Concept of Compensation, Exploring

& Defining Compensation Context

Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor
Al-Qurmoshi Institute of Business Management
Hyderabad
 Concept of
Compensation
 Compensation
 Compensation - money and other benefits received
for providing services
 Cascio defined compensation as “Direct cash
payments, indirect payments (employee benefits) and
incentives to motivate employees to strive for higher
levels of productivity”
 Strategic Compensation
 Strategic compensation is determining & providing
compensation packages to employees, those are
aligned with the business goals and objectives
 Organizations have to take special measures regarding
compensation to retain the valuable employees
Exploring and Defining
Compensation Context
 Total Compensation
Total Compensation

Extrinsic
Intrinsic
Compensation
Compensation

Core Adjustments to Legally Required Discretionary Job characteristics

compensation core Employee Employee Benefits • Skill variety
• Hourly wage compensation Benefits Health insurance •Task identity
Annual salary • Cost-of living • Social Security Disability insurance Task significance
Seniority Act Life insurance Autonomy
Merit •Workers Retirement plans Feedback
Incentive compensation Paid time-off
Person-focused laws Accommodation
Family & and enhancement
Medical leave Act
 Extrinsic Compensation
 Core Compensation
1) Salaries (Monthly)
2) Wages (Hourly, Daily, or Weekly)
 Cost-of-Leaving Adjustment (COLAs)
1) Consumer Price Index (CPI)
2) Seniority Pay
3) Merit Pay
4) Incentive Pay
5) Person-focused Pay (Pay-for-Knowledge and Skill-
Based Pay)

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 Extrinsic Compensation (Contd.)
 Employee Benefits:
 Legally Required Benefits
1) Social Security
2) Workers Compensation & Sick leave
3) Family & Medical Leave
 Discretionary Benefits:
1) Health Insurance
2) Life Insurance
3) Retirement Benefits
4) Paid time-off.

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Components of Compensation
 Wage and Salary
 Incentives
 Fringe Benefits
 Perquisites
 Wage and Salary
 Wage - remuneration to workers, hourly-rated
payment
 Salary - remuneration paid to white-collar employees
& managerial personnel
 Wages and salary - paid on the basis of fixed time
period, not associated with productivity of an
employee
 Incentives
 Incentive - Any reward or benefit given to an employee
over and above the wage or salary with a view to motivate
him to excel in his work
 Incentives include both monetary as well as non-
monetary rewards
 A scheme of incentive is a plan to motivate an individual
or a group performers
Benefits
 Fringe Benefits
 Fringe benefits
- Provident fund, gratuity, pension
- Medical benefits, accident relief, health and life
insurance
- Facilitation in performance of job, like uniforms,
Canteens & recreation
 Perquisites
 Perquisites - provided to managerial personnel either
to facilitate their job performance or to retain them in
the organization
 Perquisites include company car, club membership,
free residential accommodation, paid holiday trips and
stock options
Factors Influencing Compensation

Market
Organisation
Forces
Policy

Work Individual
Value Performance
 Three Pay Policies

Pay Policy Attract Retain Motivate Control

Costs

Lead + + ? ?

Match = = ? =

Lag - ? ? +
Govt. Regulation for Compensation in India
 Minimum Wages Act, 1948
 Payment of Wages Act, 1936
 Adjudication of Wage Disputes
 Wage boards
 Pay Commissions
 Payment of Bonus Act, 1965
Compensation Structures
Job Evaluation

Wage and Salary

Issues Involved
Surveys
in Setting
Compensation
Pay Grades
Structures

Rate Ranges
 Concept of Different Wages
 Minimum Wage
 Fair Wage
 Living Wage (Highest in Value)
 Concept of Minimum Wage
 Minimum Wage - For sustenance of life and
preservation of efficiency of workers and to provide
some measure of education, medical requirements
and amenities.
 Concept of Living Wage
 Living Wage – In addition to providing food,
clothing and shelter for worker and family,
education for children, protection against ill-
health, essential social needs and insurance against
misfortunes and old age.
 Concept of Fair Wage
 Fair Wage -above minimum wage but below living
wage; fair wage to be paid based on capacity of
industry to pay.
 Calculation of Minimum Wages
 Worker’s family – 3 members, earnings of women,
children & adolescents disregarded
 Minimum food requirements - 2,700 calories/adult.
 Clothing requirements - 18 yards per annum/person.
 Housing - minimum rent charged by Govt for houses
under subsidized housing scheme
 Fuel, lighting and other miscellaneous items - 20 %
total minimum wage.