Unit 8 - Compensation.pptx 5th Sem - hrm

7/27/2019 Unit 8 - Compensation.pptx 5th Sem - hrm

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Presented By:

Sujaya Thapa

CAMAD, VI Sem

Compensatio

n


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Concept of Compensation

Employee compensation refers to all forms of payor rewards going to employees and arising from

their employment.

Compensation refers to the extrinsic rewards that

employees receives in exchange for their work. It is

composed of the base wage or the salary and

incentives or bonus and any benefits.

Types of Compensation

Direct Compensations

They are wages, salaries, incentives, commissions and

bonuses

Indirect Compensations

They are insurance (life, death and health insurance),


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Components of Compensation

1. Basic Pay - Basic pay is generally determinedthrough job evaluation through the relative worth of a

job.

2. Allowances. Several allowances are paid in addition

to basic pay. Some of these allowance are given

below:

Dearness Allowance. This allowance is given to protect

real income against inflation. Generally, dearness

allowance (DA) is paid as a percentage of basic pay.

House Rent Allowance. Employers who do not provideliving accommodation pay house rent allowance (HRA)

to employees.

City Compensatory Allowance. This allowance is paid

generally to employees in metros and other big cities

where cost of living is comparatively high.


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Contd

3. Incentive - Incentive compensation isperformance-linked remuneration paid with a view

to inspire employees to work hard and do better.

4. Fringe Benefits/Perquisites. Several types of

benefits paid particularly to senior managers.

For eg. Provident funds, pensions, company car,

medical aid, entertainment, stock options, etc. are

examples of such benefits


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Determinants of Compensation External Factor

Labor Market condition Nature of demand & supply of various types of personnel

determine compensation (wage & salary structure)

Equity

It means fairness in the relation between what a persondoes (input) & what the person receives (output)

Cost of Living Inflation affects purchasing power. Hence, compensation

rates have had to be adjusted upward to maintainpurchasing power.

Labor Unions Employees have legal right to have collective bargaining.

Legal Considerations Government influences pay directly through laws,

regulation, policies.


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Internal Factor Compensation Policies

Job Evaluation

It determines relative worth of a job to organization.

Nature of Employees It includes performance

Employers Ability to Pay

Depends upon financial position & profitability of the

organization.


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Methods of Establishing Employee

Compensation

Job Analysis It is the first process for establishing compensation.

It is the process of determining the tasks that make

the job & skills, abilities & responsibilities required

of an individual to successfully accomplish the job.

Information obtained from job analysis are

necessary to match qualified personnel with job

requirements & establish proper compensation.

Job Evaluation It is the process of assessing the value of each job

in relation to other jobs in an organization.


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Job Evaluation Methods


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Job Evaluation System - Methods 1. Ranking Method

Jobs are arranged and ranked according to theirimportance from simplest to hardest.

Merits Simple to use, suitable for small organizations

Demerits based on judgment so possibility ofbiasness

2. The grade or classification method Overall evaluation of all jobs based on common sense

& experience

Job structure is divided into different classes withsalary range maximum to minimum.

Merits Easy to operate & understand, less costly &suitable for organizations with small work.

Demerits Rigid & improper for organization withvaried works


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3. Point rating method Jobs are ranked by assigning points.

Sum-total of points will give an index of relative

value of jobs.

4. Factor comparison method

Each job is ranked several times.

Merits uses job-by-job comparison so its accurate,

easy to explain to employees

Demerits Costly to install and complex to use, 5 or

7 factors might not be appropriate


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Compensation Programme 1. Performing Job analysis

Evaluate to determine its value relative to all otherjobs in organizations

2. Conducting Pay (Wage/Salary) surveys

Benchmark jobs, packaged surveys (informationfrom agencies), own survey

3. Analysis of Organizational problems It encounters different problems like;

What will be the result of paying higher or lowercompensation?

Are prevailing rates in industry are consistent withresult of job evaluation?


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Compensation Programme

4. Preparation of Pay structure Joint outcome of all three factors & lots of decisions

need to be taken.

Pay range is been determined.

5. Framing pay administration rules

Development of rules/policy of pay system is

finalized.

6. Implementation of wages & salaries

Due to sensitivity of pay system, usually assigned to

high-ranked officers.

High involvement of HR department

Documents

Unit 8 - Compensation.pptx 5th Sem - hrm