HUMAN RESOURCE

MANAGEMENT

TOPIC:- Compensation

Prof. Aruna Deshpande

 COMPENSATION/
REMUNERATION
 Compensation is the remuneration received by an employee in
return for his/her contribution to the organization. It is an
organized practice that involves balancing the work-employee
relation by providing monetary and non-monetary benefits to
employees.
 Remuneration occupies an important place in the life of an
employee. His or her standard of living, status in the society,
motivation, loyalty, and productivity depend upon the
remuneration he or she receives. For the employer too,
employee remuneration is significant because of its contribution
to the cost of production.
COMPONENTS OF REMUNERATION
 An average employee in the organized sector is entitled to
several benefits- both base or primary and supplementary,
financial as well as non-financial.
 To be specific, typical remuneration of
an employee comprises –
 Wages and salary.
 Incentives.
 Fringe benefits.
 Perquisites.
 Non-monetary benefits.
COMPONENTS OF EMPLOYEE
REMUNERATION/COMPENSATION PACKAGE:
Remuneration
Packet of an
Employee

Wage/ Non-monetary
Incentives Fringe Benefits Perquisites
Salaries Benefits

Total Compensation
Payable
REMUNERATION CHART
COMPONENTS OF REMUNERATION PACKET OF AN
EMPLOYEE

Wage/Salary:
Wage is the payment as per the pay scale decided by the employer. Wage
represents hourly-rate of pay while salary refers to the monthly rate of
pay, irrespective of the number of hours put in by an employee.
Incentives:
Monetary incentives are offered as a supplement to regular wage payment.
Fringe benefits:

These are monetary benefits provided to employees.

They include the benefit of:
(a) Provident Fund, (b) Gratuity, (c) Medical care,
(d) Hospitalisation payment, (e) Accident relief,
(f) Health and Group insurance,
(g) Subsidised Canteen facility,
(h) Recreation facilities, and
(i) Provision of uniforms to employees.
 Perquisites:
There are special benefits offered to manage/executive.
The purpose is to retain competent executives by
offering them special benefits. Perquisites include the
following: (a) Company car for traveling, (b) Club
membership, (c) Paid holidays, (d) Furnished
house/accommodation, (e) Stock option schemes, etc.
 Non-monetary benefits:

They include comfortable working conditions,

impartial promotions, and support to workers facing
special problems, provision of welfare facilities to
employees and so on.
 Bonus: is an extra payment to the workers beyond the
normal wage, it is the amount paid as a share in the
surplus.

 Commission: is paid to executive as a percentage

on profits.

 Fringe Benefits: is the extra benefits provided to

employees in addition to the normal compensation
paid in the form of wage or salary.
CONCEPTS OF WAGES

Wage is a monetary payment made by the employer

to his employee for the work done or services
rendered.
There are mainly three concepts of wages:-
 Minimum wages.
 Fair wages.
 Living wages.
These are broadly based on needs of the workers,
capacity of the employer to pay, and the general
economic condition prevailing in the country.
OBJECTIVES OF WAGES AND SALARY
FACTORS AFFECTING WAGES AND
SALARY
Classification of Pay System
Pay System

Skill or
Job-based Pay Competency based
System Pay system

Workers are paid on

Workers are paid the basis of number
on of jobs they do on the
The basis of job depth of their
they do knowledge
Broad Banding

 Broad banding is defined as the process of

collapsing salary grads and ranges them into just a
few wide levels or “bands”, each of which then
contains a relatively wide range of jobs and salary
levels.
EMPLOYEE REWARDS
CHALLENGES OF REMUNERATION
FRINGE BENEFITS

 Fringe benefit may be defined as wide range of

benefits and services that employees receive as an
integral part of their total compensation package.
 These benefits are in addition to the regular wage
payment.
 It’s a type of indirect compensation received by the
workers and are not directly related to the
performance of concerned employee.
 The purpose of fringe benefit is to retain
efficient/capable people in the organization.
FEATURES OF FRINGE BENEFITS

 Different from regular wages.

 Useful but unavoidable expenditure.
 Not directly linked with efforts.
 Beneficial to all employees.
 Provided for the genuine well-being of the
employees.
 Based on practical realities.
TYPES OF FRINGE BENEFITS
Advantages of Fringe Benefits
 Create and Improve sound industrial relations
 Boost employee morale
 Motivate employees
 Qualitative work environment and work life
 Provide social security and old age benefits
 Protect health and safety of employees
 Promote employee welfare
 Create sense of belonging and retains employees
 Meet legislative requirements of fringe benefits
 Improve public image of organisations
INCENTIVE PAYMENTS

 Meaning- Incentives are monetary benefits paid to

workmen in recognition of their outstanding
performance.
 In other words incentives are variable rewards
granted to employees according to variations in their
performance.
 The other name for incentives is ‘payments by
results’ but the word incentive is most appropriate
because of its motivational content.
INCENTIVES in Wage System
Incentives are monetary benefits paid to workmen in
recognition of their outstanding performance.

The wage plan should be highly incentives. This means, it

should encourage workers to take more initiatives and interest
in the work, produce more and also earn more. The wage plan
which serves all these purposes is called incentive wage plan.
Such an incentive plan is beneficial to both employers and
employees.
Advantages of Incentives
 Inducement and motivation for higher efficiency
 Enhanced employee earnings
 Reduction in production costs
 Increased production capacity
 Attraction for management
 Reduced absenteeism and turnover
 Types of incentives plan

 Incentives plans can be divided into two broad groups.

 A) Individual incentive plan

 B) Group incentive plan

 Individual incentive plan: - is meant for individual

employee. He has to work hard i.e. efficiently, produce more
and share the monetary benefit for himself. The benefit is
directly linked with his ability, efficiency and capacity.
Group incentive plan
The incentive is not for individual employee but for the
group of employees working in one department or section.
Such group incentive plan may cover the entire labour force
of a production unit. Here the groups of employees have
work efficiently but in a collective manner. They will work
collectively, gives more production and share the benefit.
Initially, the benefit will be given to the group and
thereafter, it will be divided among the members of the
group.
INCENTIVE SCHEMES
IMPORTANCE OF INCENTIVE
PAYMENTS
 Motivation to workers for higher efficency & great
input.
 Better performance.
 Increase in production capacity.
 Reduced supervision.
 Better utilization of equipments.
 Reduced absenteeism & turnover.
 Reduce scrap & lost time.
Disadvantages of Incentives
 Quality Deterioration
 Problem in introduction of new machines and
methods
 Demand for higher minimum wages
 Disregard security regulations
 Jealousies among workers
 Problems in setting of piece or bonus rates
 Problem in determining the standard performance
FEATURES OF EXECUTIVE
REMUNERATION
 Managerial compensation cannot be compared to the
wage and salary schemes meant for in other employees
in organizations.
 Executives are denied the privilege of having unionized
strength.
 Secrecy is maintained in respect of executive
compensation.
 Executive pay is not supposed to be based individual
performance rather on organizational performance.
COMPONENTS OF EXECUTIVE
REMUNERATION
EXECUTIVE REMUNERATION

 Executive Compensation or Managerial

Remuneration is how top executives of business
corporations are paid.
 The purpose of compensation of an executive is for
an individual who is in a management position at
highest levels.
 This category includes presidents vice presidents
managing directors and general managers.
 Managers are very short in supply , therefore,
organizations are competing with each other to attract
, retain and motivate leader managers for their
strategic requirement.
 EXECUTIVE COMPENSATION

SALARY INCLUDES
 Basic salary
 Conveyance
 Special allowances
 Provident fund
 H R A( House Rent Allowances)
 Traveling Allowances
 Medical claim
 Bank facility
EXECUTIVE REWARD SYSTEM

Meaning:- Reward
system influences
attraction & retention of
employees. High reward
levels leads to high
satisfaction which in turn
leads to lower turnover &
more job applicants.
TYPES OF REWARDS SYSTEM
ENTER VALUE IN YELLOW CELL ONLY.
SALARY CALCULATIONS
GROSS : 6325

BASIC 4362
hra 25% 1091 P TAX GROSS SALAB STATEMENT
cca 10 % 436 1600-2000 16 0
con 10% 436 2001-3000 25 0
GROSS 6325 3001-4000 35 0
bonus 20 % 872 20% OF BONUS 4001-5000 45 0
pf 12 % 523 COMPANY PF CONTRIBUTION(12%) 5001-6000 60 0
esi 4.75 % 280 COMPANY ESI CONTRIBUTION(4.75%) 6001-10000 80 80
CTC 8000 COST TO COMPANY 10001-15000 100 0
pf 12 % 523 PF EMPLOYEE (12% ON BASIC) 15001-20000 150 0
pf 12 % 523 PF COMPANY(12% ON BASIC ABOVE OF 6500 GET 780) 20000 ABOVE 200 0
esi 1.75 % 103 ESI EMPLOYEE (1.75% ON BASIC+HRA+CCA)
esi 4.75 % 280 ESI COMPANY(4.75% ON BASIC+HRA+CCA) PTAX 80
PT 80
BONUS 8.33% 363 BONUS OF YEARLY(8.33%)
TOTAL DEDUCTIONS 1873 TOTAL DEDUCTIONS

TAKE HOME 6127 TAKE HOME OF EMPLOYEE SALARY

PUBLIC SECTOR V/S PRIVATE
SECTOR
 The salary of top executives of public sector are low
compared to private sector .
EXAMPLES:
 S B I Chief is paid 10% of HDFC Bank Managing

Director
 BHEL’S [ Bharat Heavy Electrical Ltd] Chief is

getting about 10 to 12 lakh per annum as against ABB

‘S [ Asea Brown Boveri Ltd] MD getting nearly 40 to
50 lakh.
CONCLUSION

“If you pick the right people and
give them the opportunity to spread
their wings and put Compensation as
a carrier behind it you almost don't
have to manage them.”
By Jack Welch
Thank you