Unit 7 Compensation

UNIT-SEVEN
COMPENSATION
• One of the most important yet complex
functions of Human Resource management is
to determine the rates of compensation for
the employees.
• Wages and salaries often constitute the
greatest single cost of doing business.
• The sole means of their economic survival- it
is also one of the most influential factor that
determine status in society.
• For the organization employee compensation
programs are designed to do;
 To attract capable employees to the
organization
 To motivate them towards superior
performance
 To retain their services over an extended
period of time.
• Wages and salary administration also affect
the ability of an organization to get efficient
performance from its employees.
OBJECTIVES OF WAGE AND SALARY POLICIES
• Enable the management to keep labor and administrative
cost of operating the business in line with its ability to pay.
• Keep consistency of wages and salary internally consistent
as perceived inequalities in wage rates have a negative
demonstrating effect on the employees.
• Rates comparable with those in other companies in the
same geographical area.
• Wage and salary structure and rates should be adequate to
attract and retain employees.
• Should provide incentive to greater employee productivity.
• It should enable the company to project in the public an
image of a progressive employer.
• Serve as a sound basis for collective barging negotiations
• Should also confirm to the government legislation.
FACTORS AFFECTING COMPENSATION
• Prerequisite of a sound and adequate
wage and salary policy, factors to
consider.
 Existing wage and salary levels in
other organization:
 Ability or capacity to pay:
 Cost of living;
 Condition of labor market;
 View point of trade unions:
 Minimum wages:
DESIGNING OF INCENTIVE SYSTEM
• Burak and smith have defined incentive
as follows.
• “An incentive scheme is a plan or
programmes to motivate individuals for
good performance. An incentive is most
frequently built on monetary rewards,
but may also include a variety of non-
monetary rewards and prizes”
I. FINANCIAL INCENTIVES
• Direct monetary form or measurable in monetary worth which are provided
to motivate people for better performance.
• The basic logic of financial incentives is that individuals will use their potential
for better performance in order to earn more money.
A. Productivity linked incentive:
 Given to workers at shop floor level whose out puts can be measured
quantitatively.
 With some modifications such incentives can be applied to sales personnel where
incentives are provided on the volume of sales.
B. Performance based pay:
 Applicable to managerial positions and those other positions whose
contributions cannot be measured quantitatively on day-to-day basis.
C. Profit Sharing:
 Provide organization wide incentives based on the profit earned by the
organization.
D. Co-partnership:
A. Applied in industries to overcome some of the problems of profit sharing scheme.
B. Employees participate in the equity capital of a company. The shares may be
allotted to them either on cash payment basis or in line of various incentives
payable in cash.
E. Stock option scheme. Stock option is
 A major source of compensation to managerial personnel.
 Employees are given shares of a company in such a way that they enjoy
long-term benefits due to appreciation in share prices. There are two types
of scheme under stock option-
• Employee Stock Option Scheme (ESOS) and
• Employee Stock Purchase Scheme (ESPS).
F. Retirement Benefits: There are various other financial incentives.
 Provident fund scheme- The employer has to contribute some fix
percent of wages/salaries of employee to his/her provident fund account
every month.
 Pension Scheme. Payment of a fixed amount to a retired
employee or surviving dependents every month provided the
employee has fulfilled certain specific conditions of
employment.
 Gratuity: gratuity is payable to all employees after the
termination of their services by way of their retirement or
resignation provided they have completed the continuous
service as fixed by the organization.
II. NON-FINANCIAL INCENTIVES
• The non-financial incentive does not mean that
organization has nothing to spend on these.
• Intended to provide psychological and emotional
satisfaction rather than financial satisfaction.
• Some of the non-financial incentives are
 Status
 Promotion
 Responsibility
 Making job pleasant and interesting
 Recognition of work
 Job security
III. SUPPLEMENTARY COMPENSATION - FRINGE
BENEFITS
i. Payment for time not worked:
 Vacations: Vacation length generally depends on employee
length of service with the organization. A Schedule designed
by the organizations for vacation may be as follows:
 Holidays: Provide holidays with pay for their employees. The
holidays may relate to the important festivals, national
important days of the country.
ii. Insurance Benefit: Employers provide or subsidize a variety of
insurance plan for employees. These include health insurance,
life insurance, disability insurance and other employment related
plans.
iii. Cafeterias
iv. Vanpooling
v. Child care
vi. Educational tuition
vii. Employee Assistance program
REASONS/EXPECTATIONS
• The organization expects the following
benefits in return to the benefits provided by
the organization to the employees.
 More effective recruitment
 Improved moral and loyalty
 Lower turnover and absenteeism
 Good public relations
 Reduced influence of unions
 Reduced threat of further government
intervention.
07/27/2024 12

Unit 7 Compensation

Uploaded by

Copyright:

Available Formats

Unit 7 Compensation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unit 7 Compensation

Uploaded by

Copyright:

Available Formats

UNIT-SEVEN

You might also like