Compensation Management
Compensation Management
Compensation Management
MANAGEMENT
THEORIES OF COMPENSATION 1
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COMPONENTS OF EMPLOYEE
REMUNERATION
Environment
Remuneration
Financial Non-financial
Job Context
Fringe Benefits Perquisites Challenging job
PF Company car Responsibilities
Hourly and
Incentives Gratuity Club membership Recognition
Monthly rated
Individual plans Medical Care Paid holidays Growth prospects
Wages
Group plans Accident Relief Furnished house Supervision
Salaries
Health and Group Stock option Working
Insurance, etc. Schemes, etc. conditions
Job sharing, etc.
Direct Indirect
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COMPONENTS OF EMPLOYEE
REMUNERATION
• Wages and Salary: wages are hourly rates of pay
whereas salary is monthly rate of pay.
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DIFFERENCE BETWEEN WAGES &
SALARY
Wages Salary
Additional money aid for extra hrs No additional money is paid for
worked extra hrs
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COMPONENTS OF EMPLOYEE
REMUNERATION
• Fringe Benefits: provided to an employee outside
of his normal wage or salary. 2 types:
Taxable
Non-taxable
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COMPONENTS OF EMPLOYEE
REMUNERATION
• Perquisites: any casual emolument or benefit
attached to an office or position in addition to
salary or wages. Usually it is non-monetary in
nature.
Value of perquisites is chargeable to tax under
the head salary only if these perks are received
by an employee from his or her employer and
employer.
In case any perk has been received from a person
other than employer, then also the value of perk
is taxable but either under the head ‘Business or
Profession’ or ‘Income from other Sources’.
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THEORIES OF REMUNERATION
• Reinforcement theory
• Expectancy theory
• Equity theory
• Agency theory
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REINFORCEMENT THEORY
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EXPECTANCY THEORY
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EXPECTANCY THEORY
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EXPECTANCY THEORY
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EQUITY THEORY
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AGENCY THEORY
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CONSEQUENCES OF PAY DISSATISFACTION
Performance
Strikes
Desire for More
Pay
Grievances
Absenteeism
Search for Higher
Paying Jobs
Turnover
Poor Mental
Health
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MCQ’S
a. external equity
b. internal equity
c. neutrality
d. None of the above
Ans A
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MCQ’S
a. indirect compensation
b. direct compensation
c. non-monetary compensation
d. None of the above
Ans B
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MCQ’S
a. Profit-sharing
b. Base salary
c. Gain-sharing
d. Equity stock options
Ans B
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MCQ’S
a. equity theory
b. expectancy theory
c. agency theory
d. contingency theory
Ans C
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NEXT CLASS
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INFLUENCING FACTORS OF
REMUNERATION
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EXTERNAL FACTORS
Labor market
•Demand and supply of labor influences the
wage/salary fixation.
•When supply exceeds demand, a lower wage may
be fixed and vice versa.
•Going rate of pay & productivity also has an effect
on wage fixation.
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EXTERNAL FACTORS
Cost of Living
•During rising prices cost of living increases , and
is forgotten when prices are stable or falling.
•A rise in the cost of living is sought to be
compensated by payment of dearness allowance,
basic pay to remain undisturbed.
•Many companies include an escalatory clause in
their wage agreements in terms of which dearness
allowance increases or decreases depending upon
the movement of consumer price index (CPI).
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EXTERNAL FACTORS
Labor Unions
•Presence or absence of labor organizations often
determine the wages paid to employees.
•The employees of strongly unionized companies
too, have no freedom in wage and, salary fixation.
•Non unionized companies can fix wages as they
please.
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EXTERNAL FACTORS
Labor Laws
• Payment of Wages Act, 1936 was passed to
regulate payment of wages to certain classes of
persons employed in the industry.
• The Minimum Wages Act, 1948 enables the
central and the state governments to fix minimum
rates of wages payable to employees in sweated
industries.
•The Payment of Bonus Act, 1965 provides for
payment of a specified rate of bonus to employees
in certain establishments.
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EXTERNAL FACTORS
Labor Laws
•The Payment of Bonus Act, 1965 provides for
payment of a specified rate of bonus to employees
in certain establishments.
•The Gratuity Act, 1972 provides for payment of
gratuity to employees after they attain
superannuation.
•The Equal Remuneration Act, 1976 provides for
payment of equal remuneration to men and women
workers for same or similar work.
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EXTERNAL FACTORS
Labor Laws
•In addition to legal enactments, there are wage
boards, tribunals and fair wages committees which
aim at providing a decent standard of living to
workers.
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EXTERNAL FACTORS
Society
•Remuneration paid to employees is reflected in
the prices fixed by an organization for its goods
and services. For this reason, the consuming public
is interested in remuneration decisions.
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EXTERNAL FACTORS
Economy
•A depressed economy will probably increase the
labor supply. This, in turn, should serve to lower
the going wage rate.
•Since the cost of living is commonly used as a pay
standard, the economy’s health exerts a major
impact upon pay decisions.
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INTERNAL FACTORS
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INTERNAL FACTORS
Business Strategy
•Where the strategy of the enterprise is to achieve
rapid growth, remuneration should be higher than
what competitors pay.
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LINKAGE OF REMUNERATION STRATEGY
TO BUSINESS STRATEGY
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INTERNAL FACTORS
The Employee
•Several factors like performance, seniority,
experience, potential, and even sheer luck
influence remuneration.
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DEVISING A REMUNERATION PLAN
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REMUNERATION MODEL
Job Description
Job Evaluation
Job Hierarchy
Pay Survey
Pricing Jobs
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NEXT CLASS
Challenges in Compensation
&
Job Evaluation
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RAISING SALARIES
• http://money.cnn.com/2017/12/12/pf/pay-salary-
work-inflation/index.html
• https://timesofindia.indiatimes.com/business/india
-business/india-to-see-10-salary-increase-in-2018-
report/articleshow/61583079.cms
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CHALLENGES OF REMUNERATION
Skill-based
Pay
Monetary
vs. Non- Salary
Monetary Reviews
Rewards
Employee Pay
Participation
Remuneration Secrecy
Below Market
Eliticism or
or Above
Egalitarianism
Market Rates
Comparable
Worth
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SKILL-BASED VS. JOB BASED PAY
Employee focus Job promotion to earn greater pay Skill acquisition to earn greater pay.
Source: Raymond A. Stone, Human Resource Management, John Wiley & Sons, 1995, p.324.
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PAY REVIEWS
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COMPARABLE WORTH
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EMPLOYEE PARTICIPATION
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ELITICISM VS. EGALITARIANISM
• Egalitarianism offers more flexibility to deploy employees in
different areas without any change in pay levels.
•
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BELOW MARKET VS ABOVE MARKET
REMUNERATION
• Depends on the strategy of the organization.
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ANALYZE WHO WILL PAY AN ABOVE
AVERAGE REMUNERATION
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MONETARY VS NON-MONETARY
REWARD.
• Decisions regarding this has tax implications.
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WAGE CONCEPTS
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WAGE CONCEPTS
• Fair wage
• Comparable with standard wages elsewhere
• A living wage is fixed considering the general economic
conditions of the country.
• Includes not only the bare essentials of food, clothing and
shelter but a measure of frugal comfort including
education for his children, protection against ill-health,
requirement of essential social’ needs and a measure of
insurance against the more important misfortunes,
including old-age.
• Living wage
• providing essentials plus certain comforts
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WAGE CONCEPTS
• Living wage
• the wage which is above the minimum wage but below the
living wage
• providing essentials plus certain comforts
• Depends on productivity, prevailing rates, and level of
national income
http://www.yourarticlelibrary.com/employee-
management/wages/wage-payment-methods-4-top-methods-
of-wage-payment-explained/35345
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REALITY CHECK
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