COMPENSATION

MANAGEMENT IMPORTANCE

AND FACTORS INFLUENCING

COMPENSATION

SADIQUE ALI.V.K

An investigative study indicated that most of the employees

left because of compensation issues.

COMPENSATION MANAGEMENT

Compensation is what employees receive in exchange for their contribution to the organization.

Compensation in other terms also called as ‘Employee Remuneration’

Compensation is a systematic approach to providing monetary & non monetary value to employees in exchange for work performed.

Compensation may be defined as money received in performance of work and many kinds of benefits that an organization provides to their 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

ITS IMPORTANCE

Compensation is an integral part of human

resource management which helps in motivating

the employees and improving organizational

effectiveness.

Effectiveness in terms of:

Attracting & Retaining Talent

Motivating talent for better performance

Cost effectiveness

SIGNIFICANCE OF EMPLOYEE COMPENSATION

To an employee, pay is a primary reason for

working. For some individuals, it may be the only

reason. For most of us, it is the means by which we

provide for our own and our family’s needs.

Compensation is also important to

organization. It represents a large

proportion of expenditure. Compensation

is also significant in the operation of the

economy.

ITS IMPORTANCE

Effective

Compensation

Motivate &

Retain Staff

Attract talent

Image Building

Administratively

Efficient

Reward Valued

Behavior

Ensure Equity

Institutional

effectiveness

Legal

Compliance

Employee

Management

HIGH COMPENSATION –

LOW COMMITMENT

Hired Guns

HIGH COMPENSATION

– HIGH COMMITMENT

Professionals

LOW COMPENSATION –

LOW COMMITMENT

Workers as commodity

LOW COMPENSATION –

HIGH COMMITMENT

Family oriented

organization

TYPES OF COMPENSATION

DIRECT COMPENSATION

It refers to monetary benefits offered and provided to employees

in return of the services they provide to the organization. The

monetary benefits include basic salary, house rent allowance,

conveyance, leave travel allowance, medical reimbursements,

special allowances, bonus, PF/Gratuity, etc. They are given at a

regular interval at a definite time.

INDIRECT COMPENSATION

It refers to non-monetary benefits offered and provided to

employees in lieu of the services provided by them to the

organization. They include Paid Leave, Car / transportation,

Medical Aids and assistance, Insurance (for self and family),

Leave travel Assistance, Retirement Benefits, Holiday Homes.

Wage and Salary:The most important component of compensation and these are

essential irrespective of the type of organization

Administered individually

Provides employee stabile 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.

Demand & supply of

labour

Cost of living

Society

Labour unions

The economy

Labour laws

Compensation policy

The org. ability to pay

Job analysis &

description

Employee

External Internal

FACTORS INFLUENCING EMPLOYEE

COMPENSATION

FACTORS INFLUENCING EMPLOYEE

COMPENSATION

EXTERNAL FACTORS

Labour market:

Demand for and supply of labour influence wage

and salary fixation

Labor markets are based on the supply and

demand of labor in a country or a specific location

that are able and willing to work.

A low wage may be fixed when the supply of labour

exceeds the demand for it.

A higher wage will have to be paid when demand

exceeds supply, as in the case of skilled labour.

FACTORS INFLUENCING EMPLOYEE

COMPENSATION

Cost of living:

A rise in the cost of living is sought to be compensated by payment of dearness allowance, basic pay to remain undisturbed.

DA (Dearness allowance) takes care of the price inflation that affects the purchasing power of the employees.

It is a regular and continuing part of the compensation package that gets changed according to the price increase.

Many companies include an escalatory clause in their wage agreement in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI)

FACTORS INFLUENCING EMPLOYEE

COMPENSATION

Labour Unions: The presence or absence of

labour organization often determine the quantum of

wages paid to employees.

The benefit of belonging to a labor union is that

wages are always the union's top priority. Union

leaders work hard to ensure members receive

sufficient wages for the work performed.

Employers of non-unionized factories enjoy the

freedom to fix wages and salaries as they please.

Because of large unemployment.

LABOUR LAWS

Government makes and enacts laws regarding welfare aspects of workers, their security and their prosperity.

Workers Compensation Act,1923

The Payment Of Wages Act, 1936

The Minimum Wages Act, 1948, is precisely meant to prevent this kind of exploitation.

Employees’ State Insurance Act, 1948

Employees’ Provident Fund Act, 1952

The Payment To Bonus Act, 1965

Maternity Benefit Act, 1971

The Equal Remuneration Act, 1976

INTERNAL FACTORS INFLUENCING EMPLOYEE

COMPENSATION

Compensation Policies: Provides general

guidelines for making compensation decisions.

Pay leaders

The market rate

Pay followers

The organization’s ability to pay

INTERNAL FACTORS INFLUENCING EMPLOYEE

COMPENSATION

Job

analysis

and job

description:

more difficult

and

challenging a

job, the

higher the

wages.

INTERNAL FACTORS INFLUENCING EMPLOYEE

COMPENSATION

The employee:

Performance, seniority, experience, potential and

even luck determine his or her remuneration.

CONCLUSION

We can say that good compensation can increase the

productivity of an organization because its provides

various rewards, bonus, schemes etc. and its

compulsory for every organization.

“FOR EVERYTHING YOU HAVE MISSED,

YOU HAVE GAINED SOMETHING ELSE; AND

FOR EVERYTHING YOU GAIN, YOU LOSE

SOMETHING ELSE.”

-Ralph Waldo Emerson

THANK YOU