Human Resource

Management
COMPENSATION & BENEFITS

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 Compensation System
An organization exists to accomplish the
specific goals and objectives. The employees
hired by the organization helps in the
fulfillment of these goals.

These employees have their own needs. Needs

can be satisfied by providing money, goods
and / or services in return of their services.

The organizations have to use reward

system which helps in building a
competitive / strategic advantage.

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 Compensation System
“ Compensation includes direct
cash payments, indirect payments
in the form of employee benefits
and incentives to motivate
employees to strive for higher
levels of productivity.”

Its components:-
• Wage and Salary
• Incentives
• Fringe benefits
• Perquisites

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Compensation Systems Should Include: -

1) Signal to employees the major objectives of

the organizations, such as quality, customer
focus etc;
2) Attract and retain the talent, an organization
needs;
3) Encourage employees to develop the skills
and abilities they need;
4) Motivate employees to perform effectively;
5) Create the type of culture the company seeks
to engender.
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Compensation Management Process
Organization’s Strategy

Compensation Policy

Job Analysis & Evaluation

Analysis of contingent factors

Design and implementation of

compensation plan

Evaluation and Review

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 Equity Theory
Employees want to be treated fairly. Equity is the
balance between the inputs an individual
brings to a job and the outcomes he / she
receives from it.

Employee inputs include:-

Experience, education, special skills, effort and
time worked.

Outcomes include:-
Pay, benefits, achievement, recognition and any
other rewards.

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 Designing Equitable Compensation
Systems:-

ELEMENTS OF EQUITY:-

Internal Equity:- Refers to the relation ship

among jobs within a single organization.
External Equity:- Refers to comparisons
among individuals in the same job within
the same organization.
Establishing Internal Equity:- Job evaluation
methods.
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 Job Evaluation
Job evaluation deals with money and work. It
determines the relative worth or money
value of jobs.

Wendell l. French defined job evaluation as, “a

process of determining the relative worth
of the various jobs within the
organisation, so that differential wages
may be paid to jobs of different worth .

Thus, job evaluation may be defined as a

process of determining the relative worth
of jobs, ranking and grading them by
comparing the duties and
responsibilities like skill, knowledge of a
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job with other jobs with a view to fix
compensation.
 ESTABLISHING EXTERNAL
EQUITY
Employers need to compete for the skills and
knowledge they require to operate their
businesses ----- in order to attract workers with
needed skills and to motivate and retain those
already employed.
They use wage and salary surveys to find out
what other organizations are paying for
particular skills.
Then, in setting pay rates, they seek to integrate
the external information with what they have
learned through the internal evaluation of jobs.
This process is called pricing the wage structure.
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Establishing Pay Rates

The need for equity is the most important

factor in determining pay rates.

This is achieved through following steps:-

1. Find out the worth of each job

through job evaluation.
2. Conduct a salary survey to find what
other employers are paying for
comparable jobs.
3. Group similar jobs into pay grades
4. Fine tune pay rates.
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 Types of Wage Payments
1. Time rate system:- Oldest Method
Under this system, workers are paid according
to the work done during a certain period of
time.

The essential point is that the production of a

worker is not taken into consideration in fixing
the wages.
Advantages:-
- Employees maintains the quality of the
production.
- All the workers doing same work gets same
wages, so no jealousy.
- Provides stable earnings to the employees.
Disadvantages:-
- No difference between effective and non-
effective employees
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 2. Piece Rate System:-
Under this system, workers are paid
according to the amount of work done or
the number of units completed, the rate of
each unit being settled in advance,
irrespective of time taken to do the task.
WE=NR
Workers earning = Number * Rate per piece.
Merits:-
1. The workers are paid according to their
efficiency as reflected in the amount
turned by him.
2. The total unit cost of production remains
lower as the unit production increases.

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 Pay for Performance
An incentive or reward can be anything that
attracts an employee’s attention and
stimulates him to work.

According to BURACK and SMITH –” An

incentive scheme is a plan or programme to
motivate individuals or group performance.
An incentive programme is most frequently
built on monetary rewards but may also
include a variety of non-monetary rewards.”

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 Classification or types of incentives:-
Incentives can be classified into:-
DIRECT COMPENSATION
INDIRECT COMPENSATION

Direct Compensation :- It includes the

basic salary or wage that the individual is
entitled to for his job, over-time work and
holiday premium, bonuses based on
performance.

Indirect Compensation :- It includes

protection programmes (insurance plans,
pensions), pay for time not worked,
services and perquisites. ---These are
maintenance factors.
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Determinants of incentives

The individuals

Work situation
-Technology
- Satisfying job assignment
- Feedback
- equity

Incentive plan
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 Incentive Payments
Incentives are monetary benefits paid to workmen in
recognition of their outstanding performance.

ILO refers to incentives as “PAYMENT BY RESULTS”

The primary advantage of incentives is the

-
inducement and motivation for higher efficiency and
greater output.

- Increased earnings would enable the employees

to improve their standard of living and help the
organization to improve their production capacity.

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 Types of Incentive Plans
(i) Plans for blue collar workers
(ii) Plans for white collar workers
(iii) Plans for managerial
personnel

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Long term incentive plans for
blue collar workers.
Under such plans, each member of group
receive a bonus based on the output of
the group as a whole.
The most important reason for adopting
group plan – as the jobs are
interrelated.
1. One worker’s performance reflects not
only his effort, but also of co-workers.
2. It encourages co-operation among
group members.
3. Group production levels tend to be more
stable than individual ones.
4. Group plans also facilitate on-the job
training.
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 Group incentive plans
-Profit Sharing

Scanlon plan ( plan to reduce the

cost of operation and improving
working methods and sharing in
the gains of increased
productivity).

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 Incentive plans for White
collar workers
75% organization pay this incentive to
their sales team.
Due to:-
- The unsupervised nature of most
sales work.
- Tradition in the market
- The assumptions that incentives are
needed to motivate salesmen.
(a) Straight salary method
(b) Straight commission
(c) Combination plans

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Incentives for managerial personnel
In many organizations, the
managers are paid BONUS.

For top level management

bonuses are generally tied to
overall corporate results.

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 Non-monetary incentives
While monetary incentives often appear as
important motivators, many factors unrelated
to money can also serve as “attention-getters”
and “encouragers of action”.

Examples:-
-A person with strong need for affiliation may
respond readily to job assignments.
-The opportunity to communicate with and relate to
others is a factor many workers emphasize.
-An employee with high-level desires for power may
respond easily to opportunity, where he can gain
leadership.
-Persons interested in enhancing their reputations
and receiving recognition in the eyes of others,
respond to verbal praise.
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 Services & Benefits
Besides base compensation and
incentives, employees are provided
various types of benefits and services by
the organizations.

These are called by various names such

as fringe benefits, employee welfare,
wage supplements, sub wages,
supplementary compensation, social
security etc.

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 Definition:-
“ Fringe benefits are supplements to
wages received by workers at a cost
to the employers. The term
encompasses a number of benefits-
paid vacation, pension, health and
insurance plans, etc.—which usually
add up to something more than a
fringe and is sometimes applied to a
practice that may constitute dubious
benefits for workers.”

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 Features of Fringe Benefits

• Fringe Benefits are provided to employees

in addition to their wages and other
performance related incentives.

•These are provided to employees not for the

performance of any specific jobs but are
offered to them as means for facilitating the
performance of their jobs.

•These are provided to all employees

irrespective of their work efficiency.

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 Types of benefits
There are numerous types of benefits
which may be provided to employees,
and there are different ways to
classify them.
One such classification may be
STATUTORY and VOLUNTARY
benefits.
Various benefits provided by an
organization may be classified under
two groups:------
• Employee welfare
• Social Security
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 Major benefits offered in
INDIA
• Payments for time not worked
- Weekly off-day
- Gazzetted holidays
- Personal leave
• Retirement Benefits

- Provident Fund Scheme

- Pension Scheme
- Gratuity
• Compensation Benefits
• Insurance Benefits
• Recreation Benefits
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