COMPENSATION MANAGEMENT

ANSHU ARORA SHOBITASH JAMWAL

INTRODUCTON

IMPORTANCE OF
COMPENSATION MANAGEMENT

FACTORS
AFFECTING COMPEN. MANAG

THEORIES

CHALLENGES

COMPENSATION
Compensation is the remuneration an employee an employee services for his or her contribution to the organization.

Compensation includes not only salary, but also the direct and indirect rewards and benefits the employee is provided with in return for their contribution to the organization.

Compensation Management
is an organized practice that involves balancing the workemployee relation by providing monetary and nonmonetary benefits to employees. includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and sales commission. can also include non-monetary perks such as a companypaid car, company-paid housing and stock options. is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Wages and Salary Allowances

Incentives
Fringe Benefits/Perquisites

 Wages and Salary: o Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the number of hours put in by an employee. o These are subject to annual increments. Incentives: o Incentive compensation is performance-linked remuneration paid with a view to inspire employees to work hard and do better. o Bonus, profit-sharing, commissions on sales are some examples of incentive compensation

 Allowances: Several allowances are paid in addition to basic pay. o Dearness Allowance: This allowance is given to protect real income against inflation. o House Rent Allowance: Employers who do not provide living accommodation pay house rent allowance (HRA) to employees. o City Compensatory Allowance: This allowance is paid generally to employees in metros and other big cities where cost of living is comparatively high o Conveyance Allowance: Some employers pay transport allowance (TA) to their employees.

 Fringe Benefits/Perquisites: o These include employee benefits such as provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform, recreation and the likes.

Importance of Compensation Management

A good compensation is must for every business organization and helps in the following way: It tries to give proper return to the workers for their contributions to the organization. It imparts a positive control on the efficiency of employees and encourages them to perform better and achieve the specific standards. It forms a basis of happiness and satisfaction for the workforce that minimizes the labor turnover and confers a stable organization.

 It arouses an environment of morale, efficiency and cooperation among the workers and provides satisfaction to the workers. It stimulates the employees to perform better and show their excellence. It provides growth and advancement opportunities to the deserving employees.

Consequences of dissatisfaction

Factors Influencing Employee Compensation

Theories Of Compensation
In order to consider which component of remuneration are most effective, we need to understand the conceptual framework or theories of employee remuneration. Three such theories are as follows: Reinforcement & Expectancy Theory. Equity Theory. Agency Theory.

Reinforcement & Expectancy Theory

The Reinforcement theory postulates that a behavior which has a rewarding experience is likely to be repeated. The implication for remuneration is that high employee performance followed by a monetary reward will make future employee performance more likely. Expectancy theory focuses on the link between rewards and behavior. Thus motivation, according to the theory ,is the product of valence, instrumentality and expectancy.

Equity Theory
Remuneration system needs to meet three types of equity: Internal: It involves the perceived fairness of pay differentials among different jobs within organization. External: It involves employee's perception of the fairness of their remuneration relative to those outside the organization. Individual: It considers employee perception of pay differentials among individuals who hold identical jobs in the same organization.

Agency Theory
The agency theory focuses on the divergent interests and goals of the organization's stakeholders and the way that employee remuneration can be used to align these interests and goals. Employers and employees are the two stakeholders of the business unit, the former assuming the role of principals and latter the role of agents. The remuneration payable to employees is called as agency cost.

Devising Compensation Plan

 Job Description: This helps to identify the job characteristics and also helps in determining ,defining and weighing the compensable factors. Job Evaluation: In this step pay fixation is to establish relative worth of jobs by employing job evaluation. Job Hierarchy: The total points assigned to compensable factors help create hierarchy of Job worth, starting from the highest point total to the lowest point total. Pay Surveys: Once job hierarchy being established we need to collect the pay details by doing surveys in the labor market. Pricing Jobs: This is done by performing two activities: o Establishing the appropriate pay level for each job. o Grouping the different pay levels into pay grades.

Challenges Of Compensation

 Skill Based Pay: In skill based system ,workers are paid on the basis of number of jobs they are capable of doing ,or on the depth of their knowledge. Pay Reviews: Pay ,once determined, should not be remain constant. It must be reviewed and changed often, but how often becomes a relevant question. Pay Secrecy: The tendency among most firms is to maintain pay secrecy as this would help firm avoid pay comparisons likely to be made by employees. Comparable Worth: Employee remuneration should remain equal for equal work. Any bias in the job evaluation process is ure to render comparable worth unworkable

 Employee Participation: When employees are involved in designing remuneration plan, they exhibit little resistance in accepting it. Eliticism vs. Egalitarianism: When firms have same remuneration plan then its is kind of egalitarian and if firm is having different remuneration plans for different employees then elitist. Below Market vs Above Market Remuneration Monetary vs Non Monetary Rewards: Whether to give monetary or non monetary rewards like medical benefits and housing also pose as a challenge of Compensation.

Compensating Special Groups

Team Based Pay Remunerating Professionals Contract Employees Expatriates and Executives

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