◼ Constituentsof Compensation

◼ Wage and Salary:

◦The most important component of compensation and these
are essential irrespective of the type of organization
◦Administered individually
◦Provides employee stable income and can plan chores of daily
life, budget

◼ Incentives:
◦Incentives are the additional payment to employees besides the
payment of wages and salaries. Often these are linked with
productivity, either in terms of higher production or cost saving
or both.
◦Can be administered individually and for groups
◦Additional compensation having immediate effect and no
future liability.

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◼ Constituents of Compensation
◼ Fringe Benefits:
◦Fringe benefits include such benefits which are provided to the
employees either having long-term impact like provident fund, gratuity,
pension; or occurrence of certain events like medical benefits, accident
relief, health and life insurance; or facilitation in performance of job like
uniforms, Canteens, recreation, etc.
◦Administered for a group mostly

◼ Perquisites:
◦These are normally provided to managerial personnel either to facilitate
their job performance or to retain them in the organization. Such
perquisites include company car, club membership, free residential
accommodation, paid holiday trips, stock options, etc.
◦Administered individually mostly

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Factors Influencing Pay

Market
Organisation
Forces
Policy

Work Individual
Value Performance

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 PAY MODEL

COMPENSATION
POLICIES COMPENSATION TECHNIQUES
OBJECITIVES

Internal Work/skill
Work descriptions Evaluation/cert Internal
consistency analysis ification work structures Efficiency
analysis
• Performance driven
• Total quality
External Market Market Policy Pay • Customer focus
competitiveness definitions surveys lines structures • Cost control

Equity

Employee Seniority Performance Merit Incentives

contribution based based guidelines programs Compliance

Administration Planning Budgeting Communicating Evaluating

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 MAJOR PHASES OF COMPENSATION MANAGEMENT

PHASE 1
Identify & study jobs JOB ANALYSIS

Job descriptions Job specifications Job standards

PHASE II
Internal equity JOB EVALUATION

Job Job Factor Point

ranking grading comparison system
PHASE III
External equity
WAGE & SALARY SURVEYS

PHASE IV
Matching internal &
PRICING JOBS
external worth

Job evaluation worth = Labor market worth

Rate range for each job
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 The equity framework & considerations

An equity (or fairness) framework tends to be viewed by

employees as the main principle regarding pay issues
Akin to principle of comparative wage justice that existed in the
culture of the workforce in centralized economies
Fails to account for the quite specific differences in employees,
with regard to qualifications, skills, ability, and individual needs
This in turn, can impact on the recruitment, training, performance,
and industrial strategies adopted by the organization
Equity can be broken into four areas:

1. Internal Equity (Internal Consistency)

2. External Equity (External Competitiveness)

3. Individual Equity (Employee Contribution)

4. Process Equity (Administration)

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