UNIT – IV

Training and Development: Objectives – Training Needs Assessment – Design of Training –

Evaluation of Training – Human Resource Development - Career Planning and
Development – Compensation Management – Employee Benefits

Training and development is vital part of the human resource development. It is

assuming ever important role in wake of the advancement of technology which has
resulted in ever increasing competition, rise in customer’s expectation of quality and
service and a subsequent need to lower costs. It is also become more important globally in
order to prepare workers for new jobs. In the current write up, we will focus more on the
emerging need of training and development, its implications upon individuals and the
employers.
Noted management author Peter Drucker said that the fastest growing industry would be
training and development as a result of replacement of industrial workers with knowledge
workers. In United States, for example, according to one estimate technology is de-skilling
75 % of the population. This is true for the developing nations and for those who are on the
threshold of development. In Japan for example, with increasing number of women joining
traditionally male jobs, training is required not only to impart necessary job skills but also
for preparing them for the physically demanding jobs. They are trained in everything from
sexual harassment policies to the necessary job skills.
The need for Training and Development

Before we say that technology is responsible for increased need of training inputs to
employees, it is important to understand that there are other factors too that contribute to
the latter. Training is also necessary for the individual development and progress of the
employee, which motivates him to work for a certain organisation apart from just money.
We also require training update employees of the market trends, the change in the
employment policies and other things.
The following are the two biggest factors that contribute to the increased need to training
and development in organisations:

1. Change: The word change encapsulates almost everything. It is one of the biggest
factors that contribute to the need of training and development. There is in fact a
direct relationship between the two. Change leads to the need for training and
development and training and development leads to individual and organisational
change, and the cycle goes on and on. More specifically it is the technology that is
driving the need; changing the way how businesses function, compete and deliver.

2. Development: It is again one the strong reasons for training and development
becoming all the more important. Money is not the sole motivator at work and this
is especially very true for the 21st century. People who work with organisations
seek more than just employment out of their work; they look at holistic
development of self. Spirituality and self awareness for example are gaining
momentum world over. People seek happiness at jobs which may not be possible
unless an individual is aware of the self. At ford, for example, an individual can enrol
 himself / herself in a course on ‘self awareness’, which apparently seems
inconsequential to ones performance at work but contributes to the spiritual well
being of an individual which is all the more important.
The critical question however remains the implications and the contribution of training
and development to the bottom line of organisations performance. To assume a leadership
position in the market space, an organisation will need to emphasise on the kind of
programs they use to improvise performance and productivity and not just how much they
simply spend on learning!
Training is an expensive process not only in terms of the money spent on it but also the
time and the other resources spent on the same. The most important question therefore is
determining whether or not a need for training actually exists and whether the
intervention will contribute to the achievement of organisational goal directly or
indirectly? The answer to the above mentioned question lies in ‘training needs analysis’
which is the first step in the entire process of training and development.
Training needs analysis is a systematic process of understanding training
requirements. It is conducted at three stages - at the level of organisation, individual
and the job, each of which is called as the organisational, individual and job analysis.
Once these analyses are over, the results are collated to arrive upon the objectives of the
training program.
Another view of the training need is that, it is the discrepancy between ‘what is’ and ‘what
should be’. Taking cues from this the world bank conducted a needs analysis and arrived
upon the conclusion that many of its units in eastern regions of Europe required
transformation from state owned business to self sustaining organisations. A number of
universities were then contacted to develop the necessary modules and conduct the
training upon the same.
Although each step in the entire training process is unique in its own, needs analysis is
special in that it lays the foundation for the kind of training required. The assessment gives
insight into what kind of intervention is required, knowledge or skill or both. In certain
cases where both of these are present and the performance is still missing then the
problem may be motivational in nature. It thus highlights the need and the appropriate
intervention which is essential to make the training effective.
As mentioned earlier, the needs analysis / assessment is carried out at three levels -
organisational, Individual and Job. We now take up each one of them in detail.
Organisational Analysis

The organisational analysis is aimed at short listing the focus areas for training within the
organisation and the factors that may affect the same. Organisational mission, vision, goals,
people inventories, processes, performance data are all studied. The study gives cues about
the kind of learning environment required for the training. Motorola and IBM for example,
conduct surveys every year keeping in view the short term and long term goals of the
organisation.
Job Analysis

The job analysis of the needs assessment survey aims at understanding the ‘what’ of the
training development stage. The kind of intervention needed is what is decided upon in the
job analysis. It is an objective assessment of the job wherein both the worker oriented -
approach as well as the task - oriented approach is taken into consideration. The worker
approach identifies key behaviours and ASK for a certain job and the task - oriented
approach identifies the activities to be performed in a certain job. The former is useful in
deciding the intervention and the latter in content development and program evaluation.
Individual Analysis

As evident from the name itself, the individual analysis is concerned with who in the
organisation needs the training and in which particular area. Here performance is taken
out from the performance appraisal data and the same is compared with the expected level
or standard of performance. The individual analysis is also conducted through
questionnaires, 360 feedback, personal interviews etc. Likewise, many organisation use
competency ratings to rate their managers; these ratings may come from their
subordinates, customers, peers, bosses etc. Apart from the above mentioned organisations
also make use of attitude surveys, critical Incidents and Assessment surveys to understand
training needs which will be discussed in detail in other articles.
Training programs play a crucial role in enhancing employee’s capabilities, upgrading his
existing knowledge and help him acquire new skills and learnings. Effective training
programs help employees to cope up with changes, think out of the box, survive the cut
throat competition with a smile and contribute effectively to the success of organization.
Training programs need to be designed, keeping in mind the needs and
requirements of employees. Training modules ought to be precise, crisp and informative.
Training programs should not be designed just for the sake of it. Find out whether your
employees really need any kind of training or it is being conducted just as a mere
formality?
Designing and Developing Effective Training Modules

Know Your Employees: Know your employees well before you begin designing training
programs for them. Sit with them and try to find out where all they need assistance. Let
them come up with their problems and what all additional skills would help them perform
better. It is essential for managers to know the strengths and weaknesses of all his team
members. Design your training program accordingly. Knowing employees well will help
you figure out the skills you need to teach them. Training programs need to be specific if
you expect your employees to benefit from the same.
Dividing Employees into Groups: One cannot design similar training programs for each
and every employee. Divide employees into groups where employees who need to learn the
same set of skills can be put into one group. You can also group employees as per their age,
work experience, departments, functional areas and so on.
Preparing the Information: The next step is to prepare the content of the training
program. The content needs to be informative but interesting. Include diagrams, graphs,
flow charts, pictures to make your training program interesting so that individuals do not
lose interest in the middle of the session. The information needs to be relevant and
authentic. Teach them what all is necessary and would help them in their current as well as
future assignments. Prepare your training program keeping your audience in mind.
Presenting the Information: You need to design your presentation well. Decide how
would you like to present your information? PowerPoint or word helps you design your
training program. It is absolutely up to the trainer to decide the software which he/she
would like to use. Make sure there are no spelling errors. Read your presentation twice or
thrice and find out whether it has covered entire information you wish to convey or not?
Highlight important information. Make your presentation in bullets.
Delivering Training Programs: Select your trainers carefully. Remember, the right
trainer makes all the difference. Training programs should not be a mere one way
communication. As a trainer, you need to understand that you are speaking not only for the
individuals sitting in the front row but also for employees sitting at the back. Be loud and
clear. Do not speak too fast. The trainer needs to involve his/her audience and encourage
employees to come up with questions and doubts. Employees should not attend training
programs to mark their attendance. Try to gain as much as you can. Do not sit with a closed
mind.
Evaluation involves the assessment of the effectiveness of the training programs.
This assessment is done by collecting data on whether the participants were satisfied with
the deliverables of the training program, whether they learned something from the training
and are able to apply those skills at their workplace. There are different tools for
assessment of a training program depending upon the kind of training conducted.
Since organisations spend a large amount of money, it is therefore important for them to
understand the usefulness of the same. For example, if a certain technical training was
conducted, the organisation would be interested in knowing whether the new skills are
being put to use at the workplace or in other words whether the effectiveness of the
worker is enhanced. Similarly in case of behavioural training, the same would be evaluated
on whether there is change in the behaviour, attitude and learning ability of the
participants.
Benefits of Training Evaluation

Evaluation acts as a check to ensure that the training is able to fill the competency gaps
within the organisation in a cost effective way. This is specially very important in wake of
the fact the organisations are trying to cut costs and increase globally. Some of the benefits
of the training evaluation are as under:

▪ Evaluation ensures accountability - Training evaluation ensures that training

programs comply with the competency gaps and that the deliverables are not
compromised upon.

▪ Check the Cost - Evaluation ensures that the training programs are effective in
improving the work quality, employee behaviour, attitude and development of new
skills within the employee within a certain budget. Since globally companies are
trying to cut their costs without compromising upon the quality, evaluation just
aims at achieving the same with training.

▪ Feedback to the Trainer / Training - Evaluation also acts as a feedback to the

trainer or the facilitator and the entire training process. Since evaluation accesses
individuals at the level of their work, it gets easier to understand the loopholes of
the training and the changes required in the training methodology.
Not many organisations believe in the process of evaluation or at least do not have an
evaluation system in place. Many organisations conduct training programs year after year
only as a matter of faith and not many have a firm evaluation mechanism in place.
Organisations like IBM, Motorala only, it was found out, have a firm evaluation mechanism
in place.
Methods of Training
Methods of Training: On-the-job Training Method and Off-the-Job Methods!
Management development is a systematic process of growth and development by which
the managers develop their abilities to manage. It is concerned with not only improving the
performance of managers but also giving them opportunities for growth and development.
There are two methods through which managers can improve their knowledge and skills.
One is through formal training and other is through on the job experiences. On the job
training is very important since real learning takes place only when one practices what
they have studied.
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But it is also equally important in gaining knowledge through classroom learning. Learning
becomes fruitful only when theory is combined with practice. Therefore on the job
methods can be balanced with classroom training methods (off-the-job methods).
1. On-the-job Training (OJT) Methods:
This is the most common method of training in which a trainee is placed on a specific job
and taught the skills and knowledge necessary to perform it.
The advantages of OJT are as follows:
1. On the job method is a flexible method.
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2. It is a less expensive method.
3. The trainee is highly motivated and encouraged to learn.
4. Much arrangement for the training is not required.
On-the-job training methods are as follows:
1. Job rotation:
This training method involves movement of trainee from one job to another gain
knowledge and experience from different job assignments. This method helps the trainee
understand the problems of other employees.
2. Coaching:
Under this method, the trainee is placed under a particular supervisor who functions as a
coach in training and provides feedback to the trainee. Sometimes the trainee may not get
an opportunity to express his ideas.
3. Job instructions:
Also known as step-by-step training in which the trainer explains the way of doing the jobs
to the trainee and in case of mistakes, corrects the trainee.
4. Committee assignments:
A group of trainees are asked to solve a given organizational problem by discussing the
problem. This helps to improve team work.
5. Internship training:
Under this method, instructions through theoretical and practical aspects are provided to
the trainees. Usually, students from the engineering and commerce colleges receive this
type of training for a small stipend.
2. Off-the-job Methods:
On the job training methods have their own limitations, and in order to have the overall
development of employee’s off-the-job training can also be imparted. The methods of
training which are adopted for the development of employees away from the field of the
job are known as off-the-job methods.
The following are some of the off-the-job techniques:
1. Case study method:
Usually case study deals with any problem confronted by a business which can be solved by
an employee. The trainee is given an opportunity to analyse the case and come out with all
possible solutions. This method can enhance analytic and critical thinking of an employee.
2. Incident method:
Incidents are prepared on the basis of actual situations which happened in different
organizations and each employee in the training group is asked to make decisions as if it is
a real-life situation. Later on, the entire group discusses the incident and takes decisions
related to the incident on the basis of individual and group decisions.
3. Role play:
In this case also a problem situation is simulated asking the employee to assume the role of
a particular person in the situation. The participant interacts with other participants
assuming different roles. The whole play will be recorded and trainee gets an opportunity
to examine their own performance.
4. In-basket method:
The employees are given information about an imaginary company, its activities and
products, HR employed and all data related to the firm. The trainee (employee under
training) has to make notes, delegate tasks and prepare schedules within a specified time.
This can develop situational judgments and quick decision making skills of employees.
5. Business games:
According to this method the trainees are divided into groups and each group has to
discuss about various activities and functions of an imaginary organization. They will
discuss and decide about various subjects like production, promotion, pricing etc. This
gives result in co-operative decision making process.
6. Grid training:
It is a continuous and phased programme lasting for six years. It includes phases of
planning development, implementation and evaluation. The grid takes into consideration
parameters like concern for people and concern for people.
7. Lectures:
This will be a suitable method when the numbers of trainees are quite large. Lectures can
be very much helpful in explaining the concepts and principles very clearly, and face to face
interaction is very much possible.
8. Simulation:
Under this method an imaginary situation is created and trainees are asked to act on it. For
e.g., assuming the role of a marketing manager solving the marketing problems or creating
a new strategy etc.
9. Management education:
At present universities and management institutes gives great emphasis on management
education. For e.g., Mumbai University has started bachelors and postgraduate degree in
Management. Many management Institutes provide not only degrees but also hands on
experience having collaboration with business concerns.
10. Conferences:
A meeting of several people to discuss any subject is called conference. Each participant
contributes by analyzing and discussing various issues related to the topic. Everyone can
express their own view point.

Human Resource Development: Features, Scope, Objectives and Functions!

In 1970, Leonard Nadler published his book “Developing Human Resources” in which he
coined the term ‘human resource development’ (HRD). Human resource refers to the
talents and energies of people that are available to an organization as potential
contributors to the creation and realization of the organization’s mission, vision, values,
and goals.
Development refers to a process of active learning from experience-leading to systematic
and purposeful development of the whole person, body, mind, and spirit. Thus, HRD is the
integrated use of training, organizational and career development efforts to improve
individual, group, and organizational effectiveness.
Definitions of HRD:
1. According to South Pacific Commission ‘human resource development is equipping
people with relevant skills to have a healthy and satisfying life’.
2. According to Watkins, ‘human resource development is fostering long-term work related
learning capacity at individual, group and organizational level’.
3. The American Society for Training and Development defines HRD as follows: ‘human
resource development is the process of increasing the capacity of the human resource
through development. It is thus the process of adding value to individuals, teams or an
organization as a human system’.
Features of HRD:
1. Systematic approach:
HRD is a systematic and planned approach through which the efficiency of employees is
improved. The future goals and objectives are set by the entire organization, which are well
planned at individual and organizational levels.
2. Continuous process:
HRD is a continuous process for the development of all types of skills of employees such as
technical, managerial, behavioural, and conceptual. Till the retirement of an employee
sharpening of all these skills is required.
3. Multi-disciplinary subject:
HRD is a Multi-disciplinary subject which draws inputs from behavioural science,
engineering, commerce, management, economics, medicine, etc.
4. All-pervasive:
HRD is an essential subject everywhere, be it a manufacturing organization or service
sector industry.
5. Techniques:
HRD embodies with techniques and processes such as performance appraisal, training,
management development, career planning, counselling, workers’ participation and quality
circles.
Scope of HRD:
Human resource management (HRM) deals with procurement, development,
compensation, maintenance and utilization of human resources. HRD deals with efficient
utilization of human resources and it is a part of HRM.
Human resource being a systematic process for bringing the desired changes in the
behaviour of employees involves the following areas:
1. Recruitment and selection of employees for meeting the present and future
requirements of an organization.
2. Performance appraisal of the employees in order to understand their capabilities and
improving them through additional training.
3. Offering the employees’ performance counselling and performance interviews from the
superiors.
4. Career planning and development programmes for the employees.
5. Development of employees through succession planning.
6. Workers’ participation and formation of quality circles.
7. Employee learning through group dynamics and empowerment.
8. Learning through job rotation and job enrichment.
9. Learning through social and religious interactions and programmes.
10. Development of employees through managerial and behavioural skills.
Objectives of HRD:
The prime objective of human resource development is to facilitate an organizational
environment in which the people come first. The other objectives of HRD are as follows:
1. Equity:
Recognizing every employee at par irrespective of caste, creed, religion and language, can
create a very good environment in an organization. HRD must ensure that the organization
creates a culture and provides equal opportunities to all employees in matters of career
planning, promotion, quality of work life, training and development.
2. Employability:
Employability means the ability, skills, and competencies of an individual to seek gainful
employment anywhere. So, HRD should aim at improving the skills of employees in order
to motivate them to work with effectiveness.
3. Adaptability:
Continuous training that develops the professional skills of employees plays an important
role in HRD. This can help the employees to adapt themselves to organizational change that
takes place on a continuous basis.
HRD Functions:
HRD functions include the following:
1. Employee training and development,
2. Career planning and development,
3. Succession planning,
4. Performance appraisal,
5. Employee’s participation in management,
6. Quality circles,
7. Organization change and organization development.
Career Planning: Definition, Features, Objectives and Benefits!
Definitions:
1. A career may be defined as ‘ a sequence of jobs that constitute what a person does for a
living’.
2. According to Schermerborn, Hunt, and Osborn, ‘Career planning is a process of
systematically matching career goals and individual capabilities with opportunities for
their fulfillment’.
3. Career planning is the process of enhancing an employee’s future value.
4. A career plan is an individual’s choice of occupation, organization and career path.
Career planning encourages individuals to explore and gather information, which enables
them to synthesize, gain competencies, make decisions, set goals and take action. It is a
crucial phase of human resource development that helps the employees in making strategy
for work-life balance.
Features of Career Planning and Career Development:
1. It is an ongoing process.
2. It helps individuals develop skills required to fulfill different career roles.
3. It strengthens work-related activities in the organization.
4. It defines life, career, abilities, and interests of the employees.
5. It can also give professional directions, as they relate to career goals.
Objectives of Career Planning:
The major objectives of career planning are as follows:
1. To identify positive characteristics of the employees.
2. To develop awareness about each employee’s uniqueness.
3. To respect feelings of other employees.
4. To attract talented employees to the organization.
5. To train employees towards team-building skills.
6. To create healthy ways of dealing with conflicts, emotions, and stress.
Benefits of Career Planning:
1. Career planning ensures a constant supply of promotable employees.
2. It helps in improving the loyalty of employees.
3. Career planning encourages an employee’s growth and development.
4. It discourages the negative attitude of superiors who are interested in suppressing the
growth of the subordinates.
5. It ensures that senior management knows about the calibre and capacity of the
employees who can move upwards.
6. It can always create a team of employees prepared enough to meet any contingency.
7. Career planning reduces labour turnover.
8. Every organization prepares succession planning towards which career planning is the
first step.
Compensation management and benefits (Human Resource Management)
Compensation management and benefits is vital function of human resource managing
team of companies who operate at international level. It is very important to compensate
employees for their contribution in business process of company. Compensation is
explained as all forms of financial rewards received by employees. It begins from their
employment. It occupies a significant position in the employee's personal and official life. It
has a substantial cost to the managers. Compensation is major human resource tools that
organizations utilize to manage their employees. For an organization to get its money
worth and encourage and hold skilled employees, it needs to guarantee that its
compensation system is not an island by itself. It is important for firm to link compensation
to its general goals and strategies as well as its compensation system to align with its HR
strategy.

Compensation Management is an organized practice that involves balancing the work-

employee relation by providing monetary and non-monetary benefits to employees.
Compensation includes payments such as bonuses, profit sharing, overtime pay,
recognition rewards and sales commission. Compensation can also include non-monetary
perks such as a company-paid car, company-paid housing and stock options. Compensation
assists to motivate the employees and enhances organizational effectiveness.
Compensation displeasure can lead to absenteeism, turnover, job dissatisfaction, low
performance, strikes and grievances.

Importance of Compensation Management

Many studies have demonstrated that good compensation is essential for every industry
and helps to give proper return to the workers for their contributions to the organization.
It communicates a positive control on the competence of workers and encourages them to
give their best and accomplish the specific standards. It forms a basis of pleasure and
satisfaction for the workers that minimizes the labour turnover and presents a steady
organization. It increases the job evaluation process which consecutively helps in
establishing more realistic and achievable standards. It is planned to obey with the various
labour acts and therefore does not result in disagreement between the worker union and
the management. This builds up a peaceable relationship between the employer and the
employees. It creates an environment of self-esteem, efficiency and cooperation among the
workers and provides satisfaction to the workers. It motivates the employees to increase
efficiency and show their excellence. It provides growth and development opportunities to
the deserving employees.
Deluca (1993) and Rajkumar (1996) described that "compensation is defined as pay,
reward, remuneration, or salary and wage management". These terms are often used
interchangeably in organization. In an organization standpoint, compensation is as an
important human resource management function where it emphasizes planning,
organizing, and controlling various types of pay systems. For instance, direct and indirect
payments, monetary and non-monetary rewards and cash and non-cash payments, those
compensation is used for rewarding employees who perform in their work or service (Noe,
Hollenbeck, Gerhart and Wright, 2004). In this study, compensation can be seen as a
measure of justice. Normally, it is the major source of employees' financial security
(Milkovich and Newman, 2008).
Benefits is defined as the part of the total compensation package provided to the employee
in whole or in part by payments from the employer and it does not comprise of the pay for
time spent on work (Milkovich& Newman, 2008). Moreover, benefits are group
membership rewards that give security for workforce and their family member. Benefits
are a non-compensation paid to employees. Some benefits are mandated by law, for
example social security, unemployment compensation and worker compensation.
Employees' benefits include pension, health insurance, fringe benefits, welfare etc (Lee,
Hsu & Lien, 2006). Benefits are a vital part of an employee's total compensation package.
Benefits packages became accepted after World War II, when wage controls made it more
complex to give competitive salaries (Enotes.com, 2008). Benefits can be treated as the
payment or entitlement, such as one makes under an insurance policy or employment
agreement, or public assistance program or more generally, something of value or utility.
Benefits may also be considered as an expression of justice in society (Herman, 2015).

Carter (2008) explained that "benefits are forms of value, other than payment, that are
provided to the employee in return for their contribution to the organization, which is for
doing their work". Employee's benefit includes disability income protection, retirement
benefits, work-life balance (for example, sick leave, vacation, jury duty and etc), allowances
(for example, dental, insurance, medical, transportation, housing, mobile phone and etc.).
Carter (2002) anticipated that benefits are increasingly costly for businesses to provide to
employees, so the range and options of benefits are varying quickly to include, such as
flexible benefits plan. For employers, they use benefits to catch the attention and retain
good and capable workers. For employees, they rely on benefits for example, medical
subsidies, vacations, and retirement, to secure their financial status. By linking benefits
such as, pension and holidays to seniority, workers will be unwilling to change jobs
(Gerhart & Milkovich, 1992). Lee, Hsu and Lien (2006) said that benefits are planned to
uphold employees and their family against problems due to sickness, accidents or
retirements. There are many components of benefits to bring out its effect of employees.
Work life balance such as temporal flexibility, leave benefits, and interpersonal
relationships has the potential to decrease or increase strain on workers with life
responsibilities. The condition of work life balance strategies can provide a positive and
direct effect on an employee's choice to stay with an employer (Macran, Joshi &Dex, 1996).
Milkovich & Newman (2008) stated that income protection assists to guard employees
from the financial risks inbuilt in daily life. It serves as a support to employees' salaries in
the event that an employee is sick, disabled, or no longer able to work. Workers allowances
are extremely needed for employees. It helps to lessen the financial burden of employees
and also can be treated as extra sum of salaries indeed (Herman, 2015). Therefore, a
benefit has great consequence to the whole organizations.
It has been seen that major labour management clashes relate to compensation.
Compensation is the extrinsic that employees receive in exchange for their work. It is
composed of the base wage or salary and incentives or bonuses and benefit. Compensation
is a key factor to attract and keep the best employees and ensuring that the organization
has the competitive edge in a progressively more competitive world. The Compensation
Management factor enables to distinguish between the payments strategies and those of
competitors while still allowing flexibility, control and cost effectiveness. It provides a
toolset for strategic remuneration planning that reveals the organization culture and pay
strategies, and it makes powerful line managers within a framework of flexible budget
control. Compensation management permit to control bottom line expenditures and
competitive and motivating compensation, be it fixed pay, variable pay, stock options, merit
increases, or promotion in other words, total compensation.
An employee's total compensation comprises of four components. The relative proportion
of each constituent in the total compensation varies form firm to firm. The first and
generally the major component is base compensation which means the fixed pay an
employee receives on a regular basis, either in the form of a salary or as wages. The second
component is allowances such as house rent allowance (HRA), dearness allowance (DA)
and city compensatory allowance (CCA). The third component is incentive pay planned to
reward employees for good performance, such as performance-linked bonus, share in
profit, etc. The fourth component is benefits or indirect compensation or perquisites such
as company accommodation, company car, paid holiday, club membership, stock options.
Compensation is evenly important for the employee as it determines life standard and
position in society. In other words, compensation has great impact on employees
economically, socially and psychologically.

Compensation management consists of designing the lowest cost pay structure that will
attract, keep, and stimulate the capable employees and which is perceived as fair by the
employee satisfaction. The major purposes of compensation management are as follows:
1. A perfect compensation system will have positive impact on the competence and
results produced by employees. It will encourage the employees to perform better
and achieve the standards fixed.
2. Compensation will raise the confidence, efficiency and cooperation among the
workers. Being just and fair will provide satisfaction to the workers.
3. Good compensation and Rewards system bring harmony in the relationship of
manager and employees, collective bargaining generally focus on compensation
issues.
4. The ideal compensation system provides stand for cheerful and satisfied personnel.
This minimizes the labour turnover. The organization becomes stable in
marketplace.
5. The industry can devise compensation strategy and growth if it has the support of
skilful, talented and happy workforce.
6. The effective compensation system is characteristic of organization success and
wealth.
7. The success and constancy of the organization is measured with pay-package it
provides to its employees.
Components of compensation
Financial compensation package of employees comprises of the following components:
1. Basic Pay. The main part of pay package is basic pay. For blue-collar workers basic
wage may be based on work done (price wage system) but for white-collar
employees, supervisory staff and managers, basic salary is generally time bound.
Basic pay is generally determined through job evaluation which is the process of
systematically ascertaining the relative worth of a job.
2. Allowances. Several allowances are paid in addition to basic pay. Some of these
allowances are given below:
o Dearness Allowance: This allowance is given to protect real income against
inflation. Generally, dearness allowance (DA) is paid as a percentage of basic
pay.
o House Rent Allowance: Employers who do not provide living
accommodation and pay house rent allowance (HRA) to employees. This
allowance is calculated as a percentage of basic pay (Percentage varies
according to Class of city from 10% to 35% of basic pay in case of
government 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. City compensatory allowance (CCA) is generally a fixed
amount per month.
o Transport Allowance/Conveyance Allowance: Some employers pay
transport allowance (TA) to their employees. A fixed sum is paid every
month to cover a part of traveling charges.

In some cases, medical allowance, education allowance for children, Tiffin allowance
are also paid.
3. Incentives: Incentive compensation is performance-linked remuneration paid with
the aim to encourage employees to work more and perform better. Both individual
incentives and group incentives are used. Bonus, profit-sharing, commissions on
sales are some examples of incentive compensation.
4. Fringe Benefits/Perquisites: Different types of benefits are paid particularly to
senior managers. Provident funds, pensions, gratuity, encashment of earned leave,
company house, company car, leave travel concession (LTC), medical aid, interest
free loan, holiday homes, entertainment, stock options, etc. are examples of such
benefits.
Needs of compensation management

1. A good compensation package is significant to stimulate the employees to increase

the organizational productivity.
2. Compensation is provided to work for the organization. Compensation helps in
running an organization successfully and to achieve its goals.
3. Salary is just a part of the compensation system, the employees have other
psychological and self-actualization needs to fulfil. Thus, compensation serves the
purpose.

Major phases of compensation management

Compensation Management consists of four phases which are shown with the help of
diagram given below
Compensation challenges: HR experts in most of the companies have major
compensation-related concerns. Most specifically, the problem is money. Compensation
structures are major issue for human resources departments in all types of organizations.
Another problem for HR professionals is a compensation budget and salery. Key issues are
depicted in below figure.
Relation between compensation and benefit:presently, compensation and benefits are
growing fields in Human Resources. Most of the company scrutinize various ways of
rewarding employees to boost their job satisfaction and their performance. Compensation
is a type of financial return and concrete services and benefits employees receive as part of
an employment relationship, which includes topics in regard to wages or salary programs;
for example, salary ranges for job descriptions, merit based programs, bonus based
programs, commission based programs, long term or short terms incentives programs.
Employee's benefit comprises of the allowances, income protection, life insurances, life
balance, and vacation. Benefits are forms of value, other than payment, that are given to the
employee in return for their work to the organization. Employers must design a suitable
compensation and benefits system to their workers. This is because unsuitable
compensation and benefits will have unhelpful effect to employee job satisfaction.
Compensation and benefits is dominant tools of organizational goals and priorities and
companies that expect to be successful must make employees become partners in their
success (Shuster &Zingheim, 1993). Pam (2007) scrutinized that employee compensation
can be a sensitive subject, and people get very passionate when trying to determine the
most appropriate compensation plan for any business. Today, many human resources
related issues need to be addressed, but equally important is to understand the financial
aspects of employee compensation and benefits. Consequently, compensation and benefits
is major part of an organization.
To summarize, compensation is human resource mechanism that organizations use to
manage their workforce. Compensation emphasizes fair day pay for fair day work.
Compensation and benefits are more multifarious than simple remuneration. Many staff
considers professional development, workplace culture, and other benefits when assessing
workplace satisfaction.