Compensation

Cash, Bonuses, Insurance,

Vacation, Holidays
Perks, Recognition
 What does
compensation (what
you receive for your
services) mean to you?
 A Definition . . .
• All forms of
– financial return,
– tangible services and
– benefits
• that employees receive as part of their
employment relationship
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
 Components of a Total
Compensation Program - 1
• Financial
• Direct
– wages, salaries, commissions, bonuses
• Indirect
– insurance plans
• life, health, dental, disability
– social assistance benefits
• retirement plans, social security, workers’ comp
– paid absences
• vacations, holidays, sick leave
 Components of a Total
Compensation Program - 2
• Non-Financial
• The Job
– interesting, challenging, responsible
– opportunity for recognition, advancement
– feeling of achievement
• Job Environment
– policies, supervision, co-workers, status symbols,
working conditions, flextime, compressed work week,
job sharing, telecommuting, flexible benefits programs
 Components of compensation
• Basic wages/Salaries
• Dearness allowance
• Bonus
• Commissions:-
• Mixed plans:
• Piece rate wages:-
• Profit sharing payments:-
• Fringe benefits:-
• Reimbursements:-
• Sickness benefits/pregnancy:-
 Need of Compensation
Management
• A good compensation package is important to
motivate the employees to increase the
organizational productivity.
• Unless compensation is provided no one will come
and work for the organization. Thus, compensation
helps in running an organization effectively and
accomplishing its goals.
• Salary is just a part of the compensation system, the
employees have other psychological and self-
actualization needs to fulfill. Thus, compensation
serves the purpose.
• The most competitive compensation will help the
organization to attract and sustain the best talent.
The compensation package should be as per
industry standards
 Factors that Influence Wage
Levels
Conditions of
Labor Market Compensation
Policy of
Organization
Area Wage
Rates Worth of
Job
Cost of WAGE
Living
MIX Employee’s
Relative Worth
Collective
Bargaining
Employer’s
Legal Ability to Pay
Requirements
Designing a Compensation
System
Steps in the Decision Process
 Step 1 - Establish General
Wage Level for Organization
• Factors to consider:
• Other firm’s rates
• Union demands
• Cost-of-living changes
• Firm’s ability to pay
 Job Evaluation
• Job evaluation is the process of systematically
determining a relative internal value of a job in an
organization. In all cases the idea is to evaluate the job,
not the person doing it. Job evaluation is the process of
determining the worth of one job in relation to that of
the other jobs in a company so that a fair and equitable
wage and salary system can be established
• defined: the systematic evaluation of job descriptions
• outcome: a hierarchy of organizational jobs according
to their content and value to the organization
• Methods:
– ranking
– classification
– factor comparison
– point method
 Job Ranking System

Simplest and oldest system of job

evaluation by which jobs are arrayed
(classified)
on the basis of their relative worth
 Job Classification System

System of job evaluation by which jobs

are classified and grouped according
to a series of predetermined wage grades
 Point System

Quantitative job evaluation procedure

that determines the relative value of a job
by the total points assigned to it
 Factor Comparison System

Job evaluation system that permits the

evaluation process to be accomplished
on a factor-by-factor basis by developing
a factor comparison scale
 Hay Profile Method

Job evaluation technique using three

factors – knowledge, mental activity,
and accountability – to evaluate
executive and managerial positions
 Employee Benefits
• Items in the total package offered to
employees over and above salary
which increase their wealth or well-
being at some cost to the employer
 Mandatory Benefits
• Compensation for injuries and
diseases
 Voluntary Benefits
• Most of these benefits have certain
legislative minimums.
• Vacation leave
• Paid public holidays
• Time for personal matters
• Sick leave
• Maternity leave
• Health and life insurance
• Medical Aid Schemes
• Pension Funds
• Employee Services e.g.. Canteens, social and
recreational services
 Advantages of flexible benefits
programme
• The company can set the sum total of
benefits for each employee
• The changing needs of the workforce are
catered for
• Employees take ownership for their choice
of benefits by satisfying their own unique
needs
• It is less costly for the organization when an
employee adds a new benefit
Disadvantages of flexible benefits
• Without proper assistance employees
can make bad choices and find
themselves not covered for
emergencies
• Company administrative costs
increase
• The cost of some benefits may increase
as a result of a majority of employees
choosing the benefit