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compensation
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COMPENSATION SYSTEM IN INDIA
Reteish SainiSakshi ThakurSayyed Aman
COMPENSATION
• 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.
OBJECTIVES
• To recruit & retain qualified employees.• To increase or maintain morale.• To determine basic wage & salary.• To reward for job Performance.• The compensation should be paid to each employee on the basis of their
abilities and training.• Compensation should be in the form of package.• It should motivate the employees towards increasing productivity.• It should be capable of taking care of employees for safety and security
needs also.• It should be flexible and clear.• It should not be excessive.
COMPENSATION COMPONENT
COMPENSATION COMPONENT
MONETARY– 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)
NON MONETARY• Enhance dignity & satisfaction from work performed.• Promote social relationship with co-workers.• Allocate sufficient resources to perform work
assignments.• Offer supportive leadership & management.• Enhance physiological health, intellectual growth.
COMPENSATION COMPONENT
Theory Behind Compensation• Equity Theory
– Comparing inputs and outputs of a similar co-worker– Perceived inequity affects employee effort– Fairness of pay differentials between different jobs in the
organization can be established by job ranking, job classification, point systems and factor comparisons
• Expectancy Theory– People are motivated by intrinsic and extrinsic outcomes they
desire.– People will only be motivated if outcome is possible.– People will only be motivated if outcome is contingent.
“Monkeys Demand Equal Pay”
A recent study shows brown capuchin monkeys refused to play along when they saw another monkey get a better payoff for performing the same work.
The monkeys were trained to trade a granite token for a piece of cucumber. When the reward was the same for both monkeys, they took the cucumber 95 percent of the time.
But it was a different story when one monkey was given something better -- namely, a grape. Then, the other monkey often pitched a fit -- either throwing the token, refusing to eat the cucumber or giving it to the other monkey.
(Associated Press 2003)
Types of Base Pay Systems
• Job-based– Pay the job (not the person)– Market-based (external equity focus)– Point factor-based (internal equity focus)
• Skills / knowledge-based– Pay the person (not the job)– 62% of F1000 firms used some type of skill based
pay in 1999
Job Based Pay
Attraction Depends on market pricing
Motivation No performance impact
Skill Development Learn job-related and upward mobility skills
Culture Bureaucratic, hierarchical
Structure Hierarchical, individual jobs and differentiation
Cost Good control of individual pay
Individual Skill/Knowledge Based Pay
Attraction Attracts learning-oriented individuals, high skills individuals
Motivation Little performance impact
Skill Development Motivates needed skill development
Culture Learning, self-managing
Structure Flat or team-based
Cost Higher individual pay
When to Use a Job-based Pay Policy
• A job-based pay work best in situations where:– Job duties are stable.– Skills are generic.– Employees move up through the ranks over time.– Jobs are fairly standardized within the industry.
• Drawbacks of a job-based pay system– Discounts individual ability.– Discourages lateral movement.– Tends to be bureaucratic, mechanistic, and inflexible.– Employees’ perceptions of equity are more important than market
or point data.
Pricing Jobs
• First conduct job analysis – Qualifications– KSA’s
• Non-quantitative methods– Job Ranking (create hierarchy of jobs)– Job Classification (create groups of similar jobs)
• Quantitative Methods– Point factor systems– Compare “compensable factors”
• Market pricing
Variable Pay Incentives
• Linking performance to pay– Individual – Bonuses, piece-rates, stock options– Team – Bonuses and awards– Plant / Unit / Business – Gainsharing, profit sharing– Corporation – ESOP’s
• “Line of sight” is the perceived link between individual behavior and the reward.
Pay for Performance Requires
1. Definition of performance– How are we going to measure and compare people?
2. Distribution of performance– Can we distinguish high and low performers?
3. Decide the increase for each level of performance.– How large a difference between high and low
performers?
Key Strategic Issues in Compensation
• Determining compensation relative to the market.• Striking a balance between fixed and variable
compensation.• Deciding whether or not to utilize team-based versus
individual pay.• Creating the appropriate mix of financial and non-
financial compensation.• Developing a cost-effective compensation program
that results in high performance.
New Thinking for the New Millennium
• Strategic approaches to make compensation (pay) systems more responsive:– Pay the person for individual worth (knowledge, skills and
competencies) rather than for the value of a job they perform.
– Reward excellence through a pay for performance compensation that establishes a clear relationship between a significant amount of pay and attainment of organizational objectives.
– Individualize the pay system to give employees choices in how they are rewarded and what reward they receive.
FACTOR AFFECTING
EXTERNAL• Cost of living• Society• Labor unions• Government regulations
INTERNAL• Compensation
policy• The org. ability to
pay• Job analysis &
evaluation report• Employee
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.