COMPENSATION PLANS

Presented by
Athira.kp
 CONTENTS

 Introduction
 Goals
 Classification of compensation
 INTRODUCTION

Compensation refers to the total cash and non cash

payments that gives to an employee in exchange for the
work they done.
A good compensation plan, well administrated ,as
salutary effect on the entire organisation. With a good
compensation plan ,employees are more happier in their
work, cooperation and loyalty are more pronounced,
productive output is up, and quality will be better.
 GOALS

 Attract employees
 Retain employees
 Motivate employees
 To maximise ROI
 TIME AS BASIS FOR PAY

It is the oldest and most common system for paying

employees , i.e, per hour , per day ,per month or per year .
Under this system , no consideration is given to the quality
or the amount of out put. The employers buy time of the
workers.
Time basis is the only satisfactory system when units of
out put are not distinguishable and measurable and
employees have a little control over the quality of output,
or when there is no clear cut relation between effort and
output as in the case of the direct workers.
 Merits

 It is simple and straightforward. workers can easily

calculate their remuneration.
 It helps in maintaining the quality of output
because the workers is not tempted to increase
his speed to produce sub-standard output to
earn more wages.
 It does not cause employees to overwork
themselves and hence it results in fewer
accident and better employee health.
 Demerits

 As this system does not distinguish between efficient

and inefficient workers, there is no incentives for
workers to improve their efficiency.
 As all the workers are paid equal remuneration ,
irrespective of their quantity of output ,the more
efficient among them are tempted either to reduce their
speed and efficiency or to leave the organisation.
 In order to make the employees work without wasting
their time ,the employer is obliged to appoint
personnel for supervision and this increases his cost of
production.
CLASSIFICATION OF COMPENSATION PLANS

Total
Compensation

Primary
Incentive
compensation or Benefits
Compensation
pay

Non
Monetary Statutory Voluntary
monetory
 PRIMARY COMPENSATION

The primary monetary compensation is the basic pay in

the form of salaries or wages. In popular usage, a
distinction is drawn between these two words. The word
“wages” is used to denote payments to hourly rated
production workers and the word “salary” is used to
denote payments to clerical, supervisory and managerial
employees.
A sound primary compensation structure is a function of
internal and external aligments.
 Internal Alignment (job evaluation)

 Internal alignment means that there should be a proper

relationship with wages and salaries of various positions within the
enterprise. Internal alignment is concerned with the concept of
equity and status.
 The relative wages of an employees are almost as important for
him as his absolute wages. Unfair differentials in pay lower his
morale and often result in high turnover.
 The central purpose of job evaluation is to determine the relative
worth of the jobs of an enterprise. Fair pay differentials among jobs
cab be established. Any existing pay inequities cab be corrected and
future inequities can be prevented.
 The comparison and evaluation maybe on a non- quantitative basis
by simply ranking or classifying the jobs from lowest to highest or
on a quantitative basis where points values are assigned to the
various demands of a job.
 External alignment (pricing the job)

 Once the relative worth of each job has been established

through job evaluation ,the management’s next task is
pricing the jobs, that is expressing the non-monetary
points values in monetary terms. This task is usually
based upon a comparison of present company wage
rates with those being paid in the community for
comparable jobs.
 The wages and salaries of workers must be in alignment
with the wages and salaries that other organisations are
paying at similar levels. If the external alignment or
comparability is lacking , the organisation will not able
to retain its capable employees or attract employees
from outside.
 Factors Affecting Wages

 Demand and supply of labour

 Labour unions
 Cost of living
 Competition
 Prevailing wage rates
 Ability to pay
 Job requirements
 State regulation
 Court judgements
 Philosophy of management.
 Factors Affecting Executive Compensation

 Job complexity
 Employer’s ability to pay
 Employee’s education and experience
 Employee’s performance
 Statutory limits.
 MONETORY INCENTIVES

Monetary incentive is essentially a managerial device of

increasing the worker’s productivity. The belief
underlying a incentive compensation is that an offer of
money in addition to rather than in place of the primary
will motivate workers harder and more skilfully , which
will result in an increased output. Incentive compensation
is now more widely used for managerial and sales
personnel than for production personnel.
 Advantages of monetary incentives

 Increased productivity
 As the workers themselves come to acquire a stake in higher
production, the need for direct supervision is reduced.
Rather than the supervisors chasing the workers, the
workers themselves sometimes chase the supervisors for
materials, tools, etc.
 Incentive compensation generally results in the creation of
mutual cooperation among the workers themselves as their
operations are interdependent and any hold-up at one point
may affect the production and earning at other points.
 There is an increase in worker’s punctuality and attention to
work and decrease in absenteeism.
 It helps to the better discipline and better industrial relation.
 Disadvantages of monetary incentives

 There is a tendency among the workers to sacrifice

quality for the sake of quantity.
 Unless greater vigilance is exercised , there is a danger of
workers disregarding safety regulations.
 Unless a maximum ceiling on incentives earnings is
fixed , some workers tend to overwork and undermine
their health.
 Jealousies may arise among workers.
 The introduction of a system of incentive payment
increases the amount and cost of clerical work, since it
involves considerably more book keeping.
 Kinds of monetary incentive plans

 Individual incentive plans :-

The simplest of all individual incentives, also
called ‘ pay for performance’. It is the simple piece-rate
system under which the production worker is paid for
each piece produced.
 Group incentive plans:-
Under this plan first of all the total earnings for
the group are determined and if all the members are of
equal skill, these earnings are usually divided among
them equally. If the members of the groups are not equal
skills , the total earning of group may be divided among
the members in proportion to their individual times.
 Factory wide or plant wide Incentive plans:-
Profit sharing is a very common example of a plant
wide incentive plans. Under a profit sharing plan, a certain
percentage of profit is distributed at fixed intervals, usually
annually or bi-annually in some definite ratio to all, or the
specified categories of employees, over and above their
wages.
NON -MONETARY INCENTIVES
 BENEFITS

Benefits are an important component of the organisational compensation system. Benefit costs
range between 30 and 35 percentage of wages and salaries. But they are so common their
values as a reward goes unnoticed. All benefits can be broadly categorised as those that must
be offered because they are required by law and those that most organisations voluntarily
give to their employees.
Employees in India receives several benefits such as statutory benefits and voluntary benefits.
 statutory benefits:-
• pension
• Gratuity
• Leave
• Compensation for injury etc.

 Voluntary benefits:-
• Purchasing house
• Educating children
• Leave travel concessions
• Use companies car
• Secretarial help etc.
REFERENCE:-
 Principles of management
-PC TRIPATHI , PN REDDY
THANK YOU