meaningMEANING OF COMPENSATION

The Term Compensation as a substitute

word for Wages and Salaries
 DEFINITION

Accoroding To I. Kessler,
Compensation management refers to
payment systems which determine
employee wages or salary, direct and
indirect rewards
 IMPORTANCE OF
COMPENSATION
Impacts an employers ability to attract and retain
employees.
Ensure optimal levels of employee performance in
meeting the organizations strategic objectives.
Compensations components
Direct compensation in the form of wages or salary
Base pay (hourly, weekly, and monthly)
Incentives (sales bonuses and or commissions)
Indirect compensation in the form of benefits
Legally required benefits (e.g., Social Security)
Optional (e.g., group health benefits)
 CONCEPT OF
COMPENSATION
Workers exchange work for rewards.
Probably the important reward and
certainly the most obvious is money
Organizations generally seek to pay the
least that they have to in order to minimize
costs worker is also want fair compensation
Government policies set minimum wages
and benefits that employers must meet
and these policies provide protection for
certain groups
 A part from this compensation administration
policies depend upon condition of labour
market trade union influences internal factors
such as attitudes of top management
Trend changing in compensation management
from seniority based to performance based
Compensation structure should be reviewed
from time to time adapt to changes in the
environment and cost of living
Compensation administration seeks to design
the lowest cost play structure that will not only
attract motivate and retain competent
employees but also be perceived as fair by
these employees
Insurance for employees
Loans to emplyees
Accident to employee insurance
Accomidation
Referral a Friend
Issues in compensation
Mgmt
 Methods of Compensation
Headquarters- based model
Modified Home Country model
Host country/Local Market Model
Better of home or Host Model
International citizen Model
Lumpsum Model
Negotiation Model
Balance sheet Method
 Headquarters- based model

The headquarters model effective in

attracting expatriates to the host
0perations from lower salary
countries.
home country host
country
 Incentives: Drivers in attracting
the best employees
Compensation can be divided into
salary, benefits and incentives. While
salary and benefits must be
competitive, incentives are the most
likely drivers of attracting and retaining
the best employees in startups. There
are three key types of incentives:
 Bonuses
Individuals are rewarded based on attainment of
performance-based goals (individual, team and/or
company).
Goals must be realistic and closely matched to the
business and people involved.
Payout potential should be large enough to be
significant to the individual.
Bonuses can be set up to directly drive and
support the companys needs (for example,
profitability, annual results, successful completion
of projects and/or significant project milestones).
Bonus
 Profit sharing
Payment is tied to company profits.
A pre-determined percentage of profit is
shared among all employees.
Profit-sharing bonuses are generally paid out
once a year in the form of cash or on a
deferred basis.
 Stock options
An individual receives the option to buy company shares for a
set price during a specified time frame.
Option can be exercised by the individual at any time during
the agreed-upon term and subject to any vesting schedule.
Stock options are often part of managements executive
compensation but may be offered to key employees in lieu of a
higher salaryespecially where the business is not yet
profitable and/or cash flow is constrained.
If the business does well and the companys stock rises, the
holders of the options share in the financial benefits.
In general, if the company permits a long period from the date
of issue to the last date for exercising the option, it will
encourage the employee to stay with the company and be
fully committed to its success.
 COMMISSIONS
Commissions are a common way to remunerate employees
(salespeople) for securing the sale of a product or service. The
intent is to create a strong incentive for the individual to invest
the maximum effort into their work. Commissions are usually
calculated as a percentage of the sale of the product or service
(for example, 5% of a computer components retail selling
price).
Payment may be either straight commission (no base salary) or
a combination of base salary and commission. In general, the
commission structure is based on reaching specific targets or
quotas that have been previously agreed upon by management
and the employee. These targets or quotas are typically tied to
sales revenue, unit sales or some other volume-based metric.