehensive one including pay,
incentives, and benefits offered by employers for hiring the services of employees. In
addition to these, managers have to observe legal formalities that offer physical as well as
financial security to employees. All these issues play an important role in any HR
departments efforts to obtain, maintain and retain an effective workforce.
Companies success in the marketplace is as much a function of the business
practitioners manage employees as it is a function of companies structures and financial
resources. Compensating employees represents a critical human resource management
practice: Without sound compensation systems, companies cannot attract and retain the
best qualified employees.
Compensation systems can promote companies competitive advantage when they
are properly aligned with strategic goals. Likewise, Compensation practices can
undermine competitive advantage when they are designed and implemented haphazardly.
The purpose of this is to provide knowledge of the art of compensation practice
and its role in promoting companies competitive advantage. Students will be best
prepared to assume the roles of competent compensation professionals if they possess a
grounded understanding of compensation practices and the environments in which
business professionals plan, implement, and evaluate compensation systems. Thus we
examine the context of compensation practice, the criteria used to compensate employees,
compensation system design issues, employee benefits, and the contemporary challenges
that compensation professionals will face well into this century.

17

Setting the Stage for Strategic Compensation.

Base for Pay.
Designing Compensation Systems.
Employee Benefits.
Contemporary Strategic Compensation Challenges

DEFINITIONS OF COMPENSATION MANAGEMENT

Compensation Management can be define as A process which
Motivates employees to increase performance and an employees
Worth to the organization.
It is an important element of an organization which encourages the
Values, culture and the behaviour of the employees.
It is an important tool of a management which helps the organization
to achieve the objectives of business by effective utilization of human
resources.

EVOLUTION OF COMPENSATION
Todays compensation systems have come from a long way. With the changing
organizational structures workers need and compensation systems have also been
changing. From the bureaucratic organizations to the participative organizations,
employees have started asking for their rights and appropriate compensations. The higher

18

education standards and higher skills required for the jobs have made the organizations
provide competitive compensations to their employees.
Compensation strategy is derived from the business strategy. The business goals
and objectives are aligned with the HR strategies. Then the compensation committee or
the concerned authority formulates the compensation strategy. It depends on both internal

EVOLUTION OF STRATEGIC COMPENSATION

TRADITIONAL COMPENSATION SYSTEMS
In the traditional organizational structures, employees were expected to work hand
and obey the bosses orders. In return they were provided with job security, salary
19

increments and promotions annually. The salary was determined on the basis of the job
work and the years of experience the employee is holding. Some of the organization
provided for retirement benefits such as, pension plans, for the employees. It was
assumed that humans work for money, there was no space for other psychological and
social needs of workers.

CHANGE IN COMPENSATION SYSTEMS

With the behavioral science theories and evolution of labour and trade unions,
employees started asking for their rights. Maslow brought in the need hierarchy for the
rights of the employees. He stated that employees do not work only for money but there
are other needs too which they want to satisfy from there job, i.e. social needs,
psychological needs, safety needs, self-actualization, etc. Now the employees were being
treated as human resource.
Their performance was being measured and appraised based on the organisational
and individual performance. Competition among employees existed. Were expected to
work hard to have the job security. The compensation system was designed on the basis
of job work and related proficiency of the employee.

TODAYS MODERN COMPENSATION SYSTEMS

Today the compensation systems are designed aligned to the business goals and
strategies. The employees are expected to work and take their own decisions. Authority is
being delegated. Employees feel secured and valued in the organisation. Organisations
offer monetary and non-monetary benefits to attract and retain the best talents in the
competitive environment. Some of the benefits are special allowances like mobile,
companys vehicle; House rent allowances; statutory leaves, etc

INTRINSIC COMPENSATION
Intrinsic compensation represents employees critical psychological states that
result from performing their jobs. Job characteristics theory describes these critical
20

psychological states. According to this job theory, employees experience enhanced

psychological states (that is, intrinsic compensation) when their jobs rate high on five
core job dimensions: skill variety, task identity, task significance, autonomy, and feedback
(1). Job that lack these core characteristics do not provide much intrinsic compensation.

Skill variety is the degree to which the job requires the person to perform

different tasks and involves different skills, abilities, and talents.

Task from identity is the degree to which a job enables a person to complete an

entire job from start to finish.

Task significance is the degree to which the job has an impact on the lives or

work of other people.

Autonomy is the amount of freedom, independence, and discretion the

employee enjoys in determining how to perform the job.

Feedback is the degree to which the job or employer provides the employee
with clear and direct information about job outcomes and performance.

EXTRINSIC COMPENSATION:
Extrinsic compensation includes both monetary and non-monetary
rewards Compensation professionals establish monetary compensation
programs to reward employees according to their job performance levels or
for learning job-related knowledge or skills. As we will discuss shortly,
monetary compensation represents core compensation. Non-monetary
rewards include protection programs (for example, day care assistance).
Most compensation professionals refer to no monetary rewards as employee
benefits or fringe compensation.
CORE COMPENSATION:
There are six types of monetary or core, compensation. The elements of base pay
adjustments are listed in Table.

21

BASE PAY:
Employees receive base pay, or money, for performing jobs. Base pay is recurring;
that is, employees continue to receive base pay as long as they remain in their jobs.
Companies disburse base pay to employees in either one of two forms as hourly pay or
wage or as salary. Employees earn hourly pay for each hour worked. They earn salaries
for performing their jobs, regardless of the actual number of hours worked. Companies
measure salary on an annual basis.
Companies typically set base amounts for jobs according to the level of skill,
effort, and responsibility required performing the jobs and the severity of the working
conditions. Compensation professionals refer to skill, effort, responsibility, and working
conditions factors as compensable factors because they influence pay level. Courts of law
use these four compensable factors to determine whether jobs are equal per the equal pay
Act of 1963. Compensation professionals use.

JOB ANALYSIS OF COMPENSATION

Compensation, benefits, and job analysis specialists help conduct an

organizations compensation and benefits programs. They also evaluate job positions to
determine details such as classification and salary.

22

Work Environment
Compensation, benefits, and job analysis specialists work in nearly every industry.
They typically work in offices.
How to Become a Compensation, Benefits, and Job Analysis Specialist
Compensation, benefits, and job analysis specialists need a bachelors degree, and
some specialists need related work experience.
Pay
The median annual wage for compensation, benefits, and job analysis specialists
was $59,090 in May 2012.
Job Outlook
Employment of compensation, benefits, and job analysis specialists is projected to
grow 6 percent from 2012 to 2022, slower than the average for all occupations. Job
prospects should be best for those with experience performing compensation analysis,
benefits administration, or other human resources work.
Similar Occupations
Compare the job duties, education, job growth, and pay of compensation, benefits,
and job analysis specialists with similar occupations.

JOB EVALUATION

Mississippi State University recognizes that staff positions may change in work
content or responsibilities. Therefore, a position may be evaluated for reclassification
when there has been a significant change in required job skills or responsibilities.
Procedure for Job Evaluation - New or Existing Postions
23

A request to establish a new staff position or to evaluate an existing staff position

shall be initiated by the division, department, or unit head and submitted to
Human Resources Management through the use of the online Request for Position
Evaluation electronic form.

A link and temporary password to the online job evaluation system will be sent to
the employee and the employees supervisor for existing positions or to the
supervisor requesting a new position for completion of the Job Evaluation
Questionnaire.

After the Job Evaluation Questionnaire is complete, Human Resources

Management staff will conduct a job study and/or evaluate the job. This process
may include interviews with the employee and/or the supervisor.

The Director of Human Resources Management will review, approve, and

communicate the results of the job evaluation in terms of title and\or salary grade
to the applicable Dean/Director/Department Head.

Human Resource Managements assignment of title and/or salary grade will be

approved for implementation in the same manner as recommendations

24

ELEMENTS OF CORE COMPENSATION.

BASE PAY:

30,000 -45,000 INR

Hourly pay : 5 US $ = 2,000 INR

Annual Salary : Rs. 4,20,000 - Rs. 7,00, 000

How base pay is adjusted over time

Cost-of-living adjustments
Seniority pay
Merit pay
Incentive pay
Pay-for-knowledge and skill-based pay.

These compensable factors to help meet three pressing challenges, which we introduce
late in this chapter: internal consistency market competitiveness recognition of individual
contributions.

COST-OF-LIVING Adjustments (COLAs):

COLAs represent periodic base pay increases that are based on changes in prices as
indexed by the consumer price index (CPI). COLAs enable workers to maintain their
purchasing power and standard of living by adjusting base pay for inflatio. COLAs are
most common among workers represented by unions.

Seniority Pay:
Seniority Pay systems reward employees with periodic additions to base pay according
to employees length of service in performing their jobs. These pay plans assume that
employees become more valuable to companies with time and that valued employees.

25

Merit Pay:
Merit Pay programs assume that employees compensation over time should be
determined, at least in part, by differences in job performance. Employees earn
permanent increases to base pay according to their performance. Merit pay rewards
excellent effort or results, motivates future performance, and helps employers retain
valued employees.

INCENTIVE PAY
Incentive Pay or variable pay rewards employees for partially or completely
attaining a predetermined work objective. Incentive pay is defined as compensation
(other than base wages or salaries) that fluctuates according to employees attainment or
some standard base on a reestablished formula, individual or group goals, or company
earnings.

PAYS-FOR-KNOWLEDGE PLANS AND SKILL-BASED PAY:

Pay-for-knowledge plans reward managerial, service, or professional workers for
successfully learning specific curricula. Skill-based pay, used mostly for employees who
perform physical work, increases these workers pay as they master new skills. Both
skill- and knowledge-based pay programs reward employees for the range, depth, and
types of skills or knowledge they are capable of applying productively to their jobs. This
feature distinguishes pay-for-knowledge plans for merit pay, which rewards employees
job performance.

FRINGE COMPENSATION OR EMPLOYEE BENEFITS:

Earlier, we noted that fringe compensation represents non monetary rewards.
Fringe compensation or employee benefits include any variety of programs that provide
pay time-off, employee services, and protection programs.

26

LEGALLY REQUIRED BENEFITS:

Legally required benefits are protection programs that attempt to promote worker
safety and health, maintain the influx of family income, and assist families in crisis. The
key legally required benefits are mandated by the Social Security Act of 1935, various
state workers compensation laws and the Family and Medical Leave Act of 1993. All
provide protection programs to employees and their dependents.

DISCRETIONARY BENEFITS:
Discretionary benefits fall into three broad categories: protection programs, paid
time-off, and services, Protection programs provided family benefits, promote health,
and guard against income loss caused by catastrophic factors such as unemployment,
disability, or serious illness. Not surprisingly, paid time-off provides employees with pay
for time when they are not working, such as vacation. Services provide enhancements
such as tuition reimbursement and day care assistance to employees and their families

HOW THE COMPENSATION FUNCTION FITS INTO HR

DEPARTMENTS:
Human resource practice do not operate in isolation. Every HR practice is related
to others in different ways. For example, Microsoft Corporation publicly acknowledges
the relationships between compensation and other HR practices.

ORGANISATIONAL CULTURE:
Organizational culture is an organizations system of shared values and beliefs that
produce norms of behavior (9). These values are apparent in companies organizational
and work structures. Also, organizational culture influences HR systems designs,
including compensation.

27

TRADITIONAL HIERARCHY
The Traditional design of U.S. companies emphasizes efficiency, decision making
by managers, and dissemination of information from the top of the company to lower
levels, illustrates is the intermediary for the companys chief executive officer and the
vice presidents of the functional areas. Within the functional areas, the decision making
flow downward from the vice president to managers of specialties within the functions.

NATURE OF COMPENSATION
Compensation offered by an organization can come both directly through base pay
and variable pay and indirectly through benefits.

Base pay: It is the basic compensation an employee gets, usually as a wage or

salary
Variable pay : it is the compensation that is linked directly to performance

accomplishments (bonuses, incentives, BANK options).

Benefits: These are indirect rewards given to an employee or group of
employees as a part of organizational membership (health insurance, vacation
pay, retirement pension etc.)

The most important objective of any pay system is fairness or equity.

The term equity has three dimensions.
a) Internal equity: This ensures that more difficult jobs are paid more.
b) External equity: this ensures that jobs are fairly compensated in comparison
to similar jobs in the labour market.
c) Individual equity: It ensures equal pay for equal work, i.e., each individuals
pay is fair in comparison to others doing the same/similar jobs.
In addition, there are other objectives also. The ultimate goal of compensation
administration (the process of managing a companys compensation
programme) is to reward desired behaviours and encourage people to do well
in their jobs. Some of the important objectives that are sought to be achieved
through effective compensation management are listed below:
28

a) Attract talent: Compensation needs to be high enough to attract talented

people. Since many firms compete to hire the services of competent people,
the salaries offered must be high enough to motivate them to apply.
b) Retain talent: If compensation levels fall below the expectations of
employees or are not competitive, employees may quit in frustration.
c) Ensure equity: Pay should equal the worth of a job. Similar jobs should get
similar pay. Likewise, more qualified people should get better wages.
d) New and desired behaviour: Pay should reward loyalty, commitment,
experience, risk taking, initiative and other desired behaviours. Where the
company fails to reward such behaviours, employees may go in search of
greener pastures outside.
e) Control costs: The cost of hiring people should not be too high. Effective
compensation management ensures that workers are neither overpaid nor
underpaid.
f) Comply with legal rules: Compensation programmes must invariably satisfy
governmental rules regarding minimum wages, bonus, allowances, benefits,
etc.
g) Ease of operation: The compensation management system should be easy to
understand and / operate. Then only will it promote understanding regarding
pay-related matters between employees, unions and managers.

29

EQUITY AND PAY RATES

The need for equity is the most important factor in determining pay rates. This
is achieved through the following steps:3

Find the worth of each job through job evaluation.

Conduct a salary survey to find what other employers are paying for

comparable jobs.
Group similar jobs into pay grades.
Price each pay grade by using wage curves.
Fine tune pay rates.

JOB EVALUATION
Job analysis offers valuable information for developing a compensation system in
terms of what duties and responsibilities need to be undertaken. The worth of a job to the
organization is as ascertained through job evaluation. Since the whole process is largely
subjective, a committee is appointed to collect information and come up with a hierarchy
of jobs according to their value. The evaluation is done through the use of market pricing
or through the use of ranking, point or factor comparison methods.

WAGE AND SALARY SURVEYS

While job evaluation ensures internal equity wage and salary surveys ensure
external equity. A wage and salary survey provided information as to what other
organizations that compete for employees are paying. The survey could cover all the jobs
within an organization (obviously costly and hence avoided) or limited to benchmark
jobs, jobs that are used to anchor the companys pay scale and around which other jobs
are slotted based on their relative worth to the firm. The benchmark jobs have

the following basic characteristics.

Many workers in other companies have these jobs.

They will not be changing in the immediate future in terms of tasks,

responsibilities, etc.
They represent the full range in terms of salary such that some are among
the lowest paid in the group of jobs, others are in the middle range and
some are at the high end of the pay scale.
30

Formal and informal surveys (through telephone, for example) could be

undertaken to collect data on benefits like insurance, medical leave, vacation pay, etc.,
and so offer a basis on which to take decisions regarding employee benefits. Published
source also provide valuable information regarding industry wise trends in salary
structures in and around the country. The published sources in India include:

Reports published by the Ministry of Labour

Pay commission reports.
Reports of Wage Bonds appointed by Government.
Reports of employees and employers organizations.
Trade journals of specific industry groups, etc

One of the major problems with these sources is the comparability of jobs in
the survey to jobs in the organization. To overcome the limitations of published
surveys, conduct your own surveys of important jobs. The following survey methods
are generally used to collect relevant wage-related information:

31

COMPONENTS OF PAY STRUCTURE IN INDIA

The pay structure of a company depends on several factors such as labour market
conditions, companys paying capacity and legal provisions:

WAGES
In India, different Acts include different items under wages, though all the Acts
include basic wage and dearness allowance under the term wages. Under the Workmens
Compensation Act, 1923, wages for leave period, holiday pay, overtime pay, bonus,
attendance bonus, and good conduct bonus from part of wages. Under the payment of
Wages Act, 1936, Section 2 (vi), any award of settlement and production bonus, if paid,
constitutes wages. Under the Payment of Wages Act, 1948, retrenchment compensation,
payment in lieu of notice and gratuity payable on discharge constitute wages.
However, the following types of remuneration, if paid, do not amount to wages
under any of the Acts:
i. Bonus or other payments under a profit-sharing scheme which do not form a
part of contract of employment.
ii. Value of any house accommodation, supply of light, water, medical
attendance, traveling allowance, or payment in lieu thereof or any other
concession.
iii. Any sum paid to defray special expenses entailed by the nature of the
employment of a workman.
iv. Any contribution to pension, provident fund, or a scheme of social security
and social insurance benefits.
v. Any other amenity or service excluded from the computation of wages by
general or special order of an appropriate governmental authority.
The term Allowances includes amounts paid in : addition to wages over a period
of time including holiday pay, overtime pay, bonus, social security benefit, etc. The wage
structure in India may be examined broadly under the following heads:

BASIC WAGE
32

The basic wage in India corresponds with what has been recommended by the Fair
Wages Committee (1948) and the 15th Indian Labour Conference (1957). The various
awards by wage tribunals, wage boards, pay commission reports and job evaluations also
serve as guiding principles in determining basic wage. While deciding the basic wage,
the following criteria may be considered: (i) Skill needs of the job; (ii) Experience
needed; (iii) Difficulty of work: mental as well as physical; (iv) Training needed; (v)
Responsibilities involved; (vi) Hazardous nature of job.

DEARNESS ALLOWANCE (DA)

It is the allowance paid to employees in order to enable them to face the
increasing dearness of essential commodities. It serves as a cushion, a sort of insurance
against increase in price levels of commodities. Instead of increasing wages every time
there is a rise in price levels, DA is paid to neutralize the effects of inflation; when prices
go down, DA can always be reduced. This has, however, remained a hypothetical
situation as prices never come down to necessitate a cut in dearness allowance payable to
employees.
DA is linked in India to three factors: the index factor, the time factor and the
point factor. All India consumer price index (AICPI): The Labour Bureau,
Shimla, computes the AICPI (Base 1960 = 100 points) from time to time.
Time Factor: in this case DA is linked to the rise in the All India Consumer Price
index (AICP!) in a related period, instead of linking it to fortnightly or monthly
fluctuations in index.
Point Factor: Here DA rises in line with a rise in the number of index points
above a specific level.

Other allowances:
The list of allowances granted by employers in India has been expanding, thanks
to the increasing competition in the job market and the growing awareness on the part of
employees.

BONUS
33

Employee compensation and benefits are divided into four basic categories
:
1. Guaranteed pay a fixed monetary (cash) reward paid by an employer to an
employee. The most common form of guaranteed pay is base salary.
2. Variable pay a non-fixed monetary (cash) reward paid by an employer to an
employee that is contingent on discretion, performance, or results achieved. The most
common forms of variable pay are bonuses and incentives
3. Benefits programs an employer uses to supplement employees compensation, such
as paid time off, medical insurance, company car, and more
4. Equity-based compensation BANK or pseudo BANK programs an employer uses
to provide actual or perceived ownership in the company which ties an employee's
compensation to the long-term success of the company. The most common examples are
BANK options.

Nominal and Real Wages:

Wages can be expressed in two ways. When they are expressed in terms of
money paid to the worker they are called nominal wages. But when they are
expressed in terms of their purchasing power with reference to some base
year they are called real wages. These wages are arrived at by making
adjustment in the nominal wages for the rise or fall in the cost of living.
Thus, if the nominal wage of a worker in 1984 was Rs.400p.m. and in 1994
it is Rs.900 p.m. but if the living in 1994 has become thrice as costly as in
1984 the real wage of the worker in 1994 is Rs.300 only. How do we
measure changes in the cost of living, or changes in the prices that
consumers pay? The measuring rod is the consumer price index number.
This index number is intended to show over a period of time the average
percentage change in the prices paid by the consumers belonging to the
population group proposed to be covered by the index for a fixed list of
goods and services consumed by them. The average percentage change,
34

measured by the index, is calculated month after month with reference to a

fixed period.
INCENTIVE
An incentive is something that motivates an individual to perform an action.
The study of incentive structures is central to the study of all economic
activities (both in terms of individual decision-making and in terms of cooperation and competition within a larger institutional structure). Economic
analysis, then, of the differences between societies (and between different
organizations within a society) largely amounts to characterizing the
differences in incentive structures faced by individuals involved in these
collective efforts. Ultimately, incentives aim to provide value for money and
contribute to organizational success

35

FACTORS INFLUENCING COMPENSATION LEVELS:The amount of compensation received by an employee should reflect the effort put
in by the employee, the degree of difficulty experienced while expending his energies, the
competitive rates offered by others in the industry and the demand-supply position within
the country, etc. These are discussed below.
a) Job Needs: Jobs vary greatly in their difficulty, complexity and challenge. Some
need high levels of skills and knowledge while others can be handled by almost
anyone. Simple, routine tasks that can be done by many people with minimal
skills receive relatively low pay. On the other hand, complex, challenging tasks
that can be done by few people with high skill levels generally receive high pay.
b) Ability to pay: Project determines the paying capacity of a firm. High profit
levels enable companies to pay higher wages. This partly explains why computer
software industry pays better salaries than commodity based industries (steel,
cement, aluminum, etc), Likewise, multinational companies also pay relatively
high salaries due to their earning power.
c) Cost of living: Inflation reduces the purchasing power of employees. To overcome
this, unions and workers prefer to link wages to the cost of living index rises due to
rising prices, wage follow suit.
d) Prevailing wage rates: Prevailing wage rates in competing firms within an
industry are taken into account while fixing wages. A company that does not pay
comparable wages may find it difficult to attract and retain talent.
e) Unions: Highly unionized sectors generally have higher wages because well
organized unions can exert presence on management and obtain all sorts of benefits
and concessions to workers.
f) Productivity: This is the current trend in most private sector companies when
workers wages are linked to their productivity levels. If your job performance is
good, you get good wages. A sick bank, for example, cant hope to pay competitive
wages, in tune with profit making blanks.

36

g) State Regulation: The legal stipulations in respect of minimum wages, bonus,

dearness allowance, allowances, etc., determine the wage structure in an industry.
h) Demand and supply of labour: The demand for and the supply of certain skills
determine prevailing wage rates. High demand for software professionals, R&D
professionals in drug Industry, telecom and electronics engineers, financial analysis,
management consultants ensures higher wages. Oversupply kills demand for a certain
category of employees leading to a steep fall in their wages as well.
Most employers, nowadays, are Interested in paying a fair wage to all workers which
is neither very high (affecting the companys profitability) nor very low (where
attracting and retaining people becomes difficult).

FRINGE BENEFITS
The term fringe benefits refers to the extra benefits provide to employees in
addition to the normal compensation paid in the form of wage or salary. Many years ago,
benefits and services were labeled fringe benefits because they were relatively
insignificant or fringe components of compensation. However, he situation now is
different, as these have, more or less, become important components of a comprehensive
compensation package offered by employers to employees.
TB main feature of fringe benefits, as they stand today may be stated thus:9

They are supplementary forms of compensation.

They are paid to all employees (unlike incentives which are paid to specific
employees whose work is above standard) based on their membership in the

organization.
They are indirect compensation because they are usually extended as a

condition of employment and are not directly to performance.

They help raise the living condition of employees.
They m be statutory or voluntary. Provident find is a statutory benefit whereas
transport is a voluntary benefit.

TYPES OF FRINGE BENEFITS

37

The fringe benefits offered by various organizations in india may be broadly

classified into five categories. These few discussed below:
Payment for time not worked: This category include: (a) hours of work, (b) paid
holidays, (c) shift premium, (d) holiday pay and (e) paid vacation.
i.

Hours of Work: Section 51 of the Factories Act, 1948, specifies that no

adult worker shall be required to work in a factory for more than 48 hours
in any week. Section 54 of the Act restricts the working hours to 9 on any
day. In some organization, the numbers of working hours are less than the

ii.

legal requirements.
Paid Holiday: According to the Factories Act, 1948, an adult worker shall
have weekly paid holidays, preferably Sunday. When a worker is deprived
of weekly holidays, he is eligible for compensatory holidays of the same
number in the same month. Some organizations allow the workers to have

iii.

two days holidays in a week.

Shift Premium: Companies operating second and third shifts, pay a
premium to the workers who are required to work during the odd hours

iv.

shift.
Holiday Pay: Generally organizations offer double the normal rate of the

v.

salary to those workers, who work during holidays.

Paid Vacation: Workers in manufacturing, mining and plantations who
worked for 240 days during a calendar year are eligible for paid vacation
at the rate of one day for every 20 days worked in case of adult workers
and at the rate of one day for every 20 days worked in case of adult
workers and at the rate of one day for every 15 days worked in case of
child workers.

EMPLOYEE SECURITY:

Physical and job security to the employee should also be provided with a view to
ensure security to the employee and his family members. When the employees services
get confirmed, his job becomes secure. Further, a minimum and continuous wage or
38

salary gives a sense of security to the life. The Payment of Wages Act, 1936, the
Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, provide income security to
the employees.
i.

Retrenchment compensation: The Industrial Disputes Act, 1947, provides

for the payment of compensation in case of lay off and retrenchment. The nonseasonal industrial establishments employing 50 or more workers have to give
one months notice or one months wages to all the workers who are
retrenched after one years continuous service. The compensation is paid at the
rate of 15 days wage for every completed year of service with a maximum of
45 days wage in a year. Workers are eligible for compensation as stated above
even in case of closing down of undertakings.
Layoff Compensation: in case of layoff, employees are entitled to layoff

ii.

compensation at the rate equal to 50% of the total of the basic wage and
dearness allowance for the period of their layoff except for weekly holidays.
Layoff compensation can normally be paid up to 45 days in an year.
1.22.3.5 Old age and retirement benefits: Industrial life generally breaks joint
family system. The saving capacity of the employees is very low due to lower wages,
high living cost and increasing aspirations of the employees and his family members. As
such, employers provide some benefits to the employees, after retirement and during old
age, with a view to create a feeling of security about the old age. These benefits are called
old age and retirement benefits. These benefits include provident fund, (b) pension, (c)
deposit linked insurance, (d) gratuity and (e) medical benefit.
i. Provident fund: his benefit is meant for economic welfare of the employees. The
Employees provident found, Family Pension Fund and Deposit Linked insurance
Act, 1952, provides for the institution of Provident Fund for employees in
factories and establishments. Provident Fund Scheme of the Act provides for
monetary assistance to the employees and/or their dependants during post
retirement life. Thus this facility provides security against social risks and this
benefit enables the industrial worker to have better retired life. Employees in all
factories under Factories Act, 1948, are covered by the Act. Both the employee
and employer contribute to the fund. The employees on attaining 15 years of
39

membership are eligible for 100% of the contributions with interest. Generally
the organizations pay the Provident Fund amount with interest to the employee on
retirement or to the dependants of the employee, in case of death.
ii. Pension: The Government of India introduced a scheme of Employees Pension
Scheme for the purpose of providing Family Pension and Life insurance benefits
to the employees of various establishments to which the Act is applicable. The
Act was amended in 1971 when Family Pension Fund was introduced in the Act.
Both the employer and the Employee contributes to this fund. Contributions to
this fund are from the employee contributions to the Provident Fund to the tune of
1.1/3% of employee wage.

40

Pension Rates
Pay for Month

Rate

Rs.800 or more More than Rs 12% of the basic subject to a maximum of Rs 150 as
200 but less Than Rs 800 Rs monthly pension. 15% of the basic subject to a maximum
200 or less

of Rs 96 and a minimum of Rs 60 as monthly pension.

30% of the basic subject to a minimum of Rs 60 as
monthly pension.

This scheme also provides for the payment of a lumpsum amount of Rs 4,000 to
an employee on his retirement as retirement benefit and a lumpsum amount of Rs 2,000 in
the event of death of employee as life insurance benefits.

Deposit linked insurance:

Employees deposit linked insurance scheme was introduced in 1976 under the P.F.
Act, 1952. Under this scheme, if a member of the Employees Provident fund dies while in
service, his dependents will be paid an additional amount equal to the average balance
during the last three years in his account. (The amount should not be less than Rs 1000 at
any point of time). Under the employees deposit linked insurance scheme, 1976 the
maximum amount of benefits payable under the deposit linked insurance is Rs 10,000.
Gratuity : This is another type of retirement benefit to be provided to an employee either
on retirement or at the time of physical disability and to the dependents of the deceased.
Gratuity is a reward to an employee for his long service with his present employer.
The Payment of Gratuity Act, 1972, is applicable to the establishments in the
entire country. The act provides for a scheme of compulsory payment of gratuity by the
managements of factories, plantations, mines, oil fields, railways, shops and other
establishments employing 10 or more persons to their employees, drawing the monthly
wages up to Rs 1,600 per month.
41

Gratuity is payable to all the employees who render a minimum continuous

service of five years with the present employer. It is payable to an employee on his
superannuation or on his retirement or on his death or disablement due to accident or
disease. The gratuity payable to an employee shall be at the rate of 15 days wage for
every completed year of service on part thereof in excess of six months. Here the wage
means the average of the basic pay last drawn by the employee. The maximum amount of
gratuity payable to an employee shall ot exceed 20 months wage.
Medical benefit: Some of the large organizations provide medical benefits to their retired
employees and their family members. This benefit creates a feeling of permanent
attachment with the organization to the employees even when they are no longer in
service.
Fringe benefits are one of the means to ensure, maintain and increase the material
welfare of employees. The physical and mental strain of workers in an industry is
considerably alleviated by tax benefits through creating an environment that insulates
them from fatigue and monotony. Employees who get fringe benefits are stimulated to
give of their best so as to increase productivity and to develop a sense of belongingness to
the organization. Research studies, however, could not establish proof of any relationship
between the amount spent on fringe benefits and level of productivity.
All organizations may not provide all the benefits discussed earlier due to
financial stringencies. Moreover, the list of benefits given earlier is not exhaustive one
and some organizations provide different benefits which are not included in the list owing
to their need and the financial ability of the organizations.
Human Resource Management does not end with salary administration. It should
also deal with hum aspects of personnel management. Human aspects of personnel
management

include

understanding

and

maintaining

human

relation.

Hence,

understanding and maintaining human relation can be treated as a function Human

Resource Management
[

The Workmens Compensation Act, 1923

42

The Act followed the British model with necessary changes to suit Indian
conditions. The main objective of the Act is to impose an obligation upon the employer to
pay compensation to the workman who suffers partial or total incapacity for more than 3
days resulting in a loss in earning capacity the main features of the Act are as under:
Coverage: The Act covers all workers employed in factories, mines, plantations,
transportation, construction works, railways, ships and certain other hazardous
occupations as mentioned in Schedule II of the Act. It does not apply to casual workers
covered under the Employees State insurance Act and members of the Armed Forces.

43

The Employees Provident Funds and Miscellaneous Provisions Act,

1952
The Act offers retirement benefits to workers in the form of provident fund,
pension and deposit linked insurance. The main features of the Act are as under:
Coverage:

The Act applies to factories in any industry mentioned in schedule I where

20 or more persons are employed. The Act does not apply to (i) cooperative societies
where less than 50 persons are employed and working without the aid of power (ii) new
establishments for 3 years from the date of commencement.
Administration: A Tripartite Central Board of Trustees consisting of representatives of
employees, employers and Government oversee the implementation of the provisions of
the Act. The benefits of the Act include the following:

Provident fund scheme:

Under the scheme, dedications are made from the

employees salary every month. The employer con relates an equivalent sum. The
total contributions are deposited with the Provident Fund Commission or invested
in a specified way. Premature withdrawals, loans and advances can obtained by
the employee for higher education, marriage of children, purchase of car,
construction of house, etc. when the employee leaves the company, retires or dies

the credit, balance in his account with interest is paid to his nominees.
Family pensions scheme, 1971: When the employee dies while in service,
pension is paid to his widowr children. Under the new scheme, pension is paid to
his widower children. Under the new scheme, pension is payable to an employee
after his. Retirement in place of provident fund. An employee can opt for either

provident fund scheme or pension scheme.

Deposit linked insurance scheme, 1976: In this scheme, the legal heir or
nominee of the deceased employee gets an amount equal to the average balance in
his provident fund during the procedure One year subject to a maximum Rs
3,500. The employer and the Central government make contribution to this
employee is not required to make any contribution. And the employee.

NEEDS OF IMPORTANT COMPONENTS TO BUILD A

44

COMPENSATION STRUCTURE
Components of Compensation System
Compensation system is designed keeping in minds the strategic goals and
business objectives. Compensation system is designed on the basis of certain factors after
analyzing the job work and responsibilities, Components of a compensation system are as
follow

45

Types of Compensation
Compensation provided to employees can direct in the form of monetary benefits
and/or indirect in the form of non-monetary benefits known as perks, time off, etc.
Compensation does not include only salary but it is the sum total of all rewards and
allowances provide to the employees in return for their services. If the compensation
offered is effectively managed, it contributes to high organizational productivity.

Direct Compensation
Direct compensation refers to monetary benefits offered and provided to
employees in return of the services they provide to the organization. The monetary
benefits include basic salary, house rent allowance, conveyance, leave travel allowance,
medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a
regular interval at a definite time.

DIRECT
COMPENSATIO

`
46

Indirect Compensation
Indirect compensation refers to non-monetary benefits offered and provided to
employees in lieu of the services provided by them to the organization. They include
Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel
Assistance Limits, Retirement Benefits, Holiday Homes.

Strategic Compensation
Strategic compensation is determining and providing the compensation packages
to the employees that are aligned with the business goals and objectives. In todays
competitive scenario organizations have to take special measures regarding compensation
of the employees so that the organizations retain the valuable employees. The
compensation systems have changed from traditional ones to strategic compensation
systems.

Disability Compensation
A tax-free monetary benefit paid to Veterans with disabilities that are the result of
a disease or injury incurred or aggravated during active military service. The benefit
amount is graduated according to the degree of the Veteran's disability on a scale from 10
percent to 100 percent (in increments of 10 percent). Compensation may also be paid for
disabilities that are considered related or secondary to disabilities occurring in service and
for disabilities presumed to be related to circumstances of military service, even though
they may arise after service. Generally, the degrees of disability specified are also
designed to compensate for considerable loss of working time from exacerbations or
illnesses.
Learn more about Disability Compensation

Dependency and Indemnity Compensation (DIC)

DIC is a tax-free monetary benefit generally payable to a surviving spouse, child,
or parent of Service members who died while on active duty, active duty for training, or
inactive duty training, or to survivors of Veterans who died from their service-connected
47

disabilities. Parents DIC is an income-based benefit for parents who were financially
dependent on of a Service member or Veteran who died from a service-related cause.
Learn more about DIC and Parents DIC

Special Monthly Compensation (SMC)

SMC is an additional tax-free benefit that can be paid to Veterans, their spouses,
surviving spouses and parents. For Veterans, Special Monthly Compensation is a higher
rate of compensation paid due to special circumstances such as the need of aid and
attendance by another person or by specific disability, such as loss of use of one hand or
leg. For spouses and surviving spouses, this benefit is commonly referred to as aid and
attendance and is paid based on the need of aid and attendance by another person.

Claims Based on Special Circumstances

Veterans may be eligible for other types of disability compensation once a
disability has been determined to be service connected. Special VA disability
compensation programs include: individual unemployability, automobile allowance,
clothing allowance, prestabilization, hospitalization, convalescence, dental, and birth
defects.

48

Employee Benefits
Benefits and compensation provided to the employees usually depend on the
conditions of employment and other factors like security, safety, health, welfare and
recreation of employees
These benefit programs must be managed carefully to enhance recruitment and to boost
the morale of the employees
Coverage of Benefits Payment for time not worked
(a) Vacation
(b) Holidays
(c) Sick leave
(d) Miscellaneous types of non-working plans
(e) Shifts premium
Safety benefits

Health Benefits

Medical benefit or insurance

Managed care Health maintenance organization

Maternity benefit

Dependent benefit
Insurance benefits
(a) Life insurance
(b) Vision insurance
(c) Dental insurance

49

According to Richard Oyen, the current economic climate can tempt HR

professionals to curtail some standard compensation management processes in search of a
silver lining. For example, many may opt not to expend the energy involved in making
compensation adjustments. Whats the point, they reason, when they have no budget for
raises or bonuses?

The reality, however, is that lean periods like this cry out for

optimized efficiency. For businesses to get the most from the budget they do have, they
must focus on those areas that directly influence the companys bottom lineand
compensation has one of the most profound impacts of them all. So as you work to
improve on your employees compensation practices, here are five critical steps that will
maximize your efforts. Your organization can have the most in-depth compensation
management model, equipped with fancy processes and up-to-the second salary market
data, but it all means nothing if it does not tie your merit adjustments to your performance
metrics. A true pay-for-performance culture requires you to thoroughly assess the
organizations performance, calibrate your results to eliminate any managerial bias, and
ultimately compensate individuals for accomplishing their goal targets. Be absolutely
certain that your compensation processes are configured along these lines, or you will be
wasting valuable budget. Human capital is your organizations greatest cost-yet far too
many of us continue to manage employee data and calculate salary adjustments using
basic spreadsheets. Over a decade of research has consistently proven that spreadsheets
are notoriously full of errors. Why? Because people make mistakes. In fact, people are
typically only 95% to 98% accurate when they create formulas in spreadsheets1. Imagine
the number of formulas in any given spreadsheet your department produces-and then
weigh that against the results of one study in particular that found over 90% of
spreadsheets contained errors2.
When rewarding your employees for their hard work, consider offering BANK
options or one-time financial bonuses instead of simply increasing base salaries. And
remember: money is not the only motivator for engaging and retaining your workforce.
Look for other development opportunities, such as training or an increase in
responsibilities. These alternatives reflect your faith in key employees while defining
clear conduits for career growth. Market wages can fluctuate widely depending on your
industry. In addition to assessing merit increases and bonuses, take the time to see where
your organizations salaries line up with market standards. Depending on your corporate
50

salary strategy, you may need to make some adjustments that help ensure fair and
equitable compensation, especially for those roles facing high turnover risk.
HR Should not be conducting compensation budget allocations alone and behind
closed doors at headquarters. Youll still oversee the process to ensure consistency and
control costs but if your organization hopes to improve the ongoing cycle of talent
development, you must be certain that managers participate in this critical process. Give
them all the tools they will need to easily make smart, effective decisions, including
performance and goal data, salary bands, previously allocated budget information,
increase guidelines, and so on. Youll also find that managers and employees alike are
more responsive during compensation processes. Take advantage of this opportunity and
have them complete other necessary performance management tasks, such as talent
assessments for succession planning activities. While we might be tempted to cut back on
some HR efforts, we should remember that out current economic crisis is actually a call
for greater diligence particularly with regard to large budget items like compensation.
Now is the time to optimize your processes to ensure the most efficient use of corporate
resources, and to help engage, retain, and develop your companys most valuable asset its
workforce. .r1e2f
According to the Mr. Grant Mc Glaughlin The Canadian Securities
Administrators have adopted new executive compensation disclosure rules that will come
into force on December 31, 2008. These amendments, the first changes to the executive
compensation rules since 1994, are intended to provide shareholders with a clearer
perspective on executive compensation.
The central elements of the new rules are to require disclosure of all direct and
indirect compensation that an issuers board paid and intended to pay to executives, and
the reasons for the amount of compensation paid to executives so as to provide investors
with an understanding of how compensation decisions were made. The rule changes,
which are significant, are similar to the SECs rules on executive compensation adopted
last year. The new rules apply for financial years ending on or after December 31, 2008,
so issuers will need to comply with the new rules for the 2009 proxy season. The New
Rules in order to prepare to report under the new rules, there are certain steps that
companies should take to ensure they will be fully compliant by the deadline. The new
51

rules are complex, detailed and will require the collection and development of a
significant amount of additional compensation information. The new requirement for
compensation discussion and analysis will require extensive involvement of the board of
directors, compensation committee, and management team and outside advisors. Issuers
should begin preparing
Their executive compensation disclosure as soon as possible. Examine new
executive compensation report of issuers. Although the new rules implemented by the
SEC are not identical to those coming into force in Canada, the policy reasons behind the
new rules, and many features, are very similar. Therefore, analyzing the changes made by
reporting companies in the United States may help issuers in Canada to get a better sense
of how to address the new requirements. Analyze the policy reasons and general
philosophy behind the companys current compensation practices. Under the new rules,
issuers will be required to disclose detailed reasons for their chosen methods of
compensation. Therefore, it will be useful for issuers to establish and articulate a
comprehensive policy for executive compensation to consider weather each element of
executive compensation is consistent with that policy.
The content of this article does not constitute legal advice and should not be relied
on in that way. Specific advice should be sought about your specific circumstances
According to Kathleen A. McNally Today there is a lot of talk about
compensation, its cost to the organization and the companys return on its compensation
investment. As a result, a variety of new pay systems have been developed, each with its
own objective, benefits and risks. Some companies have already installed new pay plans,
and many more are considering it. Many companies that have implemented various new
Pay Plans find that plan objective become disconnected from the larger picture; they have
been designed with a local rather than a global view. These companies are looking for a
way to integrate their pay system into a cohesive whole so the plans drive the company
objectives. Other companies are beginning to look at new plans, wondering how
These plans will fit into the current pay system. Often, there is little connection
between the new pay systems and the overall business plan of the organization. New pay
systems are designed to achieve specific, departmental objectives or, worse, they are
because everybody is doing it. The traditional function of pay to attract, retain and
52

motivate employees has not changed with the introduction of new pay systems; but the
emphasis has shifted from the attraction and retention functions to the motivation
function. The planning process Strategic compensation planning allows an organization to
focus on its strategic objectives and develop a comprehensive plan, considering base pay,
short- and long-term incentives, benefits and growth opportunities. This kind of planning
helps ensure that the compensation system will support the organizations long-and shortterm objectives without overlap, which would have more than one pay plan driving the
same objectives.
A strategy planning chart, allows to evaluate how well its current pay
system helps to attract, retain and motivate its employees. Down the side of the chart are
elements of the compensation system: direct pay, indirect pay (benefits) and several
nonpayer elements of the employee contract that different this company from
competitors. To identify these elements in your organization ask: why would someone
come to work here instead of for the competition, if pay and benefits were the same? The
answer may be such factors as career opportunities, a participative culture, promises to
reduce staff only through attrition, or flexible work hours.

53

CHAPTER IV
DATA ANALYSIS
AND
INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

1.

Opinion on awareness of pay policy in HDFC BANK

54

Opinion respondent

No of respondents

% of respondents

Yes

43

86%

No

14%

Total

50

100%

Figure-1

Interpretation:
According to the above table 86% of the employees of the
organization are aware of the pay policies and rest of the 14% of the
employees are not aware of that they may be part time employees or contract
based employees.

2. Knowing about compensation packages in IT industries

55

Opinion response

No of respondents

%of respondents

Yes

33

33%

No

17

17%

Total

50

100%

Figure:2

Interpretation:
From the above table it is evident that 33% of the employees in the IT
industry are aware of their compensation packages in their industry and rest
of the 17% are not aware about the compensation packages which are in
practice in the industry.
3.

Basis for remuneration factor in HDFC BANK

S. No

Basis
1

No. of respondents

Previous work history

8
56

% of respondents
8%

Experience

34

68%

Length of service

5%

Other

3%

50

100%

Total

Figure 3

Interpretation:
In the above table it is evident that 8% of the employees remuneration
is provided on the basis of previous work history, 68% of the employees
remuneration is provided on the basis of experience, 11% of the employees
remuneration is provided on the basis of their length of service and 5% of the
employees remuneration is provided on other grounds.

4.Base of compensation provided in the organization

S. No

Base

Hourly pay

No. of respondents
0

% of respondents
0%

57

Annual pay

47

47%

Part time

02%

Contract

01%

Total

50

100%

Figure: 4

Interpretation:
In the above table it is evident there are no employees who work an
hourly pay basis as mentioned 0% in the table, 47% of the employees work
on annual pay base, 2% of the employees work on part time base and 1% of
the employees work on contract basis.
5. Pay package according to. factor
S. No

According to

No. of respondents
58

% of respondents

Market level

26

52%

Below market level

3%

Above market level

19

19%

Organizations capability

1%

50

100%

Total

Figure: 5

Interpretation:
In the above table it is evident that 52% of the employees
compensation package is defined on the market level, 4% of the employees
pay package is defined below the market level, 19% of the employees
compensation package is defined above market level and 1% of the
employees compensation package is defined on organizations capability.

6. Determination of incentives pay factor

59

S. No

Determined by

No. of respondents

% of respondents

Manager

1%

Profit

18

18%

Seniority

5%

Performance

26

52%

Cost of living

0%

50

100%

Total

Figure:6

Interpretation:
In the above table shows that the incentive pay factor is determined
1% by the managers, 36% by the profit of the organization, 11% by the
seniority, 52% by the performance of the employees and cost of living is not
taken into the consideration to pay incentives.

7. Kinds/Plan of incentives in the organization

60

S. No

Kinds / Plans

No. of respondents

% of respondents

1 Organization portfolio

0%

2 Group incentive plans

0%

3 Individual plans

0%

4 All 3 above

49

98%

5 None

1%

50

100%

Total

Figure - 7

Interpretation:
In the above table it indicates that 98% of the employees are provided
all 3 kinds of incentives plans which are organization profit, group incentive
plan &individual plan and only 1% of the employees are not getting any kind
of incentives because, they are contract employees

8. Satisfaction factor about fringe benefits

61

S. No

Level of satisfaction

No. of respondents

Highly satisfied

6%

Satisfied

42

84%

Dissatisfied

2%

Highly dissatisfied

0%

50

100%

Total

% of respondents

Figure: 8

INTERPRETATION
After studying the above table it is concluded that 84% of the employees are
satisfied with their fringe benefits, 6% of the employees are highly satisfied with their
fringe benefits, 2% of the employees are dissatisfied with their fringe benefits and none of
the employees is highly dissatisfied regarding their fringe benefits.

9. Types of benefits factors

S. No

Types of benefits

No. of respondents
62

% of respondents

Protection

0%

programme
2

Paid time-off

0%

Above two

48

96%

None

2%

Total

50

100%

Figure:9

Interpretation:
In the above table, 96% of the respondents are provided both the
protection and paid time-off benefits and only 2% of the respondents are not
provided with either one of the benefits.

10. Level of fringe benefits providing to the employees

Grades

Scored points

Grade I

76 to 100 points

No. of respondents
4
63

% of respondents
4%

Grade II

51 to 75 points

43

86%

Grade III

26 to 50 points

2%

Grade III

1 to 25 points

1%

50

100%

Grade IV

Total

Figure: 10

Interpretation:
Note: In the questionnaire, question No. 11 deals with the checklist about fringe benefits
which contains 20 benefits and each marking allocates 5 points. According to this,
interpretation has made.

In the above table 6% of the respondents got 76 to 100

points, it indicates that these respondents are getting total fringe benefits from the
organization and these employees called as Grade-I employees who are top level
executives, 86% of the respondents have scored between 51 to 75 points, it indicates that
they are getting Grade-II employees benefits, 2% of the respondents have scored between
26-50, it indicates that they are getting Group-III employees benefits and 1% of the
respondents are getting Group-IV employees benefits.
11. What is the average working duration/ hour of an employee?

S. No

Basis

No. of respondents

1 8 hours

8
64

% of respondents
8%

2 9 10 hours

34

68%

3 More than 10 hours

5%

50

100%

Total

INTERPRETATION

In the above table, 68% of the respondents are provided for 9-10 hours
working duration of an employee.

65

12. Do you agree that the shift system is convenient than adopting a fixed timing to
work?

S. No

Level of satisfaction

Strongly Agree

6%

Agree

42

84%

Neutral

2%

Disagree

0%

50

100%

Total

No. of respondents

% of respondents

INTERPRETATION
After studying the above table it is concluded that 12% of the employees strongly
Agree and Agree which is shows the highest 84 percentage and the natural which is 4%
and disagree there is null.

66

13 Do you have a formal job evaluation plan in place?

Opinion respondent

No of respondents

% of respondents

Yes

43

86%

No

14%

Total

50

100%

INTERPRETATION
In the above table, the formal job evaluation plan which is shows the
86%. Yes and 14 % for No.

67

14 Do you have an employee policy manual?

Opinion respondent

No of respondents

% of respondents

Yes

43

86%

No

14%

Total

50

100%

INTERPRETATION
In the above table, employee policy manual which is shows the 86%. Yes
and 14 % for No.

68

15. Which type of Compensation payment system do you prefer?

S. No

Basis

No. of respondents

% of respondents

Fixed pay system

8%

Variable pay system

34

68%

Balanced-Debt Method

5%

50

100%

Total

INTERPRETATION
In the above table Compensation payment system which is shows the Fixed pay
system is 16 % and Variable pay system 68% and balance Debt method 10 %.

69

CHAPTER V
FINDINGS, SUGGESTIONS
AND
CONCLUSION

70

FINDINGS

After doing this project work in the company, we found few of the main things in
the organization. They are as follows:

The company is providing the competitive compensation packages to its

employees.
The structure of the compensation is not same as when compared with IT sector

and other sectors.

The company practices 2 different kinds of compensation packages for operational

group employees and non operational group employees.

The company determines the packages based on the job grade, market pay line,

experience, skill based, performance based to its employees.

The company is providing bonus and profits to its employees.
The company is providing a wide range of fringe benefits as an important element

in the compensation structure.

The company is providing pay-for-knowledge programme to its employee

because, the company is innovative oriented.

There is an internal consistency in the compensation structure within the job

family.
The company is communicating soundly about the benefits to its employees and
updating the information about the new benefits.

CONCLUSION
Compensation employees represent a critical human resource management
practice: without sound compensation systems, companies cannot attract and retain the
71

best-qualified employees. Practicing various human resources policies and programs like
employment, development and compensation and interaction among employees create a
sense of relationship between the individual worker and management, among workers and
trade unions and management.
It is the process of interaction among human beings. Human relations is an
area of management in integrating people into work situation in a way that motivates
them to work together productively, co-operatively and with economic, psychological and
social satisfaction. It includes:
The main objectives of compensation administration are to design a costeffective pay structure that will attract, motivate and retain competent employees and that
will also be viewed as fair by these employees apart from meeting legal requirements
organization have to take care of ever-rising employee expectation and competitive
pressures while designing an effective compensation plan. The purpose of this protect to
bring out the importance of designing an effective compensation plan that takes care of
legal stipulations, industry practices, employee expectation, competitive pressures, etc.,
so as to attract and retain talent.

72

SUGGESTIONS
After doing this project work in the company, we found few of the main things
in the organization. They are as follows

Continuously updating the compensation packages information in the

organization.
Company should find out the various tax relaxation benefits to the employees.
Providing a handsome compensation package can boost up the employee

motivation.
Communicate about the benefits the employees in an effective manner.
Adjust labor cost to financial results the basic idea is to create a bonus plan
where the company is paying more bonuses in good times and less (or no)

bonuses in bad times.

Drive employee performance the basic idea is that if an employee knows

that his/her bonus depends on the occurrence of a specific job.

Employee retention retention is not a primary objective of bonus plans, yet

bonuses are thought to bring value with employee retention as well,

Employees paid more are more satisfied with their job (all other things being

equal) thus less inclined to leave their employer.

Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion,
performance, or results achieved.
There are different types of variable pay plans, such as bonus schemes, sales incentives
(commission), overtime pay, and more.

73

BIBLIOGRPHY

74

BIBLIOGRPHY

Books
(i) Joseph J. Martocchio STRATEGIC COMPENSATION THIRD
EDITION -2007, PUBLISHED BY PEARSON EDUCATION
(ii) Richard j. Henderson COMPENSATION MANAGEMENT IN A
KNOWLEDGE BASED WORLD TENTH EDITION-2008, PUBLISHED BY
PEARSON EDUCATION
(iii) Brow Harvey COMPENSATION MANAGEMENT.
(iv) V.S.P RAO HUMAN RESOURSE MANAGEMENT SECOND
EDITION-2007, PUBLISHED BY EXCEL BOOKS.
(v) L.M.PRASAD: HUMAN RESOURCES MANAGEMENT.
(vi) Mirza S Saiyadain HUMAN RESOURCES MANAGEMENT.

Web sites:
www.google.com
www.hdfc.com

www.cite.H.R.com
www.msn.com

75

QUESTIONNARIES
EMPLOYEES SATISFACTION LEVEL REGARDING
COMPENSATION POLICIES
PERSONAL INFORMATION:NAME

:-----------------------

AGE

:-----------------------

QUALIFICATION :----------------------EXPERIENCE:

:------------------------

QUESTIONNARIES
1. Are you aware of the procedure of pay policies in your
organization?
A) Yes

B) No

2. Do you know about compensation packages in IT industry?

A) Yes

B) No

3. On what basis remuneration is provided in HDFC BANK ?

A) Previous work history
B) Experience
C) Length of Service
D) If any other

76

4. On what base you are provided the compensation in the HDFC

BANK ?
A) Hourly pay B) Annual salary

C) Contract base D) Part time

[

5. What do you feel about your pay package according to?

A) To market level

B) To below of market level

C) To above of market level
D) To company capability

6. In an incentive payment, worker pay is determined by [

A) Manager

B) Profit

C) Seniority D) Cost of living

E) Performance
7. What kind of incentives are providing in your organization?
[
A) Organization profit plan
B) Group incentive plan are
C) Individual incentive plan
D) Above

77

8. Which type of fringe benefits you are provided in the BANK

[

A) Protection programs
B) Paid time off
C) Services
D) All are above
9. What kind of insurance policies is providing to you in your
organization?
A) Group insurance

B) Individual insurance
C) Group and individual insurance
D) None
10. How do you satisfy with the fringe benefits provided by the
organization?
A) Highly satisfied

B) Satisfied
C) Dissatisfied
D) Highly dissatisfied
11. What is the average working duration/ hour of an employee?
A.

8 hours

B. 9 10 hours

C. More than 10 hours

12. Do you agree that the shift system is convenient than adopting a fixed timing to work?
A. Strongly Agree
[
]
B. Agree
C. Neutral
D. Disagree
78

13 Do you have a formal job evaluation plan in place?

A. Yes B. No

14 Do you have an employee policy manual?

A. Yes B. No
15 Which type of Compensation payment system do you prefer?
A. Fixed pay system
B. Variable pay system
C. Balanced-Debt Method
D. All

79