MODERN TRENDS IN

COMPENSATION
Compensation in wage and salary to cost to cost company concept, Comparable worth, Broad Banding,
Competency based Pay.
 WHAT IS COMPENSATION:
Compensation refers to the remuneration given to an employee in
exchange for their services. The level of compensation offered is
dependent on a number of factors, including salaries paid by similar
companies for similar roles, the employee’s skill set and productivity
and the company’s current and projected financial strength.
Executive compensation is a narrower term that refers to financial
remuneration paid to senior executives, most commonly the CEO.
Compensation at this level often includes a range of options such as
company stock and bonuses. Executive pay has risen in the past 10 years
relative to that of the average employee’s salary.
Compensation management is a business function that allows businesses
to attract and retain key talent, keep current employees happy and enable
the business to function profitably.
Generally the term compensation refers to compensating any damage, loss or mental
harassments, wages or salaries as reward for physical and/or mental efforts to
perform any agreed task or job. But the concept of equity in remunerating any work
or task has forced us to perceive wages and salaries as compensation, because people
work efficiently only when they are paid according to their worth or feel satisfied
with the remunerations.
Besides basic salaries or wages, companies are forced to view the benefits and
services to justify the positional and esteem needs of employees and to provide
adequate cushion for inflations. Though the cost of human resources is estimated at
between 2% to 20% of the operating cost (depending upon the type of industry), to
retain the employees or to avoid job-hopping, some of the industries are even forced
to adopt varying scales and benefits.
The most common questions that arise in the minds of employees
are:
i. Is this compensation justifying my worth?
ii. How does my package compare with others who are working in a similar
industry?
iii. Can I have a better growth plan in this industry?
iv. How important is my pay scale compared to other factors being offered by the
industry?
v. Why are others offering better compensation for the same post and job?
These questions arise in the minds of every employee whether he/she is at the
executive or the manager levels. At the top and middle level positions, though they
recognize the limitations of the organizations, they still feel that some equitable and
reasonable relationships should exist. Similarly, the pay increments are also debated
as unfair compensation at various levels.
Today, the pay being competitive, it is logical for employers to look for employees
with attributes other than knowledge and skill, attributes which can enrich their
experience at work. They can find out the potential in the employee and provide
opportunities for learning and career growth. Thus compensation designs and
compensation programmers are being so designed so as to attract the winning horses.
Compensation refers to the payments to the efforts made by an
individual.
 Compensation in Wage and Salary

A salary (or wage) is a fixed amount paid in exchange for an

employee’s services. Ontario Employment Standards legislation
entitles most employees to receive a “minimum wage” in exchange
for the work they complete for a company.
For full-time employees, salary is generally described in annual,
monthly, bi-weekly or weekly amounts. For part-time employees, it
is generally described as an hourly amount.
To determine an appropriate salary and/or salary range that your
company is willing to pay for a position, you must:

•Establish the value of the position based on your organizational

requirements

•Understand what the market is paying for a similar position

COST TO COMPANY (CTC)

Cost to Company (CTC) is the yearly expenditure that a company spends on an

employee. Each employee spend depends on their salary and variable. CTC is
calculated by adding salary and additional benefits that an employee receives such as
EPF, gratuity, house allowance, food coupons, medical insurance, travel expense and
so on. CTC in colloquial terms is the cost an employer bears to hire and sustain its
employees.
Formula: CTC = Gross Salary + Benefits.
If an employee's salary is ₹40,000 and the company pays an additional ₹5,000 for
their health insurance, the CTC is ₹45,000. Employees may not directly receive the
CTC amount as cash.
COMPARABLE WORTH

Comparable worth is defined as the idea that

female and male employees who perform work
deemed to have the same value should receive
similar monetary compensation. The overall
value of a job can be compared by studying jobs
that contain different tasks. What this doctrine
ultimately means is that a woman who performs
a job that has the same worth as a man
performing that job should be paid the same
wage as a man. There are situations where two
employees of opposite genders performing the
same job might not receive the same pay, such as
when one of them is in a more senior position. It
simply means similar pay for similar work.
WHAT IS BROAD BANDING?

Broad banding is defined as a method for evaluation and construction of job grading
structure or typical salary band of an organization that falls between by spot salaries
against numerous job grades or bands, Broad banding is to establish what is required
to pay for a specific positions and incumbents within the existing positions.

Broad banding is the expression useful when an organization with

extremely wide salary bands, much more surrounding compared
against the traditional salary structures. While a typical salary
band has around 40 percent variation in compensation between its
minimum and maximum, for broad banding this would
characteristically have about 100 percent difference
The advantages of Broad Banding are as follows:-

1. It Streamlines hierarchy structure within the organization, this helps during a

change in the organizational structure
2. It promotes and facilitates Internal Movement within the organization and is
considered to put forward other attributes of a position, other than the pay grade
which is already disclosed
Gives more transparency and added trust in management
The disadvantages of Broad Banding are as follows:-

1. There is absolutely no awareness of external market rates as the traditional salary

bands cannot be compare against broad banding
2. Promotions, Broad banding leads to lack of promotions within the organization as
there are fewer salary bands leads to fewer opportunities to climb the
organizational ladder.
COMPETENCY BASED PAY
Whenever an employee is compensated in accordance with her or his type and level
of obtained skills that are applied in the workplace, it’s known as competency-based
pay. This salary structure differs from paying employees based on their tenure or
seniority levels, and is common in fields that require professionals who have
specialized knowledge. Competency-based pay has the advantage of being simple to
structure and utilizes readily accessible salary tables. One unique disadvantage of the
salary structure is it can be difficult to alter during times of economic hardship.
Competency-based pay might also be known as skills-based and knowledge-based
pay.
Benefits of competency-based pay:
1.Increased motivation
Competency-based pay encourages enhancing employees’ knowledge and skills. Therefore,
this motivates them to be proactive, take initiative, and have greater contribution to your
company’s success. In other words employees salary will depend on their actual
contribution and performance. It’s a good way to motivate people and drive business
development.
2.Promotion of self-improvement culture
Under this payment structure your employees get rewarded for better competencies, thus
improving skills and gaining new applicable knowledge will become a new black for your
team.
3.Improved staff retention
Even though competency based pay is not a new concept, yet it’s not that popular among
employers. Switching to such payment structure will set you ahead of competition for best
talent. It will also motivate employees to stay with your company longer. As you can see in
companies with competency based pay there’s literally no career plateau or ceiling. Thus
employees development and pay rise depends on their efforts, not corporate hierarchy.